There's one surefire way to identify the most attractive real estate investment markets: watch for new taxes. Indeed, a tax policy designed to bolster government coffers generally goes hand in hand with an influx of real estate investors into a country or region, especially if they are non-residents. A gamble taken by governments that can, however, be risky, as was the case with the failure of François Hollande's tax plan in 2012, but can also be welcomed if it proves moderate. This is the case of AIMI, which is due to come into force in Portugal.
What is AIMI:
Centered on the adoption of a new property tax in 2017 to boost the country's revenues, the strategy of Portugal's new Prime Minister, Antonio Costa, is aligned with the positive impact of foreign investment on the country, particularly Lisbon. Mr. Costa seems willing to encourage this trend, rather than undermine it.
The "Adicional ao IMI", also known as AIMI, is a "surtax" on the annual property tax. At first glance, such a measure could be similar to the drastic measure initiated by Mr. Hollande in 2012 (tax of 75% on high incomes, over one million euros). However, even if the undisguised aim is to tax wealthy investors attracted by a booming real estate market and competitive prices, the tax turns out to be moderate and only brings Portugal more in line with the real estate taxation of other European countries.
If approved, the AIMI tax will be applied at a rate of 0.3 % of a property's cadastral value (on average 30 to 40% cheaper than market value). This rate of 0.3 % will only apply to properties worth more than €600,000. For married or cohabiting couples, the limit is twice as high: the tax will only be applied to assets worth more than €1.2 million.
A measured approach to taxation
The new AIMI tax abolishes the 0.8 % stamp duty on acquisition introduced two years ago for residential properties with a tax value in excess of 1 million euros. The AIMI rate of 0.3 %, much lower than stamp duty, reduces the tax investors have to pay at the time of purchase.
The AIMI, on the other hand, is annual. This measure underscores Mr. Costa's long-term vision of creating an environment conducive to recurring revenues, as opposed to an up-front tax bludgeoning that would scare off investors and locals alike.
Simulation - AIMI tax on a T5 apartment at Santos Design :
This tax applies only to the property's cadastral value, which is between 30 and 40% less expensive than the property's purchase value. A T5 apartment of this type has a value of 1.825 million euros; it would be taxed on the basis of its cadastral value: around 1,186,250 euros.
Added to this cadastral value, for a single person, is the removal of the 600,000 euro tax allowance; AIMI tax therefore applies to a total of 586,250 euros. The purchaser of a T5 at Santos Design would then have to pay 1,759 per year in AIMI tax.
Since the tax allowance for a couple is 1,200,000 euros, a couple investing in a Santos Design T5 would be exempt from the AIMI tax.
Stamp duty on this property, abolished by the introduction of AIMI, would have amounted to 14,600 euros. The AIMI tax therefore promises to be more advantageous for investments in prestige properties.
Lisbon, a city popular with all types of investors
This measured approach seems welcome at a time when Lisbon is being targeted by buyers from all over the world, with investors attracted by the city's rising tourist activity and booming technology sector. Investors from the other side of the world (Brazil, South Africa or China) are also lured by the Golden Visas program, enabling them to acquire European citizenship.
Retirees and second-home buyers, meanwhile, are attracted by the country's Non-Habitual Tax Resident (NHR) program, offering exemption on pensions and income from activities carried out abroad.
In addition to private buyers, public investment is also helping to boost Lisbon's development. In November 2016, Lisbon became the first city in Europe to benefit from the Juncker Plan, an investment scheme launched by the European Union. Under this program, the Portuguese capital will receive a loan of 250 million euros over the coming years to modernize its infrastructure and improve its quality of life.
So it's a safe bet that Lisbon won't stop attracting new investors any time soon, especially as the city has plenty to offer. Some districts, such as Mouraria, offer a very pleasant living environment and the prospect of annual returns of 5 to 6%.
