BUYING PROPERTY IN PORTUGAL – GUIDE AND GREAT TIPS FOR A DREAM PROPERTY BUY

 

Right, so we found your dream home and you’re ready to embark on the journey of buying property in Portugal. There are a few steps you need to take to ensure you stay on track (and we are here to assist with these). Just read below which are the different steps to buy a property in Portugal and download our quick reference Handy Guide to Buying Property in Portugal.

 

Why buy property in Portugal?

Portugal is home to many expats. The friendly people, slower pace of life in places and unparalleled climate make Portugal an ideal destination to relocate to. While many of expats are retirees, there is a growing community of digital nomads, looking for sunnier climates and a quieter pace of life. Many expats are also finding that residence is easier to obtain than in other countries, such as Spain. Have a look at our Visa Guidance to check some of the types of visa available.

 

Can I buy property in Portugal as a foreigner?

In summary, yes! Any foreigner can buy a property in Portugal, without restrictions on ownership. Depending on your country of origin, you can spend a certain amount of time per year in the country either visa free or with a tourist visa. Usually you can stay up to 90 days out of 180, with a maximum of 183 days per year. If you are looking to relocate, you can apply for permanent visas, such as the D7 visa (that retirees use for example) or the Golden Visa. With either of these visas, you will qualify for permanent residence and Portuguese citizenship after five years.

 

Moving to Portugal – visas and property

If you are looking at buying a property in Portugal and also move to Portugal, this can affect your property choice.

There are different visa options available. Many people believe that Golden Visa is the best and quickest option to buy property and move to Portugal. But, this is often not the case, in our experience. Golden Visa is useful if you want to spend a minimum amount of time in Portugal. If your intention is to actually move to Portugal, you are likely not to need a Golden Visa. Other options, such as the D7 visa are much more suitable, and require only a minimum level of income. And this opens a world of possibilities in terms of property choice, as you are not restricted by the minimum investment amounts set by the Golden Visa, which go from €280,000 to €500,000. Also, by the end of 2021 you will no longer be able to buy property under the Golden Visa scheme in areas such as Lisbon, Porto and Algarve.

 

Property prices

Prices vary greatly, depending on location. The main cities, such as Lisbon and Porto have become incredibly expensive in the last few years. As Portugal became more popular as a tourist destination and many people acquired Golden Visas through property ownership, the real estate market grew exponentially. The same has happened to the Algarve region. Fortunately, this is not a widespread phenomenon across the whole country. Central Portugal is still an incredibly affordable region for anyone looking to buy property. With its rolling green hills, warm climate and slower pace of life, this region is a real dream for many expats. As an indication of what’s available, you can easily find 3 bedroom houses with fairly large pieces of land from in between 100 to 200 thousand Euros, some even with a pool!

Watch our video below for a better indication of house prices across Central Portugal.

 

Types of property in Portugal

When buying property in Portugal, these are the different terms that you need to know:

  • Moradia is the name for a detached home.
  • Moradia Geminada is the name for a semi-detached house.
  • Quintas or Quintinhas are rustic houses or farms. These are the main properties we focus on, the dream of many people that contact us. The plot of land that come with these varies, but we would consider anything with a plot over 2,000 sqm to fit into this category.
  • Terreno means land. If you decide to go down this route to build your own home, do your homework. You must ensure that the land is registered as urban, so you can build on it. Otherwise prepare yourself for some headaches.
  • Apartamentos are individual apartment or flat units that share common areas. These might be within a closed condominium or not and tend to be found in the larger cities.

If you come across the terminology T1, T2, T3, etc.., this refers to the number of bedrooms you can find in a property. This term usually only applies to apartments. The same applies to the term R/C, which means it’s a ground floor apartment (rés-do-chão).

 

The property search

You want to buy a property in Portugal. Where do you start? If you are looking to buy through an estate agent, there are a few things that are useful to know. All estate agents in Portugal are required to be licensed. These licenses are issued by a government body called IMPIC and they are called AMI licenses. Each estate agent is issued a license with an individual number. The license number is usually displayed on their website and at their premises. You can check if an estate agent’s license is valid on IMPIC’s website. At Portuguese Dream, we ensure that all our partner estate agents hold an AMI license.

But, sourcing a property from a licensed estate agent is not always a guarantee that everything is correct. Newer properties and in areas close to the coast, documentation is usually correct. Inland and in older properties, things can get a bit more complex. This has to do with the socio-economic reality of these locations. Rural properties were in many cases transferred orally. Also, in many instances, the declared property and land areas are lower than reality. This relates to people trying to lower their tax bills. As property and land was handed from generation to generation, these issues remained unresolved. So, it’s common to find these kind of issues when buying a property in Portugal. Some are easier to resolve than others, so don’t let it put you off buying a property until your lawyer has checked the situation and gives you advice.

 

Energy efficiency

Another important point that is very often questioned by expats looking to buy property in Portugal, is the property Energy Category. Houses are rated A to F, with A the most energy efficient and F the least. You will find that many houses on the market are in the lower efficiency categories. Building standards in Portugal have only been at their highest in the last 10 years or so. So if you are looking for an A rated home, you should be looking at new builds or renovating an older property. But, bear in mind that there are fixes that can improve energy efficiency. On older brick build properties, you can apply external insulation. Although unlikely to provide the same effect as modern building techniques, it can improve efficiency. Then, there are other fixes, like double glazing and roof insulation. So, be prepared to look into this and budget accordingly.

Buying from private sellers

You also have the option of buying from private sellers. Just bear in mind that documentation will need to checked very carefully, if you want to do it this way. Be sure to involve a reliable solicitor or lawyer, that will do all the necessary checks on your behalf. We do advertise some properties from private sellers on our website. We do take care to select properties that seem to have the documentation in order. But our advice is to always hire a solicitor or lawyer. This can save you a lot of hassle later on.

Building your own home in Portugal

It’s possible to build your own home in Portugal once you buy a plot of land. You can buy a plot already with planning permissions or you must at least ensure that it is registered as an urban plot and what the building restrictions are according to the Council’s Building plan for the region, also known as PDM. The best route to check all this is to always use a lawyer. Get everything checked before you sign any contract or pay any deposit.

You’ll then have to find an architect (arquitecto) and a builder (construtor). Builders need to be licensed by IMPIC, like estate agents. So, ensure yourself that a builder has a valid license by checking IMPIC’s website. For building work in central Portugal, we recommend Concretequação, who have dealt with our own house.

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. Always have a snagging report drawn up before moving in and report to the builder as soon as possible.

Neighbours Right to Buy (or direito de preferência)

If you are buying a rustic (artigo rústico) or mixed piece of land (prédio misto – an urban article inside a rustic article), bordering neighbours have a right of preference. What that means is that the land must be offered to them to buy in the first place. When a price and date for completion is agreed, the seller must inform all the neighbours (with which the property for sale has borders) in writing, by registered post. The letter must identify all the property information, such as the article numbers of the property for sale, the names, addresses, and fiscal numbers of the purchasers, the place and date of the deeds (escritura), and the agreed price. The property’s paperwork must be enclosed with the letter. By law, the vendor must wait 8 days for an answer. If no answer is received, the law assumes that no neighbour wants to buy the property.

If a neighbour wants to buy the property, they must be able to complete on the day that is already arranged, and pay the price already agreed. If more than one neighbour is interested, the seller can offer it up for auction between the interested parties and it goes to the highest bidder.

So, when purchasing a property you must ensure that this has been done and none of the neighbours want to purchase the property (your lawyer should check for you). If this is not done then the neighbours may still have the right to buy at any point in the future.

 

Buying a property in Portugal – location, location, location!

As the saying goes, it’s all about location, location, location! Many people looking at buying a property in Portugal are looking for a holiday home or permanent home in a quiet location, away from the hustle and bustle of their daily life. But it is important that they are not too far away from the necessary amenities, such as shops, restaurants, banks, healthcare, schools and others. Although you can find the bucolic country life in inland central Portugal, you can still find all the main amenities and services needed for every day life. With the aim of helping you with finding a location for your new Portuguese home, we have created Area Guides that tell you about the main amenities and services found in the main Councils we cover. There are plenty, but these are the guides to some of our favourite areas:

River beaches and internet

One of the items we cover on our area guides (and also listings) are river beaches. As an important point for many property buyers in Portugal is the distance from water. With central Portugal being incredibly rich in river beaches, we have identified in our Area Guides the main ones available in each council and the nearest river beach for each property listing.

And finally, another point for consideration is the distance from airports. So, in all our listings you will find an approximate distance from Lisbon and Porto airports, to help with your decision.

Also, Internet availability is a requirement high on the priority list of buyers. You’d be surprised how the availability of high speed fibre internet is in rural Portugal. It is not unusual to see fibre internet with speeds of up to 500mbps available in small villages in rural Portugal. Although information on the speed per post code is not as openly available as we would like, ask us and we will try to find out what is available for specific properties.

Below you can find one of our most popular videos, which gives you a brief summary about some the main locations in Central Portugal.

 

Buying a property in Portugal – Step by step process

Once you have decided which property you are buying, the real fun begins! Selling property in Portugal is often a very personal affair. Sellers can be quite attached to an idea of what their property is worth. This idea can quite often not relate to the actual market value! So, thread carefully when you make an offer, as the negotiation process can quickly go south if your offer is too low. A good estate agent should have an idea of how much their customer is willing to accept, so a discussion beforehand is advisable.

If you are looking at extending or building in the property, you or your lawyer should check the “Plano Diretor Municipal” or PDM, with the local council. This tells you what the building restrictions are in a particular area. This is something that should ideally check before you put in an offer, as otherwise you can be wasting yours and the sellers time.

 

Signing a contract

When an offer is accepted, the next step is getting a promise contract signed, the “Contrato the Promessa Compra e Venda”, or CPCV. It is at this stage that you should definitely get a lawyer involved. Get the lawyer to check all the property’s documentation to ensure all is in good order. Our advice is to never sign the CPCV until your lawyer confirms he is happy with the documentation and highlights any potential issues. There could be small issues to resolve, that you can add as a condition in the CPCV.

It is also at the stage of signing the CPCV that you need to pay a deposit. The standard amount is 10% of the sale value, but it can be different, as long as both parties agree to it. Bear in mind that if you back of the deal after signing the CPCV, legally you will lose your deposit. In the same manner, if the seller backs of the deal after signing the contract, he will need to give you the deposit in double.

 

Transferring the deeds

The timeline to complete the process is also set in the contract. This is usually 2 to 6 months, but can be different as long as agreed by everyone. On the completion date you need to proceed with the signing and transfer of the deeds in a Notary office. This will give you ownership of the house and you get your keys. The presence of all parties selling and buying is required, including the bank if a mortgage is being taken. Alternatively you can give Power of Attorney to someone to sign the deeds on your behalf (usually your lawyer). Money changes hands during this process, usually via a bankers draft cheque. If you are attending and Portuguese is not your first language, you will need someone to translate what is being said for you – this is a legal requirement. Ourselves or your lawyer can do this for you.

Just a small note regarding rustic plots. If you are part of a non-married couple for example, co-ownership needs to be authorised by the Council. This is prior to the transfer of deeds. This is one of those unusual rules, but you must be aware of it. Your lawyer can deal with this.

Getting a NIF, the Portuguese Tax Number

One important point to mention is that you will need to get a Tax Number (NIF or ” Número de Identificação Fiscal”) from the Portuguese Tax Office for signing the CPCV and certainly for the time when you will sign the deeds. A NIF is also required to open a bank account in Portugal.

Also, it’s important to note that from 01/01/2021 (BREXIT), UK residents cannot ask for a NIF directly. Because residents in third party countries legally need to have a Fiscal Representative that has residence in Portugal, you need to nominate a Fiscal Representative that can request the NIF on your behalf. This can be anyone, as long as they are willing to accept that they take responsibility for your fiscal matters in Portugal. Lawyers, solicitors or accountants usually can do this for you, for a fee. But you can choose a friend that resides in Portugal. UK residents that already have a NIF will also need to nominate a fiscal representative. The deadline to do so is June 2021. After that, fines might apply. EU residents do not require a Fiscal Representative.

Taxes to pay when buying a property in Portugal

Taxes are paid just before you sign the deeds, usually one or two days before. These need to be paid at any Portuguese Tax Office. There are two main taxes that you pay when buying a property in Portugal:

  • Imposto Municipal sobre Transmissões (IMT), translated as Council Tax over Transfer (of property)
  • Imposto de Selo (Stamp Duty)

IMT is the one that seems to confuse most people, as it is variable depending on how a property is registered. These are the variables on IMT calculation:

  1. Location – Mainland Portugal OR Madeira and Azores islands (lower in the islands)
  2. Purpose you are buying the property for:
    1. For you to live in permanently (“Habitação própria e permanente”)
    2. Second house or for rental
    3. Rustic plot
    4. Other urban plots and other acquisitions
  3. The value you are buying the property for.

Here is how the tax applies (we will consider mainland Portugal for all purposes):

 

Buying as Permanent Residence

Buying ValueTaxTax Rebate
up to 92,407.00 0%0.00 €
92,407.00  to 126,403.00 €2%1,848.14 €
126,403.00 € to 172,348.00 €5%5,640.23 €
172,348.00 € to 287,213.00 €7%9,087.22 €
more than 287,213.00 € to 574,323.00 €8%11,959.26 €
over 574,323.00 €6%0.00 €

Buying as Second Home or Rental

Buying ValueTaxTax Rebate
up to 92,407.00 1%0.00 €
92,407.00  to 126,403.00 €2%924.07 €
126,403.00 € to 172,348.00 €5%4,716.22 €
172,348.00 € to 287,213.00 €7%8,163.09 €
more than 287,213.00 € to 550,836.00 €8%11,035.35 €
over 550,836.00 €6%0.00 €

For rustic plots, IMT is a straight 5% over the whole value.

Other urban plots and other acquisitions the values is 6.5% over the whole value.

 

Considerations when calculating tax

First check if the sale value of the property is lower than the registered value in the Tax Office (the Valor Patrimonial Tributário or VPT), as in that case the tax will be applied on the VPT rather than the buying value. Although unusual, as VPT values are normally lower than market value, always check.

The second thing to consider is that many houses in rural Portugal are registered with different articles. Because properties can be registered with one urban article and with one or more rustic articles. So check this, as 5% IMT applies to rustic articles. What is usually done is to give the VPT value as the sale value (which is usually low) to make sure the tax bill is as low as possible. Always check this, to avoid surprises when paying your tax bill.

There are also other scenarios, where you find houses where there is no urban article and the house is sitting in a plot registered as “Other urban plots and other acquisitions”. This is a different situation altogether, as that means the house is not strictly legal and no one should be living in it as such. Because of this, take good legal advice if you find something like this, as it involves submission of project to the Council for approval and  a lot of work involved to get put right. Usually the seller is not willing to do this.

Finally we have Stamp Duty, charged at a flat rate of 0.8% of the sale value.

Remember you need to consider other costs, such as the Escritura (Deeds), usually in the hundreds of Euros.

In the meantime you can use our IMT Calculator – Property Tax Portugal, to have an idea of tax costs for a property purchase.

Portuguese wealth tax

There is another tax you have to consider. If you are buying a property worth over €600,000, you will have to pay a wealth tax, also know as AIMI. Rates are 0.7% for individuals and 1% where combined property value goes over €1 million.

Relief comes via a €600,000 allowance per person, deducted from the value of all Portuguese properties. So, this means couples with joint ownership only face AIMI if properties exceed €1.2 million, and then only on the value above this.

Those not eligible for the allowance pay AIMI on the full property value. However, for both IMI and AIMI, the tax authorities calculate property value using the Valor Patrimonial Tributário (VPT), which is usually lower than the actual sale value.

Getting a mortgage when buying a property in Portugal

If you are looking to get a mortgage with a Portuguese bank, the process is identical to many other countries. Most banks provide mortgages for terms up to 50 years and up to a maximum age of between 70 and 80. The maximum Loan to Value (LTV) is usually between 60% to 80%, which means that you will need a deposit between 20% to 40% of the buying value.

You will have to provide a number of documents to the bank, such as:

  • proof of income, such as pay slips, P60 or other,
  • tax statements,
  • proof of ID
  • credit report
  • bank statements to assess income and outgoing expenses
  • proof of address, such as an utility bill
  • Your Portuguese Tax Number (NIF)

Then, the bank will assess all these against the property value, condition and the Loan to Value (LTV). After your first conversation with the bank, you should be able to run some simulations and have a good idea if your mortgage application will be successful. These processes usually take 2 to 3 months.

Be aware that banks charge arrangement fees for the mortgage and these need to be paid as the process moves along. Make sure you check beforehand with the bank how much you will be charged and when.

Bear in mind that to open a bank account in Portugal, you usually need to be present in the branch and provide ID. There are very few exceptions. As far as we are aware, only Activo Bank (owned by Millennium BCP) allows the opening of bank accounts remotely. In a fast moving world, there might be other banks offering the same service.

If you are looking at transferring money to Portugal, we recommend Wise (previously Transferwise). We have used them for a long time and find they give excellent exchange rates, have low fees and a really good customer service.

Building surveys

To survey or not to survey, that is the question! As much as it surprises most foreigners buying a house in Portugal, building surveys are extremely uncommon. Portuguese buyers, for more reasons than one just do not carry these out. They tend to prefer to engage with a builder they know, if any advice in terms of building work is needed. Advice that usually comes for free.

This makes for finding a qualified building surveyor difficult and an expensive exercise. A survey is unlikely to cost you less than 1000 euros.

At the end of the day, if you really need a survey is entirely up to you. As a buyer, how much you are willing to pay for third party advice? Just take into account your own assessment of the property when you visit. Expensive issues relating to structure and damp tend to be fairly obvious on most occasions and if any issues like that pop up, then a survey might be necessary. Otherwise, unless there is something in particular that you want looked at, a survey might add cost but not necessarily value to your property purchase.

If you do want to carry out a survey, then just let us know as we can put you in touch with a surveyor.

 

After buying a property in Portugal

Utilities – You will need to change all utilities into your name. Water is usually dealt with in Council Offices (Câmara Municipal), whilst electricity or gas can be done via a local agent.

Council Tax (IMI) exemption – if you are buying a house as main residence and not as a second or holiday home, you can claim council tax (IMI) exemption. You have 60 days from signing the deeds to do this at any Tax Office (Finanças). The exemption period varies according to the sale value and goes up to 8 years.

Building work – if the house you bought needs building work, we can recommend local architects and builders that can handle this process and obtain all necessary authorisations from the Council. We can give you you some tips as well (Ricardo is a keen DIY’er), between UK and Portugal we have our share of experience of building work!

Other – there are always other issues that can come up after you buy a house. We are always here to help. We are part of the community in Central Portugal and want you to feel the same.

You can download our Handy Guide to Buying Property in Portugal, that summarizes most of the steps above and find your Dream property!

 

Summary

  • Expenses – Put aside money for expenses (taxes, lawyer, etc.).
  • Tax Number – You will need to get a Portuguese tax number.
  • Solicitor – Get one, you will need it.
  • Marriage registration – Might be necessary to avoid extra expenses.
  • Portuguese bank account – Needed if you are taking a mortgage in Portugal and to pay utilities.

Watch our video – handy guide to buying property in Portugal

We are here to help you buying a property in Portugal

 

We hope that you have found this article useful. Check our FAQ page, that might answer some of your other questions. Now that you have a really good idea of what you need to do to buy your home in Portugal, why not have a look at some of the properties we can source for you on our Search page. Or get in touch with us, you can use the chat function on the lower right corner of the screen or contact us via email at [email protected].