EU: The Impacts of Citizenship/Residency by Investment Schemes on the Real Estate

The report named ‘Citizenship by Investment (CBI) and Residency by Investment (RBI) schemes in the EU: State of play issues and impacts’ analyzes economic impacts of these schemes and argues that they help to attract Foreign Direct Investments (FDI) and handle macroeconomic imbalances while boosting the real estate sector.

According to the report, CBI/RBI schemes have increased foreign investment in the EU States that offer them. The inflows of investments can be qualified as foreign portfolio investment (FPI) and property investments. Indeed, the investments under those CBI/RBI schemes are of a passive nature, consisting mostly of foreign portfolio investments in securities and other foreign financial assets that are passively held by the foreign investor. But in a long run perspective, FPIs contribute to sustainable growth of the economy.

EPRS study shows that Cyprus CBI has generated around EUR4.8 billion between the years of 2008-2017. Portugal’s Golden Visa program has attracted more than EUR4 billion in just five years from 2013 to 2018. Ireland has accumulated more than EUR200 million between the years of 2012 to 2016 and Malta has also generated more than EUR203 million through its Individual Investor Program (IIP) from the year of 2013 to 2018. But the report lacks statistics from Bulgaria, Estonia, Latvia, Italy, Cyprus, and Malta residency schemes.

The spillover effects of CBI/RBI schemes on job creation are similarly uncertain. But it is clear that RBI/CBI schemes make finances more accessible for the companies and they greatly contribute to the growth of real estate sector. The vast majority of these schemes rely partly or totally on investments in the property sector. In Cyprus, Latvia, and Malta (together with other forms of investment) the investments should be made in the real estate. It could be argued that investment in property can stimulate construction activity and thus create jobs. “However evidence of these impacts in practice is scarce”, says the study.

But official statistics show that In Cyprus, the number of deeds of sale transactions in the real estate sector has increased by 43% in 2016 compared to 2015. It is noteworthy that 25.67% relate to sales to foreign buyers. This is a 34.44 % increase compared to the previous year and can be attributed to the fact that Cyprus has attracted foreign investors via its CBI/RBI schemes. “Cyprus has, in fact, saved its economy after 2012-2013 financial crises by reshaping its citizenship by investment scheme”, says Sam Bayat, founder of Bayat Legal Services, a boutique firm based in Dubai and specializing on investment migration. “Cyprus citizenship scheme accountable for the 2.5% of the country’s GDP revenues, by contrast, the agriculture sector there generates only 2.3% of the GDP. Thus, Cyprus Investment Program is vital for the economy” Bayat adds.

Latvia is another EU state, which witnessed a huge rise in the real estate market when the Latvian RBI was introduced. In some regions of Latvia, the share of real property transactions in which foreigners were involved reached more than 50%.

Even if the number of deeds decreased by 6 % between 2015 and 2016 in Malta, the aggregate volume amount of transactions on the property market rose by 12 % during the same period, meaning that there are fewer but bigger transactions, says EPRS study. According to the available data, in 2016, the Maltese CBI scheme represented 0.43 % of the total number of sales in Malta, but 5.43 % of the total sale prices. These data clearly suggest that the Maltese property market is impacted by the CBI scheme, with a potential effect of a rise in house prices.

In Portugal, from 2012 to 2018, €3.5 billion was invested in property through its RBI scheme. During the same period of time, the number of property transactions rose by more than 100%. The rapid increase in RBI applications has reportedly boosted the construction sector and real estate market, which in turn led to the rise in prices, especially for luxury property. But it has also to be mentioned that the commodification of Lisbon’s historic centre is partly due to the Portuguese RBI scheme.

The study by EPRS also argues that investments in the property market lead to the increase of the housing costs, thus increasing anxieties.

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