Entry of capital into companies and purchase of real estate has brought Foreign Direct Investment to the top in 2020 and in the beginning of 2021
Foreign direct investment (FDI) in property purchases and shareholdings in companies increased almost eight times in the first quarter of this year compared to the same period in 2020, according to calculations by Dinheiro Vivo based on data from Banco de Portugal. In other words, in this first quarter alone, overseas investors have injected €1.7 billion into the Portuguese economy. This is the strongest annual start-up since 2017, the year in which Portugal grew by 3.5% in real terms (the best mark since 2000).
This strong impulse of FDI through shares and other corporate holdings is closely linked to the phenomenon of real estate investment. According to several analysts and Banco de Portugal itself, the beginning of this year prolongs the good year of 2020 in this sector. In fact, last year, despite the pandemic crisis, foreign investors put €5.9 billion into the economy, a figure that is in line with the €6 billion recorded in 2019. €647 million were injected into the country only through the Portugal Golden Visa programme.
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The final FDI figure is just not bigger because investors started selling debt - it may be through operations to sell non-performing assets and non-performing loan portfolios, the so-called nonperforming loans. These sales are deducted from the total FDI value. In the first quarter, these sales amounted to a significant amount of €910 million. In 2020 as a whole, foreign investors also emptied their positions, selling debt worth almost €3 billion!
According to Banco de Portugal, last year, the external financing of the Portuguese private sector continued to be channelled through the net flow of foreign direct investment, equivalent to 1.8% of GDP (domestic product gross). Also, the real estate investment component remained relevant, corresponding to 26% of the inflow of funds through foreign direct investment.
Banco de Portugal explains that investment in construction increased 4.7% (7.2% in 2019), and in addition to the containment measures not imposing the suspension of construction works, the dynamism of construction is explained by the flow of new projects, particularly in residential real estate and major infrastructure constructions.
What’s more, Banco BPI studies also noted that "in the storm caused by the pandemic in 2020, the residential market faltered, but did not break". This only means that investing in real estate is one of the safest investment options one can make. Learn more about the advantages here.
In addition to the fact economic activity is coming back to normality, it is expected that the funds that Portugal will receive through the Recovery and Resilience Plan and the identification by the European Union of the renovation of buildings as one of the priorities for the ecological transition will boost the residential market, starting in 2022. Initially through the dynamization of residential construction, but later through the appreciation of the housing stock, according to the same study by the banking group.