Complex Made Simple

The Aga Khan and Lisbon’s fabulous property market

Lisbon, Portugal’s capital, is a magnet for investors from the EU and 8,000 plus non-EU citizens who have taken advantage of the minority Socialist government’s “golden visa” program since 2012

Real estate prices are still a modest fraction of those that prevail in Amsterdam, Zurich and Berlin, let alone post-Brexit London Chinese citizens constitute more than 50% of the 8,200 golden visa property investors Lisbon alone attracts more than 5 million visitors every year with homes leasable on short term/Airbnb rentals

By Matein Khalid: Chief Investment Officer and Partner at Asas Capital   

PwC property analysts even ranked Lisbon as the world’s top city for investment and real estate development, up from the 11th spot in 2018. Even though Lisbon prices have risen 25-30% since I first profiled this investment theme in the GCC financial press in 2017, prices are still a modest fraction of those that prevail in Amsterdam, Zurich and Berlin, let alone post-Brexit London and gilet jaunes besieged Paris.

I still believe the risk reward calculus favors selective buying of homes, hotels, logistics assets and offices in Lisbon. The Euro, 1.38 in early 2014, has fallen to 1.10 now and made Portuguese assets attractive for King Dollar investors from the UAE. This is the year I renew my love for the cobbled streets of medieval Alfama, haunted by the ghosts of Umayyad and Almoravid souk merchants, Sintra castelos from the time of the Moors, the lovely stone villages of the Algarve and the Douru, still the name of the courtesy title of the Duke of Wellington’s eldest son and heir. After all, this is where Arthur Wellesley’s redcoats beat Napoleon’s generals in the brutal Peninsula campaign long before Waterloo.

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Portugal’s property bull market has structural, not speculative, roots. Affordable home prices, tax law changes that enabled Northern Europe’s pensioners/snowbirds to retire in Portugal, the wildly successful golden visa program, rock bottom ECB interest rates, re-development of thousands of derelict buildings in central Lisbon, new transport links and six successive years of economic growth have all been factors in the Portuguese capital’s property market renaissance. Portugal has also attracted tens of billions of dollars from the financial elite of its former colonies in Brazil, Angola, Mozambique, Goa and Macau/China. Chinese citizens constitute more than 50% of the 8,200 golden visa property investors, primarily in Lisbon and Porto.

I thought Portuguese assets were dirt cheap in the early 2010’s after the collapse of Banco Espirito Santo and the Greece/Cyprus sovereign debt crisis. Yet as late as two years ago, it was still possible to obtain 8% gross resident yields in the coastal suburbs of Lisbon and 6% in some segments in the Avenida da Liberdade.

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Lisbon, the oldest city in Western Europe apart from Pericles’ Athens, built on seven hills like the Rome of the Romulus/Remus legend, a city of funiculars, trams and melancholy fado music bars, with historic quarters like Baixa, Chiado and Belem. Above all, there is the magnificent Avenida da Liberdade, the spine of Lisbon and the current incarnation of the Roman Empire’s ancient Lusitania and the Marques de Pombal’s epic reconstruction after the horrific earthquake in 1755 cited in Voltaire’s Candide. I believe the beachfront villas of Cascais, 30 milometers west of Lisbon, are destined to become one of the world’s most exclusive expat enclaves in the Old World.

It is a myth that Lisbon property prices just skyrocketed only because of Prime Minister Antonio Costa’s golden visa program, even though it attracted EUR 5 billion in capital flows from abroad into Portuguese brick and mortar assets. There has been huge wealth creation in Portugal since the eurozone sovereign debt crisis in 2012-13 and the proportion of Portuguese buyers in affluent neighborhoods has only increased every year. Spain and Portugal are Europe’s fastest growing economies since 2016, thanks to banking/labour market reforms, an export surge and investment from Latin America. It is hard to believe that Portugal was only saved from certain sovereign default by a EUR 70 billion EU, IMF and Berlin bailout in mid-2011. I am amazed to see that Lisbon now boasts even wealthy Turkish, Indian, Pakistani, Russian, Arab and Chinese investors eager for a secure EU property hedge against the political chaos in their own countries. I have not been studying the Portuguese language since 2017 for only aesthetic reasons. Portugal and Greece are places where I have vivid memories from my admittedly misspent youth and where I would love to live out the sunset of my life.

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Portugal’s role as a global tourism hub – Lisbon alone attracts more than 5 million visitors every year – means homes and villas in the country are eminently leasable on short term/Airbnb rentals. Portugal has some of the most expat investor friendly income tax and government legislation I have seen anywhere in the Med and a non-resident house owner’s rental income is not gutted by exorbitant service charges, municipal taxes and exploitative, high cost home mortgages from local banks.

Portugal’s refusal to impose wealth tax, inheritance tax and gift tax on expat homeowners has attracted huge demand from Turkish, Brazilian, Chinese and Arab investors. Lisbon’s new Montijo Airport, set to open in 2022, will have the capacity to service 50 million passengers per annum, double the current airport’s capacity.

His Highness Prince Karim Aga Khan’s decision to move the seat of the Nizari Ismaili Imamate from Aiglemont, France to Lisbon makes the Portuguese capital a natural magnet for investment for 20 million Ismailis who include some of the world’s best educated, wealthiest, community welfare oriented and socially liberal Muslims in the world. I know several Ismaili friends in the UAE, Karachi, East Africa and even the US/Canada (those impossible long winters and crazy high taxes!) seriously plan to buy second homes in Portugal. The Portuguese government has given diplomatic status to the Ismaili Imamate akin to the Vatican’s Holy See. If Costa Esmeralda was the jet set hub of the Ismailis in Sardinia in the 1980’s, Lisbon, the seat of the future global Ismaili Imamate and the Aga Khan Development Network, will be its epicenter in the decades ahead. Lisbon also has a vibrant start up scene, a vivid arts and culture offerings and its 90 education institutions make it a student hub akin to Boston, Berlin or Cambridge, UK.

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As home prices have soared in Lisbon and Porto, there has been a backlash against wealthy foreign homeowners from working class Portuguese people priced out of their ancestral neighborhoods. It is inevitable that Portugal will limit tax breaks for foreign investors/pensioners and will tighten its global visa program to focus on job creation opportunities for young Portuguese workers, not merely investment in luxury homes. Brussels is also pressuring the Portuguese government to limit the influx of rich non-EU investors who can “buy” a European passport via the golden visa program. Of course, now that Portugal’s celebrity expat residents include Madonna and the Aga Khan, the Parti Socialist will be cautious in its policy decisions on this subject. As the golden visa door closes, I would focus on projects that actually create local jobs for low skilled workers and economic growth. For example, a tourist hotel in the heart of Lisbon, as the most visionary property investor and mentor in my life did all the way back in 2012.