Where to Buy Property in Portugal
Buying a property in Portugal offers the promise of playing golf all year in your shirtsleeves, then eating freshly caught fish at the quayside brasserie while watching the sun set over the Atlantic Ocean. Portugal is, roughly, 600 kilometres north to south and 200 east to west yet most of the British buyers fit into the most southerly 10 kilometres – the Algarve.
Those of us who venture to the north will discover attractive and mountainous countryside where villagers still enjoy a distinctly old-fashioned way of life. Up here it snows in winter and bakes in summer, although on the coasts the summer heat is made more bearable with cooling Atlantic breezes. Porto is Portugal’s second largest city and a World Heritage Site, with expensive property. Go a few miles inland and there are village properties as cheap as anywhere in Europe.
Central Portugal, although there are other smaller mountain ranges and forests of cork and oak, is famous for its gentle rolling hills and plains full of wheat. Countryside properties in this part of Portugal are a good and affordable alternative to rural France and Italy, although you may struggle to find another English speaker. The coast north of Lisbon is known as the Silver Coast, and has been slowly developing over the past 25 years as lovers of Portugal look for an alternative to the Algarve. Its most famous town is the medieval walled city of Obidos, rightly famous these days for its golf courses.
Immediately south of Lisbon is the coastal resort town of Sesimbra, centre of the up-and-coming Blue Coast. It is particularly popular with Lisbon’s well-heeled residents, being just 30 minutes away. Further south again is the Alentejo region reaches the ocean in a series of beaches that can seriously claim to be about the best in the whole of the Iberian Peninsula.
Then you’re in the Algarve. For a long time Portugal stayed slightly below the radar as British buyers headed off to explore “new” destinations like Bulgaria or Cape Verde. So it didn’t overdevelop like southern Spain and remains an authentic and affordable choice. Many Britons, especially among the retired, have taken to its friendly and laid-back vibe and now 10 per cent of the population in towns like Albufeira are British. There are some seriously high-class golf communities here, but also affordable property in the coastal villages. Even more affordable are the communities of the inland Algarve, still with warmth and golf, and easy access back and forth to Britain all year via Faro Airport.
Most UK buyers head the Algarve for its Mediterranean climate, beautiful beaches and world-class golf resorts. Faro airport is well-supplied with flights and is an easy half-hour drive from popular spots on the central Algarve. The “Golden Triangle” area – around the five-star resorts of Quinta do Lago and Vale do Lobo and the town of Almancil – certainly draws many buyers but you’ll pay a premium for buying there. You can buy a three-bedroom apartment at Quinta do Lago for €500,000, but villas tend to top €1 million.
Your money goes further if you head inland – you might get a lovely four-bed villa in the hills near Loule for €600,000; or west to the popular resorts of Vilamoura (two-bed apartments for €100,000) or Albufeira, similarly priced and also a holiday rentals hotspot popular with the northern European “snowbirds” who winter on the Algarve. There are big plans to expand the facilities at Vilamoura marina from 2016 onwards. If you find the stretch between Faro and Albufeira is a little too developed – or pricey – you can head west or east.
West around the attractive fishing town of Lagos – home to stunning sandy beaches - has been very popular in recent years – in fact it is now the hot spot for agents in 2016. Prices fell by a good 30 per cent, but have now gone back up again – and more. You’ll get a villa for €220,000-300,000. The resort of Praia da Luz is also popular – you’ll easily get a three-bed villa for €250,000 or a quaint little fisherman’s house for €120,000.
The Eastern Algarve around Tavira is also worth checking out, a lovely little stretch of little harbour towns, sand bars and beaches (and even its own classy golf resort, Monte Rei) from which Spain is easily reached. You’ll fine plenty of choice with a budget of €200,000, and the nearby little village of Cabanas is even more affordable. The French love it in the east so prices are beginning to rise. Or go inland, where in the vibrant little village of Sao Bras de Alportel you can get a choice of two-bed properties for €90,000.
Lisbon is a fabulous city being rejuvenated by overseas buyers – especially Chinese investors – and the popular suburbs of Cascais and Estoril appeal to expats and retirees for whom the Algarve is too sleepy or seasonal.
South of Lisbon is the rural Alentejo region that attracts discerning travelers but fewer home hunters than the Silver Coast – north past Lisbon. Here, where the rolling hills and vineyards meet the Atlantic in hundreds of kilometres of sandy beaches there are some striking contemporary villas, especially around Obidos. Apartments (and smaller townhouses) start at €100,000 to €150,000, villas from €250,000. Other hotspots are the charming town of Leiria and the Praia D’el Rey resort.
How to Buy Property in Portugal
As with any property purchase, first determine your budget and exact requirements. Portugal may be a relatively small country, but from an old farm ready for conversion in the Douro valley to a golf villa or ocean-side apartment, there’s plenty of choice. There are many well publicised developments and English-speaking estate agents, but remember that outside the main tourist areas many properties are sold privately. So, look out for ‘For Sale’ signs – vende-se or para venda – and approach owners direct.
Before serious negotiations begin, appoint a lawyer (advogado), to work on your behalf. There are many English-speaking lawyers in Portugal and it is vital you fully understand all legal documents, so do get them translated. You should steer clear of lawyers recommended by developers – they are unlikely to be truly independent.
The better your research and the more you know about the local market, the more ammunition you will have at this stage. Many Portuguese vendors have had a relatively easy time selling to the British over the past decade, but with the market softening you are now in a position to bargain. There might be talk of paying part of the purchase price in cash ‘under the table’ so the seller avoids paying capital gains tax. The practice, although quite common, is illegal and attracts severe penalties. It is also disadvantageous to you when you come to sell, because you will face a higher capital gains tax bill.
Once there is a verbal agreement on price, a small deposit (about €1,600 to €2,400) is paid for the property to be taken off the market while your lawyer prepares the paperwork. Include a clause in the contract that this sum is refundable if your lawyer finds any problems and you decide to pull out. If you are buying off-plan (a new property before it is built) on a new development, normally you are required to pay the purchase price in stages.
If the property is old, now is the time to commission an independent survey (inspecao), although this is not a compulsory part of the buying process. Even if the property is new, if it does not have a builder’s warranty a survey will give you peace of mind. As well as identifying any problems, it will give you some idea how much to budget for renovations and repairs. If you are taking out a UK mortgage, you will need a survey anyway.
To buy a property or even open a bank account in Portugal, you will need a fiscal card (Cartão de Contribuinte) with your tax identity number (NIF). This is the equivalent of a UK National Insurance number. You get the card from the local tax office (Repartição de Finanças) – most towns have one. Take photocopies of your passport along with the original, five Euros and a Portuguese address to which your card can be sent. Your lawyer’s or a friend’s address is fine. Your lawyer can apply for your NIF on your behalf. You will need to notify the tax office if you change address.
Your lawyer will now undertake a series of detailed checks. At the Land Registry (Conservatoria do Registro Predial) he will ensure the property comes with its own title deeds and examine detailed information about ownership, boundaries and encumbrances. The property should have official tax documents available from the Portuguese Inland Revenue (Repartição de Finanças), as well as a description of the property (caderneta urbana). He will make sure the vendor has paid his annual property taxes and the rates registration (contribuição predial). Checks should be made with the Local Council (Câmara Municipal) to make sure the property has a habitation licence.
The local authorities can give you information on planning, building licences and project approval. Finally, your lawyer should determine whether all terms and conditions stipulated by the vendor are fair and legal. You may have plans to extend or rebuild - this is the time to investigate all the details. Wait for your lawyer’s report before laying out any cash or signing anything. There have been horror stories of people buying property without adequate checks having been carried out by independent lawyers and now the cases are grinding through the courts.
In the light of your lawyer’s report and survey, you may decide to renegotiate the price or conditions of sale. If you decide to go ahead, the next step is to complete and sign a promissory contract called a Contrato de Promessa de Compra e Venda (CPCV). The signing of a CPCV usually takes place in front of an independent government lawyer (notario). If you cannot be present, you can grant your lawyer power of attorney to act on your behalf. This contract stipulates the details of the Purchaser, Vendor and property, together with all agreed conditions such as fixtures and fittings, completion of building work, mains services connections, all payments, and most importantly for a new build home, the completion date.
The CPCV is the contract of sale and is legally binding. You then pay a non-refundable deposit of around 10 per cent. If the seller subsequently backs out, they have to pay you double the value of the deposit. So, although the CPCV is only a preliminary contract, it is important and you should make sure all your finances and legal paperwork are in order before signing.
There are no currency restrictions on moving money in and out of the country, so it makes sense to open a bank account in Portugal. Some UK banks lend money on Portuguese property under similar conditions back home. Portuguese Euro mortgages can be used not only to buy a property, but also to cover renovation and construction costs. Proof of income is required and potential rental income cannot be included.
Your deposit will be a minimum of 20%, as Portuguese law limits loans to 80% of the property’s value. The loan term is usually 25 or 30 years and must be paid off before the age of 75. You will need life assurance cover. The calculation of your maximum loan is complicated, involving your other outgoings and your ability to service the loan. Suffice to say, the process is more rigorous than in the UK. Euro mortgages’ interest rates are based on current Euro interest rates.
Property Transfer Tax (IMT) is based on a complicated sliding scale, kicking in at €92,400 at one per cent but rising to eight per cent. For the more expensive property, budget for around five per cent in IMT. Stamp Duty is another 0.8 per cent A survey costs between one and two per cent of the purchase price. The notario’s fee will be around one per cent of the purchase price. Your own advogado will charge a similar amount between one and two per cent.
All professional fees are subject to VAT (IVA in Portugal). If you are taking out a Portuguese mortgage, expect to pay an arrangement fee of around 1.5 to two per cent of the loan value. You may have to pay the first year’s IMI (Imposto Municipal sobre Imóveis), the equivalent of council tax in the UK, currently 0.4% of the property’s official valuation defined by the local municipal tax authority. Some of the above fees are negotiable - the taxes are not.
Completion of your purchase takes place with the signing of the deed of transfer (Escritura de Compra e Venda) in front of the totally impartial notário. You will need to bring your passport with you. He will ensure the title deeds have been exchanged and understood by all parties. If you do not speak Portuguese, the notário may insist on a translator being present. After the signing of the Escritura, the notário witnesses the final payment, or an acknowledgment that it has been made, and incorporates this in the title deed.
All taxes and official fees must be paid at or before this time. After the title deeds have been signed, they must be registered with the local land registry. Your own lawyer usually takes care of this. This process can take several weeks or even months. When you have the title deeds back, the transaction is finished as far as the Land Registry office and the tax office are concerned.
Continuing commitments include buildings and contents insurance, with additional cover if you are renting the property out, and utility bills. If you are a non-resident spending less than six months a year in the country, you must appoint a specialist Fiscal Representative in Portugal responsible for your payment of local annual property taxes (IMI) and the payment of any income tax on rental income that might be due. Your lawyer should be able to give you the name of a specialist. Non-residents must make an annual income tax return if they receive income from letting property.
This income will be taxed at a flat rate of 15%. Mortgage interest payments are not deductible, unlike repairs and maintenance expenses. Portuguese inheritance and gift tax was abolished in 2004, in relation to close relatives, parents, spouses and children. You may, of course, still have to pay inheritance tax back in the UK.
Who does what?
When you come to view property in Portugal, it’s a legal requirement that all estate agents are professionally licensed and qualified. When considering using an agent, ask to see his certificate of qualification. The agent’s licence should also be displayed.
Choose an agent who’s a member of a professional association, such as the Associação de Mediadores Imobiliários (AMI), Sociedade de Mediação Imobiliária or the Associação dos Mediadores do Algarve (AMA). For added security, it’s reassuring if the agent’s also a member of an international body, such as the European Federation of Estate Agents. Although they must be licensed and qualified, estate agents in Portugal aren’t regulated. They don’t need to have professional indemnity insurance and the majority isn’t covered by consumer protection laws.
If buying in a touristy area, be vigilant no matter what they promise, if they’re not registered and licensed, steer clear of them. Before viewing property with an agent, you might be asked to sign you to sign a document stating this is the agent who has introduced you to the property. This protects the agent’s commission should you go on to obtain particulars by other means and then purchase the property.
You can’t try to arrange a sale directly with the owner to avoid paying estate agency fees. Commission fees to agents range between five and 10% (with the average around six percent). This is usually reflected in the price, but you should check if there are any extra fees or charges you’re expected to pay before you make an offer. When you pay a deposit, it’s crucial you make sure your money’s going into a separate account from the agent’s (preferably, into a bonded account). Not every Portuguese agent has indemnity insurance, and often, those that do are only covered for a small amount of money.
Taxes and Fees
Once you’re close to exchanging, you will need to personally apply for your NIF (Número de Identificação Fiscal) – your Tax Identity Number in Portugal. You will be required to have this NIF number when buying your property, but also when opening a bank account, dealing with utility companies, taking out insurance, dealing with the tax authorities, or buying a car. So, it’s worth being prompt about sorting this out.
The tax you pay when you buy a property in Portugal will normally depend on whether you are a tax resident there or not. Tax residence is determined by a number of factors – including how long you spend in that country, if your main home is there and if your main economic interest is there. If you become a tax resident in Portugal, then you would normally stop paying taxes in your home country and pay there instead.
IVA (VAT) is payable by the purchaser when the vendor is considered a developer who pays IVA and/or this is the first time the property has been sold or transferred.
The VAT rate is a flat rate of 23%. Stamp duty is payable at the rate of 0.8% where VAT is payable.
If the house you’re buying is a resale (second transfer) property, then you will also need to pay Transfer Tax (Imposto Municipal sobre a Transmissão Onerosa de Imóveis). This will need to be paid to the Portuguese Tax Authority within 30 days of the date the title deed is signed. You may also need to pay Mais-Valias, which is a tax based on the increase in the value of the land since the last transfer, although this is not normally a huge amount.