In Portugal, it's the fiscal policy that just won't die. Prime minister António Costa announced in February - to great fanfare and political point scoring - that his PS party would end the "residency by investment" program. Just six months later, a rebranded Golden Visa program is set to launch, says Alex Lawry-White, private equity adviser, Pela Terra.

10 years after commencing a large-scale sell-off of Portugal's prime real estate an investment fund, focusing on sustainable agriculture in Portugal, has reimagined Golden Visa investing and demonstrated a strategy that delivers a win-win-win for investors, the government and Portugal's population. 

Understanding the fuss around the program requires a brief dive into the mechanics of the program. Golden Visa investors seek stable investments to protect their capital during the 5 years of residency they are required to complete in order to qualify for Portuguese citizenship. During the 5 years, they want an annual return. After the 5 years, they have full access to the EU and Schengen Area. It's an extremely attractive offer to foreign citizens, fearful of financial and political instability at home.

To meet these financial demands, property developers have engaged in a race to the top, offering "guaranteed" (not really guaranteed) annual payouts. They manage this by duping investors into paying far more than a property's initial worth and using the over-payment to drip-feed back the annual returns. This works, so long as the market stays high.

The result of this artificial pricing strategy has been that prices have boomed beyond reason. Portugal now has the biggest price differential between rural and urban regions of any country in Europe and one of the highest income-to-house price ratios in the world, according to the IMF. 

Supporters tout the program's success - with over €6 billion raised in a decade all expectations have been exceeded. What has really pulled the investment in is Portugal's extremely generous policy of only requiring investors to be in Portugal for 7 days per year to maintain "residency" status (compared to Spain and Greece's 183 days per year). 

The million-dollar question at the centre of it all, though, is "What is a Golden Visa program actually for?". Capital-in sure sounds good but if it doesn't help the local population, who is winning from selling off the country's prime property?

Purchasing private real estate means swapping investment for privately held bricks and mortar. Through this prism, the significance of the much-touted €6bn figure dissolves somewhat as it becomes clear that capital is merely stored in a different, illiquid form, not entering the economy in any usable form. 

In 2019, Portugal did introduce a remedy for this - to allow investment funds to qualify investors for Golden Visa applications. In addition to property developers wrapping existing projects in fund structures for tax benefits, the market did slowly but surely wake up to the possibility of genuinely helpful investment in Portugal's economy. The most successful of these more imaginative projects has been Pela Terra. 

The Pela Terra Farmland fund was launched in 2021 by Lisbon-based entrepreneurs with a mission to regenerate depleted soil and strengthen food security in Portugal. The project was quick to attract €35m from Golden Visa investors, confirming a significant hypothesis for the team for the whole market that foreign investors are motivated to invest in nourishing a society they may one day call their own. 

Pela Terra II, a follow-on fund expected to raise €100m, has now launched to meet the continued demand from the US, UK and India.

How has Agriculture hit the sweet spot so effectively?

The short-term answer is that an agricultural fund is not subject to the new ban on real estate investments. Investors can still access what they want - a low-risk vanilla investment with a probable annual return. In the case of Agriculture, EU subsidies and long-term productive orchards make these annual returns extremely reliable. 

Government support for sustainable agriculture has also been a key factor. Pela Terra's strategy is unique in directing foreign investment into the most under-invested regions of Portugal. Much-needed capital inflows help to stem the longstanding brain-drain from the countryside to cities and neighbouring countries.

A third factor is that Portugal must convert 25% of its farmland to organic status by 2030 to hit EU targets. With a heavy focus on sustainable agriculture and generating soil health in depleted areas, Pela Terra is the agent of change that the Portuguese government needs.

This reminder of what Golden Visa investments can achieve serves both foreign investors and government policy while delivering measurable positive change to the population of Portugal.

Provided the government avoids a slip back towards real estate speculation - disguised as other activities - and rather champions investments that serve the people of Portugal, the program can endure as a monumental asset for the country.

Long live the Golden Visa. 

By Alex Lawry-White, private equity adviser, Pela Terra.