Hungarian gold visa programme could irk Washington, Beijing and the EU at the same time
At the end of last year, Parliament adopted a law on general rules for the entry and residence of third-country nationals, which already includes eligibility for residence permits based on foreign investor status.
This offers three ways for non-EU nationals to obtain the status:
- The foreign person must acquire units of at least EUR 250,000 issued by a real estate fund registered by the National Bank of Hungary,
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Ownership of a residential property located in the geographical territory of Hungary, registered in the land register under its parcel number, free of legal title, encumbrances and claims, with a value of at least €500,000.
- Or a financial donation of at least EUR 1.000,000 in support of educational, scientific research or artistic creation activities to a higher education or research institution maintained by a public trust with a public-service mission - i.e. a model-changed higher education or research institution.
The announcement comes at a time when the entire EU institutions have warned member states to halt their gold visa programmes. Although Brussels has taken a firm stance on the issue, as citizenship and residence permits are a matter for the member states, it could not prohibit the maintenance of such programmes or the launch of new ones.
In response to a question from Portfolio, a European Commission spokesperson said that the Commission does not take a position on individual member state schemes, but added that in general it "consistently finds such schemes problematic. The executive body's 2019 report on EU investor residency and citizenship schemes says investor residency schemes, often referred to as "golden visa" schemes, pose serious challenges due to security policy, money laundering, tax evasion and corruption risks. These schemes have an impact on member states and the EU as a whole, as a valid residence permit grants third-country nationals certain rights, including the freedom to travel within the Schengen area."
In other words, the Hungarian Parliament passed the law at the suggestion of the Hungarian government after the EU explicitly opposed the gold visa programmes.
In addition, as Portfolio has learned from several sources, there have been both formal and informal signals from the United States that they do not support the Hungarian government's introduction of a free movement system within the EU.
Although several officials claim that Washington has indicated its concerns to the Orban cabinet, Portfolio has not received official confirmation of previous questions on this. However, the US is not exactly supportive of Hungarian immigration and citizenship programmes anyway, as indicated by the reduction of the visa validity period offered to Hungarians under the Electronic System for Travel Authorisation (ESTA) from two years to one, as Budapest has failed to act on concerns about the simplified naturalisation process after years of diplomatic wrangling.
The United States saw a particular risk in the fact that between 2011 and 2020, Hungary granted citizenship to around one million people - mainly ethnic Hungarians living in neighbouring countries - "without taking adequate security measures to verify their identity."
The free movement regime in the Schengen area is now being watched with raised eyebrows by Washington.
Although the details of the scheme - due to enter into force in July - are still unknown, China itself does not support it, Portfolio has learned from diplomats.
While there is a widespread perception in the immigration management market and among the general public that visitor visas could be beneficial for Chinese company executives moving to Hungary, the Beijing government is also reported to be concerned that its citizens could be able to transfer their assets to the EU.
While the Hungarian scheme could be a niche player among EU immigration programmes, a forthcoming ruling by the Court of Justice of the European Union could fundamentally determine the future of the system. Back in 2022, the European Commission filed a case against the Maltese state over the country's gold visa scheme.
The main issue at stake is how the legal panel will rule on the question of whether, while citizenship issues are a national competence, paid immigration schemes may violate the "principle of sincere cooperation". In simple terms, the main question is how far a member state is allowed to admit foreigners to the territory of the confederation by partially extending EU citizenship to them.
The ruling is expected by the EU executive and the market this summer, and could be a game changer. A precedent-setting decision could be made at the starting line if the court rules that the gold visa schemes violate EU law, as Schengen matters fall at EU level.
Interestingly, the Hungarian guest investor scheme - although it does not grant citizenship rights, and in fact only provides a residence permit instead of a permanent residence permit - may be the only gold visa scheme still in operation in the EU when it enters into force on 1 July.
There is a lot of interest in the programme, even from the largest agencies in the immigration management market, but many have doubts.
A representative of a global company interviewed by Portfolio highlighted three problems:
- The international and diplomatic situation is uncertain because of the aforementioned EU Commission case against Malta,
- Although the scheme is only three months away, still very few details are known, the government is not yet in talks with representatives of the big agencies, and the Hungarian contractors who are peddling the scheme are also unable to provide credible information, most of them seem to be just "gamblers".
- And in the case of the previously notorious resettlement bonds, many clients complained that they had not received their money from the designated companies, which is why both clients and some intermediaries are still sceptical.
"Although the interest is huge, it is difficult to promote the programme without knowing exactly how the system will work and what guarantees the guest investors will get, only 3 months before the launch", a foreign agency manager told Portfolio.
The Hungarian scheme is interesting mainly because there are already many advertisements in China about the property-based and home-buying scheme, which would also provide residence permits for family members, but it might be Beijing that will ask the Hungarian state for stricter measures. As our source said, asset rescuing and transfer is harder to restrict for gold visa holders, and China would avoid this.
The source believes that the recent police cooperation with the communist state could be extended to this later.
At the same time, Portfolio understands that not all of the world's largest debt settlement and brokerage firms are as worried as our source. Everyone is waiting for the details to be published, as several have told Portfolio in recent months.
However, the scheme is expected to create tensions in the real estate market, based on the experience of the Portuguese gold visa regime, which is expected to be fully phased out in the coming years, while having a moderate positive impact on public finances and the national economy.
Portugal's programme has produced mixed economic results
The Portuguese investment resettlement scheme has been one of the most popular in the world among foreign investors since its launch in October 2012. It has offered a number of benefits, such as permanent residence, free movement within the Schengen area, family reunification, and the possibility of permanent residence and Portuguese citizenship after six years.
The option requiring the purchase of property worth at least €500,000 was the most popular investment option, attracting more than 12,000 applicants and more than €7 billion in total investment in a decade.
However, the impact of the scheme on house prices and affordable housing for local residents has been a cause for concern, according to an analysis by the EU Tax Observatory just presented in Paris.
The research takes a three-step approach: it estimates the impact of the €500,000 threshold on transaction prices and fiscal revenues, and presents the results of a large sample representative survey of the Portuguese population on public perceptions of the gold visa scheme.
According to the survey, although €500,000 was considered a very high price on the property market at launch, by the end of the second year there was already a 60% increase in this price range on the supply side. Typically, cheaper properties were simply priced up to make them more saleable to foreign investors.
According to the analysis, the notoriety of the scheme has influenced Portuguese buyers and sellers to overestimate and overreact to the importance of the scheme's introduction, leading to a rise in prices. (Portfolio has previously predicted similar effects in an analysis of the likely impact of the guest investor scheme on the property market.)
Sellers have also introduced a "golden visa premium": house prices are on average around €38,000 above the after-tax threshold. According to the researchers, the scheme has thus increased top-end house prices by an average of 15% near the threshold. The analysis also shows that, compared to transactions in the pre-reform period, buyers have opted for older but larger houses in less central areas, which is exactly what the Portuguese population was looking for before the programme.
According to the official justification, one of the main objectives of the golden visa programme was to create jobs and stimulate economic activity, but according to the EU Tax Observatory, almost the only significant expansion was in the real estate sector. However, there was also a more subdued job creation in related industries such as construction, property management and legal services.
Between 2012 and 2020, the golden visa programme directly and indirectly created more than 42,000 jobs in Portugal.
However, the impact of the golden visa programme on the labour market has been mixed: investment in the construction sector has been concentrated mainly in high-end property developments, which have absorbed highly skilled workers in the construction sector and tied up capacity, thus holding back lower-priced property developments.
The gold visa scheme has generated significant revenue for the Portuguese government as applicants have contributed to various public funds as part of their investment requirements. Between 2012 and 2020, the programme generated more than €5.6 billion in investment, much of which was spent on public projects and initiatives. For example, in the "Capital Transfer" category - which requires investments of at least €1 million in Portuguese companies or to finance public debt - investments have contributed to raising funds for national development projects and reducing public debt, according to the EU Tax Observatory report.
However, the budgetary impact of the golden visa programme is not entirely positive. Critics also argue that it has led to a loss of tax revenue, as gold visa holders have taken advantage of Portugal's favourable tax regime, such as the benefits granted to non-residents (NHR). This includes a flat income tax rate of 20% and no tax on foreign source income.
Polling data in the survey shows that the Portuguese public is significantly inclined to abandon the golden visa programme, despite its potential economic benefits. This view is particularly strong among older, educated Lisbon residents, who are driven by concerns about housing affordability and the wider social impact of the programme.
That's why the Portuguese government has finally suspended the property-linked investment scheme from 2024, but as mentioned above, there are also plans to stop the whole scheme due to EU pressure. The question is what situation the new scheme could create in Hungary, but answers are still to be expected by 1 July at the latest.
Cover photo: Getty Images
