Ana Guerreiro points across the street at a handful of housing projects in Lisbon’s up-and-coming riverside neighbourhood of Marvila. It is where she moved in with her mother last year after soaring rents meant she could no longer afford to live alone. “Prices have gone through the roof here,” said Guerreiro, 33, stepping outside the cafe where she waitresses for a break. Portugal is western Europe’s most dynamic property market thanks to tax incentives for foreign buyers and a so-called golden visa programme, which offers residence permits in return for a minimum € 500,000 (US$550,000) investment. The flip side for people like Guerreiro is that they have become collateral damage, with no prospect of prices cooling any time soon. Foreign investors have pumped € 4.3 billion into Portuguese real estate through the residency programme since it began in 2012. Prime Minister Antonio Costa, who is widely expected to win a second term in an election next month, has signalled the country needs the incentives to continue to bring in money. Foreign Minister Augusto Santos Silva even called the programmes a “sovereign right”. Lisbon has become a magnet for tourists in Europe as many investors renovate properties and turn them into short-term rentals through sites like Airbnb. The short-term rentals have been blamed for increasing prices because they target visitors who can afford to pay more than locals. According to the latest figures, Portuguese property prices increased 9.2 per cent in the first quarter of the year, the biggest gain in the euro region and the steepest rise in the European Union after Hungary and the Czech Republic, according to data compiled by Eurostat. “They just can’t afford to say no,” said Tiago Caiado Guerreiro, a lawyer in Lisbon who specialises in tax legislation. “These incentives have turned cities like Lisbon into a magnet for foreign investors who helped put the city on the map as a top tourist destination.” Indeed, a short distance from where Ana Guerreiro works, a line of new condo developments is emerging behind colourful murals and graffiti-covered walls, luxury homes marketed mainly to a new generation of foreign residents. Portugal’s golden visa programme ‘swamped’ by inquiries from Hongkongers Variations on Portugal’s incentives have been adopted across Europe and in countries around the world – from the US and Canada to Spain and Greece. They tend to last until a critical mass of vocal opponents conclude the costs – soaring housing prices, absentee homeowners and allegations of corruption – outweigh the benefits, and politicians drop them. Portugal’s particular circumstances may forestall that outcome for longer than in other places as there are still plenty of properties in need of renovation, and prices remain relatively reasonable compared with other parts of Europe. Not long ago, as Europe recovered from the global financial crisis, Portugal lagged behind its neighbours in attracting investment – and it showed. Buildings in historic Lisbon were crumbling, their tile work and masonry faded and cracked. All that began to change after the government scrapped rent controls in 2012 and introduced the golden visa and tax breaks to attract wealthy foreign residents and property investors. At the time, about 12,000 buildings were in poor condition or in ruins, about 20 per cent of the total, according to city council estimates. Now, Lisbon’s cobblestone streets and hilltop palaces are being restored, and hundreds of buildings converted into new hotels, short-term rental flats and luxury retail stores. Investment in real estate and the tourism industry has broken records, boosting the Portuguese economy, which expanded for a fifth consecutive year in 2018. “Lisbon has never been better in terms of the restoration of its buildings,” said Francisco Bethencourt, a history professor at King’s College in London. “The number of decrepit buildings has been reduced and some of the misery that existed in some neighbourhoods is no longer visible. However, this change has had huge social costs, as locals with fewer financial resources are being pushed to the periphery.” China’s push back on dual passports may derail investment immigration schemes Ana Pinto, the president of the Association of Residents of the County of Marvila, can see some benefits of more money coming into her town, which now draws comparisons to hipster havens in New York’s Brooklyn. But she complains that some of the more than 600 members of her association are moving elsewhere after home prices rose 88 per cent in the first quarter from a year earlier, according to Portugal’s National Statistics Institute in Lisbon. “Real estate prices have simply become unbearable for us,” Pinto said. “What can we do?”