Do Non-Habitual Residents contribute to the rise in house prices in Portugal? – by Idealista News

Non-Habitual Resident

The decision has already been made: the regime for non-habitual residents (NHR) will end in Portugal in 2024, and a tax incentive for scientific research and innovation has been created along the same lines, but “more restricted”.

The government has therefore decided not to extend “a measure of fiscal injustice, which is no longer justified, and which is a biased way of inflating the housing market, which has reached unsustainable prices”, as António Costa argued.

But who are these NHRs and how do they live in Portugal? How does their presence affect the housing market? In the absence of any published studies on the relationship between NHRs and the rise in house prices, Idealista/news asked several experts to find out whether there is a link. They admit that there is a “residual” impact of NHRs on house purchases and that the end of this tax regime will not solve the problem of access to housing in Portugal.


Non-Habitual Residents in Portugal: who are they and where do they come from?

First, it’s important to know who the non-habitual residents are who live in Portugal, benefiting from the IRS reduction for 10 years. Even with the end of the regime in 2024, they will continue to enjoy this tax benefit, because it is not expected to have retroactive effects. We know that there were 74,258 residents in Portugal in 2022 under this regime, according to the most recent data from the Court of Auditors. In addition, the number of NHRs tripled compared to 2018.

Looking at this data and considering their professional experience, the experts do not doubt that the NHR has had a consistent and significant uptake since 2009, the year it was created. “The NHR regime in Portugal has been the subject of considerable interest in recent years and is undoubtedly one of the best tools for attracting foreign investment,” summarizes Rafaela Beire Cardoso, associate lawyer, and head of the tax department at Belzuz Advogados. She adds that “in recent years, adherence to the NHR regime has increased significantly”, due in part to “the growing awareness of its benefits, but also to the political and economic climate in the countries of origin”.

“The NHR statute is the most successful tax regime ever”, Diogo Capela, lawyer, and partner at Lamares, Capela & Associados.


What is the profile of these Non-Habitual Residents?

So far, there is no official data available on the profile of demand under the scheme. Idealista/news requested the same data from the Ministry of Finance, but it had not been sent by the time this article was published. Based on their professional experiences, the experts consulted say that the profile of NHRs is diverse, from retirees to investors, and that they generally have greater purchasing power.

“We’re talking about retired people or foreigners in early retirement, as well as digital nomads, entire families who choose to live in our country, displaced senior executives. Typically, these are people with a higher level of income than the average Portuguese citizen, and therefore with greater purchasing power,” comments Gonçalo Nascimento Rodrigues, coordinator of the postgraduate course in Real Estate Investments at ISCTE Executive Education.


Foreign pensioners in Portugal

“The profile of the people who obtain the RNH is that they want to live in Portugal, either because they plan to retire here, or because they have companies in Portugal or work here in a subordinate or independent capacity,” says Diogo Capela, lawyer, and partner at Lamares, Capela & Associados.

These are, therefore, “emigrant Portuguese and European citizens who have chosen to come and practice their professions or enjoy their retirement in Portugal, not forgetting that it is a fundamental point of attraction for national and international talent,” says Patrícia Barão, Head of Residential at JLL.

Therefore, “retirees, businesspeople, liberal professionals and investors looking for tax advantages and at the same time a peaceful country with a good climate, a high quality of life and a low crime rate,” said Rafaela Beire Cardoso, from Belzuz Advogados.

Roman Carel, founding partner of Athena Advisers, highlights the fact that the NHR regime has attracted “many highly qualified and valued professionals. This means that there has been a lot of investment from entrepreneurial people, businesspeople, and active people who have moved to Portugal and started new businesses, opened offices, employed people, and consumed goods and services. And this has had a very significant impact on our economy,” he points out.

At PwC, they also noted the demand for the NHR regime from “workers in activities considered to have high added value” and from digital nomads, especially during and after the pandemic. Luís Filipe Sousa, tax director at PwC Portugal, also highlights the demand from “people with high assets and income, who typically earn different types of income, namely passive (dividends, interest, capital gains, property income or pensions)”.

In the experience of Francisco Castro Guedes, coordinator of the SRS Tax Department, the NHR regime is “especially sought after” by two types of workers:

  • ‘High-net-worth individuals’: who come to Portugal to live because they find a better quality of life here (including safety and a great climate).
  • Professionals who carry out high value-added activities, such as senior company executives and tech professionals. “The influx of a younger generation into the technology sector has been particularly noticeable in recent years, given the implementation and standardization of remote working,” he adds.


For all these reasons, Micaela Monteiro Lopes, a guest assistant at the Lisbon Institute of Accounting and Administration (ISCAL) and a doctoral student in law, admits that “this regime reinforces Portugal’s image as a country open to international investment and the integration of foreigners”.


What countries do NHRs living in Portugal come from?

NHRs come mainly from countries such as the UK, Spain, France, Italy, the USA, Brazil, and China, they say from Belzuz Advogados. And Athena Advisers share that they have received people from Brazil, South Africa, Turkey, France, and Sweden, among other countries, “who have come here and created restaurants, hotels, technology companies, and so many other businesses”, says Roman Carel.

“The majority of people with NHR status come from France and some Nordic countries, particularly Sweden. This coincided with the increase in taxes on higher incomes in these countries, which motivated the search for Portugal as a destination for residence, albeit an unusual one,” explains Miguel Lacerda, Lisbon Residential Director at Savills.

From De Brito Properties – a real estate agent that has been monitoring foreign investment in the Portuguese real estate market for ten years – they say that “of all the Europeans, the French were the most attracted to the RNH status”.

And it was precisely between 2016 and 2020 that they felt the boom of French retirees and couples with children coming to Portugal to benefit from this regime. In 2020, the change in taxation on pensions from 0% to 10% slowed down the demand from retirees. But even so, “between 2020 and 2022 we had many more requests from other Europeans to come to Portugal to take advantage of the NHR, many of whom were young digital nomads,” César de Brito, the company’s manager, told Idealista/news.


Non-Habitual Residents living in Portugal: impact on house purchases is “residual”

One of the justifications António Costa gave for ending the NHR status – and creating a new tax incentive for scientific research and innovation professionals that is “more restricted”, according to the experts interviewed by Idealista/news – was precise that the arrival of these foreigners was inflating the housing market in Portugal. But is that the case?

These families from abroad indeed need a home to live in, whether they rent or buy. But most experts believe that the number of homes purchased by these families will be “residual” and even, in some cases, at prices much higher than the Portuguese can afford.

Although the NHR status is not directly associated with the purchase of housing – as is, for example, the Golden Visa that came to an end with Mais Habitação – economist Vera Gouveia Barros admits that “this regime implies that these people become residents here, and it’s natural that they will be an increase in demand for housing (whether by purchase or rental). And since it’s a scheme designed to attract people with high incomes, it’s also natural that these people have a greater ability to pay and compete with those who are habitual residents,” she adds.

Gonçalo Nascimento Rodrigues also assumes that “these residents buy or rent houses in Portugal”. But although he admits that “there may be a relationship between NHR and the housing market”, he stresses that there is no concrete data or studies to prove it. Making a quick estimate, the real estate finance specialist says that between 2018 and 2022, non-habitual residents bought at most 8% of the 625,960 homes sold during that period, considering that 50,000 new NHRs arrived in the country during those four years.

“As in reality this impact was much smaller – given that all of these residents did not buy a house – it is not possible to say that the regime fueled a rise in house prices and a growing shortage of supply, nor that its end will help solve the problem of access to housing,” concludes the ISCTE professor.

César Brito’s view is similar: as “not all NHRs have bought homes in Portugal”, their market share is “residual” in terms of national sales volume. In addition, he points out that “these clients have bought a certain type of property, often luxury – from this perspective, we have to admit that this market share would be more important”.

A study by the NHR Global Association in 2022 found that each NHR spent, on average, around one million euros on buying property in Portugal, quotes Roman Carel. Thus, “with the end of the NHR, Portuguese luxury developers will find it more difficult to sell their properties” warns the head of De Brito Properties.

“If it [the RNH] had any contribution to make to the increase in house prices, it was residual and very localized in city centers, and in some neighborhoods, in larger residential units to accommodate the families that chose Portugal to settle in,” says the founding partner of Athena Advisers. In the same vein, Francisco Castro Guedes, from SRS, says that what is at stake is “a small number of houses” and “the circumscription of this issue to urban centers”, which “clearly demonstrates that the measure will not solve the issue of access to housing“.

Some admit a link between the RNH and the rise in house prices. “The regime played a major role in increasing demand for real estate, resulting in the appreciation of property prices. The correlation between the NHR and the difficulty of access to housing for nationals can be interpreted as a conflict between policies to attract investment and the well-being of residents,” says Micaela Monteiro Lopes.

She also believes that “a possible discontinuation of this regime could cause oscillations in the real estate market, possibly resulting, in the long term, in a stabilization – or even a reduction – in property prices” for renting or buying, although this reflection “will never be immediate, nor with the speed that is intended”.

On the other hand, some experts deny that NHRs influence the rise in house prices, due to pressure on foreign demand. Miguel Lacerda, from Savills, says that “investment by NHRs is not at all related to inflation in the housing market”, because “this type of private investor can only rent space, they don’t need to make a purchase”. Patrícia Barão, from JLL, also assumes that “the claim that the NHR inflates the housing market doesn’t make sense”, not least because “the program mainly attracted foreigners who bought high-value properties, often in areas where the Portuguese had little interest“.

What is certain is that there are no studies that conclude that the presence of NHRs hurts house prices, as the Prime Minister claims. For this reason, Luís Filipe Sousa, from PwC, believes that “it would be desirable for the studies that allow this conclusion to be drawn to be made public”.


The end of Non-Habitual Residents (NHRs) will not improve access to housing in Portugal

Although they assume that non-habitual residents buy or rent houses to live in our country, several experts interviewed by Idealista/news warn that ending this regime will not help solve the problem of access to housing in Portugal. This is because the central issue is the short supply of houses and not the demand from foreigners for homes to live in, they argue.

“The government wants to convince the Portuguese that the housing problem in Portugal is on the demand side and not on the supply side (…) and that foreigners are the cause of the housing problem” because they have more purchasing power to buy a house in the country, interprets lawyer Diogo Capela.

But the housing market in Portugal is not inflated because of the NHR, as António Costa claims say several experts in chorus, not least because the impact on house purchases is “residual”. “The Prime Minister can do away with the NHR and other attractiveness measures, but he has to be respectful of those who helped the country when it needed it. He must be fair and honest and admit that the problem of house price inflation is a global problem since house prices are rising in several European countries and around the world,” argues César Brito, from De Brito Properties.

“The end of the RNH will not bring more houses to the Portuguese middle and lower classes,” says César de Brito, manager of De Brito Properties.

The rise in prices in Portugal has been generalized,” agrees Roman Carel, from Athena Advisers, noting that this is “a macroeconomic issue and not strictly and directly related to the RNH”. This is because the rise in prices was driven by low-interest rates and an abundance of liquidity in the market. “If we look at the trends, this movement became widespread across Europe, particularly after Brexit, when capital at the European level began to inflate,” he explains.

The governor of the Bank of Portugal himself, Mário Centeno, admitted that he is not “completely” convinced that programs like the NHR are the problem with the housing market, pointing out that ending them is a “political issue”.

Micaela Monteiro Lopes, a guest assistant at ISCAL, admits that the NHRs played a “prominent role” in the demand for housing, which influenced the rise in prices and aggravated the difficulties the Portuguese have in accessing housing. In this sense, Micaela Monteiro Lopes sees, at a political level, the end of the NHR regime as “a gesture in favor of Portuguese citizens, particularly those who don’t own their own home or those on more modest incomes, who face serious difficulties in accessing the housing market, as a result of the real estate inflation we are currently facing.”

The truth is that the difficulty in accessing housing in the country is due to the imbalance between the short supply and the high demand. “For every new house built, we have demand for nine,” says JLL’s Patrícia Barão. “The big problem with housing in Portugal is related to the lack of supply of product and slow and expensive construction,” says Miguel Lacerda, from Savills.

In addition, there is another issue that has long been discussed: the delays in licensing. “No new buildings are coming onto the market and new projects drag on for years and years in the town halls to get their licenses. And here we hit another major problem that is inflating real estate in Portugal: the slowness of the administration. And this isn’t being solved and no one is interested in solving it because it doesn’t bring in votes,” says the founding partner of Athena Advisers.

Therefore, the solution to improving housing affordability in Portugal would be to increase the supply of homes. “To do this, we need to encourage investment in private rentals with tax advantages such as exist in France, but so far the government hasn’t had this vision,” points out the head of De Brito Properties.

“The RNH program is not the cause of the housing crisis. The real solution to the housing problem would be measures to stimulate the supply of housing, such as the rehabilitation of abandoned properties and the creation of tax incentives for real estate developers,” says Patrícia Barão, from JLL.

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