Profitable investment into an office space in Lisbon for the Golden Visa

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Elena Smirnova 03.06.2020

The investor’s profile: In the fall of 2019, a middle-aged businessman from Russia and his wife contacted Migronis for assistance in getting a Portuguese residence permit. The country was specified immediately and chosen at their own discretion, since they plan to move there and obtain passports. The client knows the advantage this European country offers – the Portugal citizenship can be applied 5 years after getting the residency status.

OBJECTIVE: Getting the Golden Visa by investment, while keeping the investment amount at the lowest possible level. The budget: €350,000.

ACTIONS: The agency selected an investment fund in Portugal. However, the client did not accept this recommendation due to his own reasons and decided to consider real estate options.

Migronis’ partners prepared a selection of 20 real estate units from the following categories: residential – commercial property and office space.

The client and his commercial advisor evaluated parameters and profitability of the options, and selected three of them. What is more, to begin with, they rejected residential units, and then gave consideration to restaurants, offices and coworking spaces for a little longer time. Location of the building, availability of a reliable tenant and guarantee of a stable income were of importance. In most cases, they were not satisfied with profitability and liquidity profiles.

The client’s choice

Having performed all the financial calculations and selected the suitable real estate unit, they increased the investment budget to € 700,000. The top choice was an office with area of several hundred square meters and prime location in Lumiar, a popular and fast-growing district in northern Lisbon. 

A real estate broker struck a bargain with the previous owner of the real estate unit for the additional discount of €20,000, which reduced the price to € 680,000.

The return on investment was estimated at 5% per annum.

In fact, the above mentioned space could be rented at higher fees, but the Russian businessman is satisfied with the current tenant – a large American company from the entertainment industry. Moreover, the tenant likes the office so much that the consent has already been given for a five-year contract with a subsequent renewal for another 5 years.

INVESTMENT COSTS:

Making the estimate, the Migronis’ client also took into account all the costs to be covered after purchasing the real estate unit. In his case, some of expenses could be saved, thanks to the good contract with the tenant. The costs are described below in further detail:

Type of costsAmounts and payment frequency
Taxes- 28% of the rental income/per year

- €1,565 - property tax/per year
Property management fee- €550/per year
Depreciation of the unitN/A. Under the contract with the tenant, the landlord rents the office space as is.

THE MARKET: 

According to estimates of the PricewaterhouseCoopers’ analysts, Lisbon is a top 10 target for real estate investments in 2020.

Property ranking in Portugal 2015-2019

According to reports by the National Statistical Institute of Portugal (Instituto Nacional de Estatística), real estate prices in the country have been steadily growing by 4.5 to 6% since 2014, and 2019 was a peak year with the growth of 9.6%. Sales have more than doubled over the past 5 years.

More than 180 thousand transactions have been closed for a total amount of € 25.6 bln.

Reports of the National Statistical Institute of Portugal

Following the results of 2019, the major share of transactions with real estate units was attributed to the Lisbon metropolitan area – 34.5% of the total real estate purchase agreements concluded in the country or about € 12bln in monetary value. The market is considered to be quite hot, but not overheated since a large share of foreign investments was taken over by Paris last year as the Olympic Games are to be held there in 2024. At the same time, the sector’s players recommend to relish the opportunity, because the upward trend of balanced growth in prices and rent is based on a fair appraisal of logistics and high quality of dwellings, offices and commercial premises. This suggests that there will be no significant decline in prices even during the crisis. And the sector’s growth will be restored in the course of management of the unfavorable economic conditions. So far, there are no preliminary estimates on the impact the coronavirus pandemic has had on the Portuguese real estate market.

However, British experts from the Savills Group insist that an increase in online purchases of real estate units for various purposes may become the unexpected effect in the long-term. Many investors who have not previously used such services in the remote mode get familiar with this opportunity and will use it in the future.

By the way, according to Savills’ estimations, foreign participation in the commercial real estate market in Portugal is 86%, although only 2.3% of the total overseas investment amount in Europe are attributable to this westernmost country. The reason behind that is its relatively small market. However, in February 2020, the Savills’ forecast for Lisbon office real estate in 2020 was the best in the Old World – the rental growth was expected to reach 11.4%.

Forecast of growth in office rental rates in European cities 2020

At the same time, Lisbon was not included into the traditional rating of the Swiss UBS bank – Global Real Bubble Estate Index 2019. This study evaluates markets of metropolitan areas where real estate prices are often driven up. And relevance of persistent mispricing of assets cannot be proven until the bubble bursts.

Global Real Bubble Estate Index 2019

Considering all these estimates, it can be assumed that the businessman from Russia has made a promising and risk-free investment.

Under care of the property management company

It is a common practice for business people to put their property under care of a property management company. In this case, the client chose Migronis’ partner in Portugal, a Swiss company that has been on the market for over 40 years. The company provides full scope of services for premises, including:

  • search and selection of tenants;
  • long-term lease (or short-term lease, when it is necessary);
  • meter installation in the premises;
  • payment of utility bill;
  • tax representation of the client’s interests and payment of taxes;
  • assistance in the unit disposal (if necessary).

There are some additional options for the client, such as: 

  • assistance in getting a driver’s license;
  • assistance in obtaining a European Card for any type of insurance;
  • assistance to enroll children in kindergarten/school/university.

THE OUTCOME: The client is satisfied with the new property and has no plans to sell it. He is in the process of obtaining the residency status; application for the citizenship will follow later. Currently, he is looking for other real estate units in the south of the country to start a business.

THE EXPERT’S OPINION:

“Through the example of this investment transaction we can see that sometimes stability represented by a reliable tenant is more important than high profitability. This is exactly how our client thought, and, according to the preliminary estimate, he took the correct decision. This is yet more proof that the perfect combination of a profitable real estate investment and a residence permit for it can be actually achieved. The whole process took about six months. The deal was closed when Europe was about to introduce the lockdown due to the coronavirus. 

Even such an emergency or any other possible calamities will not become an obstacle for investors on their way to the residency status and citizenship. Migronis actively makes use of frameworks that enable us to complete the entire procedure in a remote mode. In fact, it is quite easy to choose a real estate unit for investment. With a comprehensive and professional approach, our partners make a list of options that are the most suitable for the client’s needs.

They organize online showing and provide videos of the units (including drone footage in some cases), as well as a full description of areas with real estate prices. The client will get a full picture of the market situation. I would like to note that it is long standing professional experience that enables us to perform such distance sales, as well as filing all the documents for a residence permit or citizenship in a remote mode. The buyer’s funds are 100% protected at all stages. There are places where such remote purchase frameworks cannot be used nowadays. For example, in Greece, the lockdown is so strict that movement around the city is banned. A bank account can only be opened in the personal presence; furthermore, the tax authorities are closed, which means it is impossible to receive a TIN and pay the purchase tax.” — Kristina Kurkuliak, Master of International Law, Investment Migration Council member

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