(Reuters Breakingviews) - Hungary is digging for golden visas. Despite pressure from the European Union, Prime Minister Viktor Orbán re-launched a residency-by-investment programme in July. Overall, though, these schemes’ shine is fading because they add little to GDP, inflate house prices and irk locals. Geopolitical risks may spur demand as more rich expats look for safe havens. That could be an opportunity for governments to charge more. But a better option would be to nix these programmes altogether.
In theory, golden visas – which allow foreigners to stay in a country in return for sizeable investments – should be a win-win solution. For host governments, they offer the prospect of direct cash infusions into assets ranging from real estate to private equity and government bonds. For the super-rich, these programmes are an insurance policy when things get rough at home. Think about the Russian elites that left for the Limassol coast of Cyprus after their country invaded Ukraine in 2022. Or the wealthy Americans who moved to Portugal following Covid-19.
In Hungary’s case, anyone applying for a 10-year golden visa has to invest at least 250,000 euros in state-approved property funds, of which at least 40% must be allocated to Hungarian residential property. For direct home purchases, the minimum threshold is 500,000 euros. An influx of cash-rich foreigners could help the moribund domestic real estate market, which in 2023 suffered a 25% slump in sales as high interest rates crimped demand.
It is a well-worn playbook. In the aftermath of the 2008 financial crisis, for example, Spain’s real estate sector collapsed as mass mortgage defaults left almost four million homes empty. By 2013, the country had decided to dangle golden visas for property purchases. Other struggling economies such as Greece and Portugal did the same at around that time.
The problem for Orbán and other politicians looking for a golden bullet for their economic problems is that gilt-edged visas offer less than glittering results. A 2021 study of EU golden visa programmes by London School of Economics and Political Science and Harvard University researchers found that the funds generated by these schemes represented only a “miniscule” proportion of foreign investment with “negligible” economic impact.
Despite attracting the second-highest number of annual applications among the schemes analysed by the study, Spain’s programme, for example, accounted for only 3% of foreign direct investment inflows between 2014 to 2019, and less than 0.1% of GDP in the same period. In comparison, tourism contributes over 10% of Spain’s GDP annually. In a smaller economy like Portugal, investments spurred by golden visas were more than 14% of foreign direct investment (FDI) between 2013 and 2019. But they still accounted for less than 0.4% of GDP in the same period.
On the flip side, golden visas can carry large social costs. As high inflation wreaked havoc on people’s lives in the pandemic years, European politicians struggled to deal with the anger of voters who felt they were being priced out of the housing ladder. In Greece, for example, nearly 40% of the country’s real estate investments came from golden visa applicants, per the LSE and Harvard study. Last month, thousands of workers took to the streets of Athens to protest Prime Minister Kyriakos Mitsotakis’ failure to tackle rising costs of living including in housing. Similar rallies took place in Spain last month too. Protesters held up homemade signs reading “fewer apartments for investing and more homes for living”.
Admittedly, some housing markets were overheating even before rich emigrants arrived. By the end of 2021, Spain’s house prices were already 20% higher than their 2016 lows, per real estate marketplace Idealista. But the influx of one million new residents, led by tourists and immigrants from Latin America according to CaixaBank Research – contributed to a 6.4% annual rise in house prices between 2021 and 2023. By May 2024, prices had already surpassed the peak of the market bubble in May 2007.
The EU is not a fan of golden visas either. Brussels has been raising concerns over tax evasion, national security, corruption and anti-money laundering since 2019. In the wake of Moscow’s invasion of Ukraine, the EU pressured member states to scrap all applications from Russian nationals and step up overall scrutiny of golden visas.
Those efforts seem to be working. Some countries are tightening the screw on new applicants. In October 2023, Portugal scrapped real estate as a qualifying criterion but kept other investment options such as venture capital. In March, Greece raised a minimum property investment amount of 250,000 euros to between 400,000 euros and 800,000 euros. Others are banning the schemes outright: following in the footsteps of Ireland and the Netherlands and despite some political resistance, Spain is moving towards scrapping golden visas.
And yet global demand for alternative residencies from foreigners bracing for wars, high taxes and political oppression is rising. As geopolitical risks, ranging from trade wars between the United States and China to actual conflicts in the Middle East, mount, the supply and demand imbalance for golden visas may deepen.
That presents the nine EU governments that still offer off-the-shelf golden visas or passports with tough choices. One is raising the asking price to bring more economic benefits to their countries despite the domestic fall-out.
For example, Cyprus’s golden passport scheme appeared to have been successful. By requiring a 2-million-euro minimum investment, it brought in around 1.4 billion euros per year, contributing more than 4% to GDP between 2017 to 2019, according to a study by LSE professor Kristin Surak. But the government had to scrap it in 2020 after failing to properly screen criminals. Since the Ukraine war, politicians have also had to revoke some passports for sanctioned Russian oligarchs.
That shows that these schemes require proper scrutiny of new arrivals. That sets a high bar for the host country and raises administrative costs, which erode the financial benefits.
As the economic advantages dwindle and voters’ opposition rises, European governments may be wiser to exit the golden visa game once and for all.
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CONTEXT NEWS
Spain’s Senate vetoed the government’s plans to terminate the country’s golden visa programme on Dec. 2.
This returns the motion back to the Congress of Deputies, which can overrule the veto, according to Spanish website Idealista.
The Congress on Nov. 14 had approved a bill that included an amendment to abolish the country’s golden visa scheme. The decision was aimed at removing provisions that allowed non-European Union citizens to obtain residency through substantial investments in assets including real estate and Spanish public debt.
Hungary relaunched its own golden visa programme on July 1. Under the scheme, a foreign citizen, as well as their spouse and children under 18, can obtain a 10-year residence permit by investing at least 250,000 euros in assets including a real estate fund registered with the National Bank of Hungary.
Editing by Francesco Guerrera and Streisand Neto