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26, aug 21 | Reading: 8 min.

Is Foreign Direct Investment Here to Stay?

Portugal moved from 11th to 10th place in the foreign direct investment ranking, now finding itself in the top ten most attractive countries for investment.   This news contrasts with the challenging year of 2020, in with the markets were initially at a standstill, but quickly reinvented ideas during the year to achieve budgeted objectives.


The most animated sectors in foreign investment in Portugal last year were companies in the field of software, technology information, transport, manufacturing, and logistics, with the highest contributors being the United States, Spain, France and Germany.



Did Real Estate stimulate the foreign direct investment?


According to the Bank of Portugal, a major driving force behind this tenth place in Foreign Direct Investment (FDI) was the real estate market.   The first quarter of 2021, in comparison to the same period of the previous year, proved to be advantageous in terms of the increase in real estate investment in Portugal with equity stakes in companies.   With an eight-fold growth in 2020, Portugal surpassed all expectations witnessing an injection of capital by foreign investors of 1.7 billion.   26% of the money invested in the real estate sector is from FDI.


The reason for the positive evolution in Portugal’s property market is mainly due to construction, which did not hold back even in the two pandemic confinements of 2020 and 2021.   Now with renewed vigour, this sector has new projects in residential real estate and large infrastructures.   Another significant supporting factor was the banks availability to guarantee new mortgages.   Although 2020 saw a slight decrease in demand, this trend recovered in 2021.  


Photograph by Guilherme Cunha - Unsplash


Can foreigners purchase a home in Portugal?


There has been a trend in Portugal for many years now with foreigners purchasing a house, whether for permanent residence or by non-habitual residents. This trend is more noticeable in the Algarve, Lisbon and Porto as well as along the entire coastal region of Portugal.   The country continues to be one of the most sought-after destinations for a second home, to either spend short vacation periods or to retire in one of the safest countries in the world.  The British, North Americans and French head the list of those looking to purchase a residence, the key motives for this choice of life are the mild climate; the beauty of the region; security and the low cost of living.   Portugal has also become a lure for new companies, who in 2020 created at least 9,000 jobs through foreign direct investment.


The obtaining of residency through investment, the so-called Golden Visa programme in Portugal, has been decreasing since 2018.   Lower numbers have been observed on a monthly basis in 2021, due mainly to pandemic restrictions; legislative changes to the Golden Visas; and competition from other countries such as neighbouring Spain.   A new law comes into effect as of 1 January 2022 wherein Golden Visas will only be granted to those wishing to invest in the interior of Portugal.   Many believe this will not bring new investors to the interior of the country and that there is an enormously strong possibility of this interest migrating to other countries with the same programme.


Photograph by Jeremy Dorrough – Unsplash


Golden Visas are granted under three different models guaranteeing the possibility of legal residence in Portugal.   The three models involve either the transfer of capital to a bank based in Portugal, the creation of employment and finally, the most popular, the purchase of property in the country. For the latter, the investment in real estate is required to be equal to or greater than five hundred thousand euros, however, should the property be more than 30 years old, an investment of three hundred and fifty thousand euros will suffice. The purchase of property to obtain residence in Portugal was the most popular with the foreign investors. Out of six billion euros invested in Golden Visas, 90.4% was channelled into the home purchase model.


In addition to Golden Visas, there are to other possibilities for obtaining legal residency in Portugal that many already enjoy. D2 visas, like Golden Visas, are useful for entrepreneurs, but in this case, is aimed at small and medium-sized businesses. The investment is reduced, and you only need to present a structured and viable business plan.   These visas give you the opportunity of creating your own job and still reside in Portugal with your family. The second possibility is pre–Golden Visa, with many British rediscovering it after Brexit. These being the D7 visa which allow free movement within the Schengen area, and after five years giving the possibility of applying for permanent residency in Portugal




Who wants to buy a house in the Algarve?


The most popular areas to buy a house in the Algarve continues to be those closest to the sea, but these trends have been changing slightly.   The Barlavento Algarvio area has been gaining more admirers, especially buyers of luxury homes.   The characteristics of these purchasers vary, with the main requirement being that they feel the money invested is money well spent.   The objective may be to purchase a second home for immediate investment, such as temporary lease or a re-sale, therefore high-end finishes and speed of business are essential for clients looking for luxury properties.


Photograph by Paulo Almeida - Unsplash


Those also looking for a house by the sea in this country are retired foreigners looking for a new adventure in a friendly area with the added bonus of sun 300 days a year.   Portugal is often referred to as the best destination to retire to, and in 2020, received this distinction from the Annual Global Retirement Index.   Even post Brexit, the British are still looking to purchase a house, and it is in the Algarve that many find their second home.   The region was recently recognized as the most accessible destination in Europe for retirees, by Forbes magazine.   It is understood that the closer to the cost, the more expensive the property will be, even with less touristic areas and wonderful beaches that offer the quality of life a retired person is looking for.   At Casas do Barlavento, the team recognizes the difficulty in the change of country and habits, but they assure all the assistance in finding a home and in managing all the bureaucracy to acquire a property.    Start by having a look at our updated portfolio and then get in touch with us so that we can start looking for your requirements.


Photograph by Anukrati Omar - Unsplash


Regarding the nationalities that choose the Algarve to live or simply invest, based on the data collected by Idealista, there is no predominant nationality in the region. In 2020, Vila do Bispo was the most sought after by Spaniards and Germans, Lagos by North Americans and Germans, Portimão by British and North Americans and the Eastern Algarve was essentially sought after by the French and Spanish. The international demand for properties in Portugal last year represented 24% of the total with 76% being national demand.


Photograph by Janoon028 – Freepik


Is this a good time to buy a house in the Algarve?

The real estate market is subject to various cycles of ups and downs, which occurs with any asset you acquire.   Purchasing a newly built property in the Algarve, or a piece of land for a construction project, involves some bureaucracy in both cases.   To avoid any difficulties, you should always seek professional assistance, particularly if you are not in Portugal.   A real estate agent will assist with building permits and other charges, and you should find an agent who speaks fluent English and Portuguese.   All our real estate consultants have this linguistic facility at Casas do Barlavento.


Buying a house in the Algarve is an advantageous and long-term investment.    It builds capital across borders and there is a home where one can enjoy the good weather that is experienced throughout the year.    A house in this region is always a good investment, as tourism, although it has slackened during the pandemic, is one of the strongest sectors in the Algarve, followed by the real estate sector.   Bringing these two together, when renting your property for holidays will be a winning investment.   Casas do Barlavento has a property management service, suitable for those living in a foreign country.


The question of whether or not to purchase a house now is always at the back of your mind, especially with all the current changes and restrictions.   The pandemic addressed new issues and exposed some weaknesses in the economy.   In Portugal, the real estate sector shook slightly for a brief period between March and May 2020, however after a few months it was back to its characteristic strength.   The Covid-19 pandemic has changed the way we live and think, and it is only natural that there are always some reservations when it comes to investing in real estate.   We therefore always counsel prospective purchasers to deal with a professional who has an in-depth knowledge of the area in which you are seeking a house, to provide full information on the values and other important aspects.   Our motivation is to see that you close with a good deal.


Even though the pandemic is an influential factor in economic issues, Portugal is starting to make a comeback in one of the most predominant sectors of the country.   Henceforth, an increase in the volume of business and opportunities in Portugal is expected.