Expat guide to buying property in Portugal
If you're attracted to property for sale in Portugal, avoid any pitfalls by reading about regulations and what to expect when buying real estate in Portugal.
When looking at property for sale in Portugal, it's important to be aware of the legal processes and required registrations, plus property transaction costs, capital gains tax and other fees associated with buying property in Portugal. This guide explains what you need to know before signing a contract to buy your dream property for sale in Portugal and finalising a mortgage in Portugal. Will your next home be a villa in Portugal or an Algarve beachside property?
Real estate in Portugal
Around three-quarters of people who live in Portugal own their own homes, a figure that has remained steady for the last decade.
There are no restrictions on foreign property ownership here, and non-EU citizens can get a five-year residency permit (known as a ‘golden visa’) if they buy property worth a minimum of EUR 500,000. In addition to allowing you to work or study in Portugal, the golden visa allows you to apply for permanent residency after five years.
To buy a property in Portugal, you’ll need to have a Personal Fiscal Number (Numero fiscal de contribuinte), which you can obtain from your local tax office. If you choose to open a bank account, you’ll be automatically assigned a Personal Fiscal Number. While you don’t necessarily need to open a bank account, it can be useful when transferring money and making regular payments during the home buying process.
Should you rent or buy in Portugal?
'Should I rent or buy a home? ' is one of the most common questions expats ask upon arriving at their new location. The answer depends on several factors, including how long you plan to stay in your new country of residence, the current property market and the cost of an expat mortgage.
After several years of uncertainty and falling house prices, the Portuguese economy is showing signs of recovery.
Whether you should rent or buy depends largely on location and property type. While renting allows flexibility, long-term lets may be in shortage in popular resort areas, where some owners are happy to charge high rents for short-term holiday lets and leave properties empty during the quiet season. Read about where to live in Portugal.
With the current historically low interest rates, however, buying property in Portugal can sometimes work out cheaper than monthly rent payments. For buyers, property prices in Portugal are on the rise as the economy recovers but are still relatively low following the country's economic crisis. Overall, prices increased by 3.66 percent year-on-year in January 2016, to reach an average of EUR 1,047 per square metre.
Although prices are increasing, it may still take time to make a profit on Portuguese property. As the market has only started to recover, Portugal still represents a riskier housing market than some other European countries, although there is also potential for higher yields in the long term. Capital gains taxes can also take out a significant chunk of any profits (especially for non-residents), as can estate agent fees, so those planning less time in Portugal should consider if they can recuperate costs on their investment in the short term.
How to find property for sale in Portugal
The easiest way to find property in Portugal is to contact an experienced local estate agent (imobiliaria); although you can find some cases of private sales, it is rare.
All estate agents need to be registered with the government and display a licence number (Associacao de Mediadores Imobiliarios). You can find out whether your agent is registered by contacting the Instituto da Construcao e do Imobiliario.
Estate agents in Portugal work on behalf of the seller on a commission basis, so while you won’t need to pay estate agent fees when buying a property in Portugal, you should bear this in mind and take independent advice before jumping in.
Some main property portals are listed below, although there are plenty to choose from if you do an internet search, including some dedicated to certain areas, such as the coastal Algarve area:
- Century 21
- Expatica's listing of real estate agents and housing services in Portugal.
Real estate advertisements can also be found in the main newspapers, including:
Build your own home in Portugal
It is feasible to build your own home in Portugal once you buy a plot of land (Iote) with planning permission. You can check the land’s usage licence (licenca de utilizacao) at your local town hall.
You’ll then have to find an architect (arquitecto) and a builder (construtor). You should obtain quotes from at least three professionals, ensure they are fully insured and check examples of their previous work, as the lowest offer might not give you the best value for money in the long run. Read about building and renovating a home in Portugal.
Builders are responsible for any minor defects that occur within a year of you moving in, and any structural defects for five years after completion. With this in mind, you should always have a snagging report drawn up before moving in to alert you to any possible issues as soon as possible.
Assistance when buying a home
While there are no major government schemes in place to help foreign buyers onto the property ladder in Portugal, the aforementioned golden visa scheme has been popular with foreign buyers since its launch in 2012.
There are some eligibility requirements you must adhere to if you’re applying for a golden visa. For example, you’ll need to stay in Portugal for at least seven days in the first year and 14 or more days in the following years.By late April 2016, the government had handed out 3,247 golden visas and 3,950 family residencies.
Read more about visas and permits in Portugal.
Buying a property in Portugal: making an offer and contracts
Once you’ve found a property for sale you'd like to make an offer on, it’s advisable to invest in the services of an independent solicitor, especially if you’re not a fluent Portuguese speaker. Your solicitor can take charge of verifying contractual information and help arrange a house survey to check if there’s anything wrong with the property.
As with many European countries, you must employ a notary by law. A notary differs from your independent solicitor in the sense that a notary is essentially a ‘middleman’ to oversee the transaction. You can find a notary either locally or through directories such as Notaries Europe or the European Directory of Notaries.
Once you’ve had your offer accepted, your notary will inspect the details of the transaction and check the details of the property with the Land Registry (Conservatoria de Registo Predial) and Inland Revenue (Repartição de Finanças).
If you’re happy to proceed, you’ll sign a contract (Contrato de Promessa de Compra e Venda). Once this is signed, both parties are then legally obliged to finalise the transaction.
At this point you will be asked to pay your deposit and arrange a completion date, before paying IMT (property transfer tax, explained below). Finally, the 'Deed of Purchase and Sale' (Escritura Publica de Compra e Venda) is signed and the property is registered in your name. Read tips on buying a home in Portugal and about mortgages in Portugal.
Cost of buying a house in Portugal
There are a number of additional costs involved. The most significant cost is the property transfer tax (Imposto Municipal sobre Transmissoes, IMT). If the property is your main residence, you won’t need to pay IMT on the first EUR 92,407 of the purchase price. After this, it’s reduced using a scaled system. If you’re buying a holiday home, you’ll need to pay an additional 1 percent of the first EUR 92,407.
IMT costs for residents:
- Up to EUR 92,407: 0 percent
- EUR 92,407–126,403: 2 percent
- EUR 126,403–172,348: 5 percent
- EUR 172,348–287,213: 7 percent
- EUR 287,213–574,323: 8 percent
- EUR 574,323+: 6 percent
Other costs to budget for include:
- Stamp duty (Imposto do Selo): charged at 0.8 percent of the purchase price
- Notary and land registry fees
- Lawyers fees
- Mortgage fees: such as valuation fees and registration fees.
Funding a purchase: deposits and mortgages
Interest rates on mortgages in Portugal reached a record low of 1.2 per cent in January 2016, considerably down on their peak of 2.72 per cent in January 2012. The vast majority (92.3 percent) of people taking out new mortgages in Portugal are on either a fixed rate lasting less than one year or a variable interest rate, meaning the market is very vulnerable to interest rate changes. Read more about getting a mortgage in Portugal.
While major lenders continue to offer mortgages during Portugal's recovery, the market has been shrinking for the last five years, with housing loans down 3.8 percent year-on-year in January 2016.
As with buying property elsewhere, how much deposit you’ll need to pay depends on your individual circumstances, though lending conditions in Portugal have become more stringent since the financial crisis so you could require a minimum of 20 percent, especially if you’re a new resident. Banks offer both repayment and interest-only mortgages, with terms ranging from 10 to 30 years, although mortgages must be repaid by the age of 80.
Finding a translator
The British Foreign and Commonwealth office provides a list of translators and interpreters in Portugal and a separate list of English-speaking lawyers. The US embassy also lists translators in Portugal, broken up into geographical areas.
Selling a property
If you decide to sell a property in Portugal, you’ll need to factor capital gains tax into your calculations.
If you’re a Portuguese resident, you’ll only need to pay capital gains tax on 50 per cent of your gains, although you can deduct the costs of any improvements you’ve made to the property in the five years before you sell it. Your rate will depend on your circumstances, as capital gains tax is factored into your overall income tax in Portugal.
If you’re not officially a resident, however, you’ll need to pay a fixed rate of 28 percent on all capital gains.
When selling your home, you’ll also need to factor in estate agent costs, which can take a chunk of your overall profits. Real estate agents in Portugal can charge around 3–5 per cent (plus 23 percent Value Added Tax/VAT) of the property’s value.
Tips for internationals
Property, like other assets, is subject to cycles of growth and decline, so be sure to research the property market and local interest rates for international mortgages in Portugal.
You can check out local expat Sam Milner’s tips on buying a home in Portugal, or ead about the top 10 mistakes made when buying abroad to make sure you avoid common pitfalls. Some expats decide to build their own homes or renovate and repair older buildings; this is what blogger Janet Rogers and her husband chose to do in 'Negotiation a la Portuguese'. Next, check out an in-depth article, building and renovating in Portugal, written by a pair of local architects who detail everything you need to know about building or renovating that dream home in Portugal.
It is worth seeking professional advice on your expat mortgage details and building permits, especially if you don’t speak Portuguese. You can search for English-speaking mortgage advisors and estate agents in Expatica’s A–Z listings under the financial, banking and housing categories. Plus, visit our Expatica’s forum section to ask our moderators and other expats for advice on buying or building a home in Portugal.
Advantages and disadvantages of buying a home
An Expatica housing survey showed that expats across Europe believed the advantages of home ownership included long-term investment, building up capital and the freedom to renovate one's home. The survey also showed that expats, when taking out mortgages and buying homes, experienced problems such as complicated administrative procedures, high taxes and legal fees, incompetent real estate agents, high prices and a lack of public records for house-price comparison.
Find property for sale in Portugal using Expatica's portal.
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