Want to buy property in Portugal? Here’s all you need to know

The cost of living is generally lower than much of the rest of western Europe, and as part of the Schengen visa zone, Portugal allows easy and unfettered access to the rest of Europe and the common travel area between the United Kingdom and Ireland.

Can non-nationals buy property in Portugal?

Yes. Portugal is a member of the European Union, meaning that anybody with a passport from any European Union country, or from any member of the European Economic Area that includes Norway, Iceland and Lichtenstein, can also purchase property there too. Because Switzerland is broadly aligned with the European Economic Area, its citizens can also buy in Portugal.

Right now, with the United Kingdom having formally left the EU as of January 31, British nationals can still purchase property and obtain residency rights in Portugal just as if they were in the EU. The window, however, is closing come the end of the transition period at the end of December 2020 – and the situation is unclear after that.

Portugal should also be strongly considered by non-EU nationals seeking a residency permit. It allows full-time residency for any passport holder on purchase of a €500,000 (Dh2,000,000) property or for €350,000 (Dh1,400,000) if the property is more than 30 years old and within an area designated by the Portuguese government for urban renewal or regeneration zones. It needs to be noted, however, that a residency visa does not provide the right to work but does allow for ease of movement across the EU and the European Economic Area.

Initial steps

• Choose an area or community you want to be part of. A good way to do that is by actually visiting the places and talking to residents there.

• English is widely spoken.

• The regions of Portugal are varied and unique, offering a wide choice of living styles, from the bustling cities of Lisbon and Porto, to the sun-soaked Algarve, to the Madeira Islands and the Azores.

• You can also check house prices and how your home currency fares against the Euro. Right now, the exchange rate equates to Dh4 to every €1.

• There are many property portals such as www.portugalproperty.com or www.idealhomesportugal.com that cater to non-Portuguese clients seeking to invest in a place in Portugal.

Here are some areas you could look into:

Eastern Algarve: This section, between Faro and Spain, is the least developed of the three sections of coastline that make up the Algarve. Characterised by the sandbars and lagoons of the Ria Formosa Natural Park, this area’s principal hotspot is the former fishing of Tavira that has evolved into a cosmopolitan river side town. Other hotspots include Vila Real de San Antonio with its good marina, and Castro Marim for those who want to be close to the Spanish border.

Central Algarve: The central Algarve region around Vilamoura is especially popular with buyers, and this, the most developed and highly populated section, offers many possibilities. Vilamoura itself, a purpose-built resort with a 1,000-berth marina and golf course at its heart, is home to luxury hotels, a casino, sports facilities and beach clubs. It’s also close to the airport at Faro.

Western Algarve: Generally viewed as a bit less developed than the central Algarve, especially as you head to the Atlantic seaboard, this area is one of lovely fishing villages and wide, sweeping beaches. Lagos is the stand-out hotspot – an attractive year-round town.

Nazare: A surfer’s paradise. In 2014 all records were smashed when a surfer rode a 100-foot wave – the same height as a ten-storey building. The town itself has around 15,000 people.

Peniche: A medium-sized town of 30,000 sitting out on a small but spectacular headland with the sea on three sides. It has an attractive harbour, photogenic white windmills and long sandy beaches popular for all windsurfing-type sports and a busy fishing port.

Caldas da Rainha: An historic spa town of 27,000 people with museums and exhibition centres plus a bustling centre of shops of cafes. There’s a network of villages around that offers semi-rural Portuguese life but with access to local services and transport links – the bus from Caldas to Lisbon only takes an hour.

Obidos: A dramatic medieval walled town. It’s not only a local highlight but one of Portugal’s most visited places. It has traditional restaurants serving local fish in the narrow-cobbled streets and wonderful views.

Lisbon: The most westerly capital city in mainland Europe and also the warmest in winter, Lisbon is a city where residents can go surfing in the Atlantic on their lunch break. Lisbon is stuffed with year-round character and now fashionable restaurants and hotels.

Cascais: Thirty minutes from Lisbon airport the former fishing village of Cascais has always appealed as a classy escape from the city. It’s ten minutes from enchanting Sintra, a Unesco World Heritage Site.

Madeira Islands: These subtropical Madeira is growing as an overseas property destination, located in the Atlantic Ocean, around 800 kilometres southwest of the Algarve and 450 kilometres from the West African coast. Madeira, the largest island, is known as the Pearl of the Atlantic for its year-round flowers and is Europe’s most revisited island destination. The main island has many high mountains and a stunning coastline. More than 60 per cent of Madeira is a unique nature reserve with Unesco World Heritage status.

Porto: If the Algarve is a little sleepy for you and yet you love the culture of Portugal, you might want to consider the country’s second city of Porto. This charming location, which is a Unesco World Heritage Site, is the gateway to the beautiful Douro Valley.

Are you going to pay for this with your savings or borrow?

Then choose a bank or a lender for options. Following that you also need to talk to them about transferring money overseas to make payments – the best options in terms of rates, charges, etc. Because the UAE dirham is tied to the US dollar, it retains its inherent strength on the global stage. But the euro is on the rise too, in part because the Brexit situation has been mostly finalised.

The process of buying property in Portugal:

• It’s important to make sure that you use a licensed real estate agent in Portugal. Under Portuguese law, every real estate agent must train and be certified by the Instituto da Construcao e do Imobiliario, (INCI). Agents are strictly regulated, making it quite simple to check on credentials for an agent you may be working with. All you need is their license number from Associacao de Mediadores Imobiliarios, (AMI). All estate agents in Portugal are required to display this number on every type of literature related to their business. This includes their webpage, flyers used for promotion, business cards, and all marketing and advertisement ventures. This makes it extremely simple to check the credentials of a Portuguese estate agent.

• You should ensure the number is valid by visiting the INCI’s website https://www.asmip.pt/. Click on the “Checking Out an AMI Number” link on the website and quickly enter the number. Simply press “Pesquisar” and you will know if the agent is licensed and if the company’s insurance is valid.

• If you find that an AMI license number is invalid, no results will be displayed on the site. You will know instantly that this is a dishonest agent that should be avoided.

• Quite often, if the property is on short-term holiday rental on a weekly basis, the real estate agent may not be able to get you a viewing straight away – you may have to wait a few days until the holiday property is unoccupied or during a changeover of holiday visitors. This happens in popular tourist destinations. Consider it to be a good portent of the popularity and potential if you’re seeking rental returns from your future investment there.

• Once you have decided to buy in Portugal, you should also find a lawyer (advogado) or solicitor (solicitador) to look after your interests in the purchase process. In Portugal there are many that speak English. You can check their status at the Portuguese Bar Association website: www.oa.pt. You can also give them Power of Attorney if you cannot be present yourself to sign documents.

• You will also need a fiscal number (numero de indentificacao fiscal/NIF), which is available from the local tax office (financas), and necessary to open a bank account in Portugal. Do all this before starting on the contract.

There are two stages to the buying process.

• The first is the Promissory Contract (contrato de promessa de compra e venda or CPCV) between buyer and seller, on the condition of the property. This is a legally binding contract, prepared by a lawyer, and needs to be signed on licensed premises or in front of a notary (notario).

• It should include the identify of both parties, the property, confirmation of clear title, price agreed, deposit amount, date of deadline for signing the final deed (Escitura) and the use of the property in the interim period, if required. The deposit is usually from 10-25 per cent of the purchase price.

• A clause can be added (if applicable) stating that it is conditional on any mortgage offer being accepted.

• Once the Promissory Contract has been signed and deposit paid, should the seller default he/she is required by law to repay twice the deposit amount to the buyer.

• If the buyer defaults they would also lose their deposit.

• Following this, the lawyer does searches and checks for encumbrances or mortgages on the property. These checks should include any planning restrictions, outstanding debts, charges or utility bills on the property, that any alterations comply with the habitation license (Licença de Habitaçao) and confirmation that the vendor is the registered owner of the property.

• Also verified will be the property’s boundaries, rights of way, restrictions on use, any survey and whether fixture and fittings are included.

• The second part of the transaction is the Escritura (escritura de compra e venda, or final deed) and this is the point at which the property ownership is transferred to the buyer. As with the promissory contract, it is signed in front of the notary.

• The final contract is then sent to the Land Registry but the notary will issue you with a stamped copy of the Escitura (it is advisable to get more than one copy). There is a fee for the Land Registry. You will also need to register with the tax office (Autoridade Tributária) and all the utilities companies.

Don’t get confused by the paperwork involved:

It is very important to hire a real estate attorney when purchasing property as the property industry in the country can be a little less than clear. A good lawyer will be able to provide more security, along with the advice and local knowledge from a reputable real estate agent.

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• It is very important to hire a real estate attorney when purchasing property as the property industry in the country can be a little less than clear. A good lawyer will be able to provide more security, along with the advice and local knowledge from a reputable real estate agent.

• The process of property purchase in Portugal is quite straightforward. Once a buyer has found a suitable property the next thing to do is to hire the services of a lawyer who will guide and assist the buyer through the process.

• There are no set fees for a lawyer’s services, but most will charge a flat fee that should not exceed €2,000 (Dh8,000).

• Certainly, a licensed real estate agent should be able to advise on these costs.

• A lawyer’s task usually involves drawing up contracts and initiating the process of inspecting the property’s title insuring that no legal snarls will come up after the transfer.

• A search will be made to check the land registry (Conservatoria de Registo Predial) title at the local municipality and another search at the Inland Revenue (Repartiçao de Financas) to ensure the tax registration on the property and that there are no unpaid charges.

• A fiscal number (Numero de Contribuinte) will be acquired for you through the local tax office as this will be necessary for most transactions in Portugal.

• If the buyer is satisfied with the property and decides to buy a promissory contract (Contrato de Promessa de Compra e Venda), details of the conditions of sale and other agreements regarding the transfer will then be drawn. Once this has been signed and notarised, both parties become legally bound to see the transfer through.

• A deposit of 10 to 30 per cent of the purchase price is usually lodged at this stage and the parties will agree with the notary to record a date for the completion of the purchase. The buyer’s next task is to pay the municipal property tax or Imposto Municipal Sobre Transamissoes-IMT.

• The transaction ends with the execution of the Deed of Purchase and Sale (Escritura Publica de Compra e Venda)m which is signed before a notary and officially recorded. At the same time the balance of the purchase price is paid according to the provisions of the Promissory Contract. The property will next be registered in the new owner’s name at the Conservatoria de Registo Predial, after which the transfer is complete.

How long does it take to close a contract?

Closing usually takes 30 to 60 days later and includes the exchange of contracts and settlement of the remaining balance at Notary. When these have been accomplished, the title deeds will be submitted to the Conservatoria de Registo Predial for registration and payment of government duties. These departments are in most cities across Portugal and its islands.

Fees, taxes and duties

As a general rule, you should allow for additional costs of about 8 per cent of the purchase price to cover off legal fees, taxes and other payments to complete the buying process.

1. Property Transfer Tax: This is levied at different rates, depending on the classification of the property you’re buying. The tax base in the selling price of the property of the current market value, whichever is higher. Property transfer tax is levied at a flat rate of 6.5 per cent for urban properties, and 5 per cent for agricultural properties. There are variances however, and your lawyer or real estate agent will be able to advise of the applicable rate.

2. Registration fees: These vary between 0.2 per cent and 1.2 per cent of the property value. Again, your real estate agent or lawyer will be able to advise.

3. Stamp Duty: This is a flat rate of 0.8 per cent and is calculated on the selling price of the property or its current market value, whichever is higher.

4. Value Added Tax: This is 23 per cent on the mainland, 18 per cent in the Madeira Island and the Azores. It is payable on lawyer fees or on other services provided by professionals, such as the Notary, during the transaction process.

What can go wrong?

The property-buying process in Portugal should be relatively straight forward if you use a licensed real estate agent. Expat forums are often a good place to start for recommendations.

A good lawyer eases a lot of potential problems that might make the purchasing process more difficult.

One issue that arises infrequently in Portugal is that a relative may have been left a specific room in a family home as part of a will. Obviously, it’s a complex issue that needs to be resolved and the legal encumbrance removed before any older property can be purchased. Your lawyer will be able to resolve this or similar issues.

Deeds. Make sure that what you’re buying matches the deeds, or if not, that issues are straightened out in the purchasing process before the final paperwork is concluded.

What you need to know:

The Portuguese economy, bailed out by the European Union almost a decade ago, is booming. According to Reuters, Portugal is enjoying its highest economic growth in nearly two decades, fuelled by record tourism, an upswing in the housing market, a growing tech sector and strong exports. Private investment has returned to 2009 levels, helped by foreign investors including Chinese companies.

Some economists fear a lack of public investment is starting to undermine the economy, or worse, could be storing up trouble should another recession come.

And with total debt close to 120 per cent of gross domestic product, one of Europe’s highest, the government has limited room to finance a big investment drive without putting almost a decade of budget repair at risk.

The budget deficit, once 11 per cent of GDP during Portugal’s 2010-14 debt crisis, has been almost eliminated.

A recent report by the International Monetary Fund found Portugal actually had net public investment of about negative 1.2 per cent of GDP in 2016, putting it at the bottom of a list of 26 rich countries, including Greece, Italy and Spain. That means it is not spending enough to offset the depreciation of state assets.

In the hotel sector, which has expanded massively in the past few years, there are growing complaints that failure to expand capacity at Lisbon’s overstretched airport is undermining the tourism boom.

According to Bloomberg, much of the buoyancy in the housing market is a direct result of its golden visa scheme that allows non-EU nationals who invest €500,000 (Dh2,000,000) on property – €350,000 (Dh1,400,000) in areas designated for urban regeneration – to receive a residency visa. Foreign investors have pumped €4.3 billion (Dh17.2 billion) into Portuguese real estate through the residency programme since it began in 2012.

According to Bloomberg, Portugal currently has the most dynamic real estate market in Western Europe.

Property options to suit your budget

The attraction of Portugal as a year-round destination is strong and the property market offers a whole range of investment options to fit your investment ambitions. There are good rental returns on properties in Lisbin, in part because of the success of the Golden Visa programme that has driven property prices up, putting ownership beyond the reach of young Portuguese buyers. Remember that holiday rental options are strong in popular tourist areas, with the possibility of earning this 30 weeks of the year or more. That still leaves you with ample time to savour the slower pace of life in Portugal. Do keep an eye too on the euro to dirham exchange rate.

Dh300,000

Believe it or not, with this level investment you’re well and truly on your way to owning a property in Portugal. Fancy a three-bedroom villa in the mountains northeast of Porto, chose to a village with basic amenities. Or a four-bedroom house in the centre of the village of Sao Jaos de Negrilos. It comes with one bathroom but the good news is you’ll have more than enough left in your budget to be able to renovate it and redecorate it to your tastes. The rental income, however, is limited.

Dh500,000

With this level of investment you’re well one your way to securing a one-bedroom condominium in Tavira on the Algarve coast, and you’re within striking range of a small two-bedroom villa in the same area. This budget will get you similar properties in Vila Real de San Antonia with access to its marina, and Castro Maxim, close to the border with Spain. Certainly, a two-bedroom apartment in need of redecoration or in an older building is within reach. On holiday rentals, you could expect to earn close to Dh1,500 per week at the height of the summer season, but would need to pay for servicing and cleaning from that income.

Dh1,000,000

The town of Albufeira is less than 30 minutes from Faro airport and with Dh1,000,000 to invest, a wide range of low-rise two-bedroom condominiums are very affordable – all with pools at steps from the beach. These offer the opportunity for short-term holiday rents in the height of a summer season, where Dh3,000 net per week should easily attainable, or places on a six-month winter lease for snowbirds fleeing Europe’s winter, should easily earn Dh3,000 monthly. Look for a two-bedroom villa in Tavira or any range of similar properties in San Antonio.

Dh2,000,000

Congratulations! With this level of investment you qualify for Portugal’s golden visa scheme, guaranteeing a residency visa. Even by spending Dh600,000 less, you could get one of these coveted visas if you buy property in an area designated for urban renewal and regeneration. Fancy a three-bedroom villa on a golf course at Casto Marim? How about a two-bedroom apartment close to the centre of historic Lisbon. And, if placed on long-term rent, your investment should see net monthly returns around the Dh4,000 mark. If you like the idea of a modern villa with unrivalled sea views and all amenities close by, look to Albufeira, where Faro airport is 30 minutes away. Your budget will certainly cover a modern low-rise condominium close to Funchal, the largest town on Madeira Island, where much of the territory is designated a Unesco World Heritage Site.

Do Portuguese banks assist foreign buyers investing in property?

The short answer is yes, Portuguese banks will look at non-nationals to finance property purchases, but generally only if you hold a passport from another EU or EEA (European Economic Area) nation.

The key benefit of taking out a Portuguese mortgage is that the lender will carry out legal checks on the property and arrange for a valuation to take place. Another benefit is that should you decide to let your property in short- or long-term contracts, your rental income in euros may offset or cover the mortgage payments in euros from your Portuguese bank, which naturally hedge any currency risk.

In Portugal, there are some 15 banks that provide different mortgage loans and credit to buy a house. These include BBVA, Santander, Bankinter, Banco Best, AND Banco CTT. Each has a different criteria, and you may not necessarily be offered the most suitable loan, or the best deal available.

You may also encounter difficulties with language barriers, but they are a good place to start.

The rental market

Located at the south-western tip of the Iberian Peninsula, Portugal enjoys warmer winters than the rest of Europe. The south and south west coasts of the country in particular are a favourite place for north Europeans to spend the winter. These ‘snowbirds’ often return to the same communities and apartments year-after-year. Certainly, monthly rentals of Dh3,600 are obtainable between November and April.

From June through to the end of September, the summer rental season kicks in, where tourists seek one- or two-week rentals. In peak season, properties can go for Dh3,200 a week.

Remember though, you’ll need to arrange for cleaning and changeovers, plus allowing for wear and tear on your investment from so many visitors passing through. There are rental agencies who can market you property and manage the logistics of cleaning, keys, making sure everything is looked after. Expect to lose up to a third of your short-term rental income in these costs. But for between 30 and 40 weeks of the year, your property will be earning money.

Beware, though, you will face tax issues if you go this route, but a good real estate agent will be able to advise you. The rest of the year, kick back and enjoy life under the Portuguese sun!

Beware of these scams

• If you meet someone who says they work for a real estate company or that they are a real estate agent, ask them for their license number. All real estate agents are required to be licensed and should have a copy of their license number from Associacao de Mediadores Imobiliarios, (AMI).

• Even if you’re provided with an AMI number, make sure it’s legitimate. You should ensure the number is valid by visiting https://www.asmip.pt/. Click on the “Checking Out an AMI Number” link on the website and enter the number. Press “Pesquisar” and you will know if the agent is licensed and if the company’s insurance is valid.

• If you find that an AMI license number is invalid, no results will be displayed on the site. You will know instantly that this is a dishonest agent that should be avoided.

The practice of asking for cash under the table by seller or the agent are a sign that not everything is right. Participating in such a tax-avoidance scheme will have serious implications and complications for you down the road.

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• The person you deal with should behave in a professional manner at all times, offering printed material on any listing they are selling. And they should be able to get access to the property too. If they haven’t or can’t get access, chances are they’re not a legitimate agent.

• Agents should be prepared to put everything in writing. If they want things done verbally, that’s a warning sign. If it doesn’t feel right, chances are it isn’t. Trust your judgement.

• The practice of asking for cash under the table by seller or the agent are a sign that not everything is right. Participating in such a tax-avoidance scheme will have serious implications and complications for you down the road.