The property buying process in Portugal is relatively easy and hassle-free. Below is a general guide aimed at familiarising you with what to expect when purchasing Portuguese real estate.
Foreigners can buy property in Portugal without restrictions but the process varies a little from that in the UK. A good, English speaking local lawyer is essential to assist you in the purchase of your property and will ensure you do not fall victim to any potential pitfalls.
As with all property purchases the world over, first it is essential to work out your specific budget and criteria for buying, as well as consider what factors are important to your specific needs. In addition, a finance plan is also necessary, along with current information from banks and lending institutions so that you are well informed prior to finding your dream property.
It is important to note that residential property legally must have the following documentation:
- Habitation Licence for all property constructed after 1951
- Official record at the Land Conservatory
- Caderneta Urbana (detailed description of the property) from the Tax Office
The Notary and The Lawyer
As in many foreign locations, the Public Notary is a legal professional responsible for the witnessing (not conveyancing) of your property transaction. The notary is not a legal advisor and will not be held responsible for any irregularities in contracts he is to witness. It is therefore of utmost importance to hire a good lawyer to keep up to the mark on the state of legal documents, payments and permits pertaining to your purchase. They will also obtain your obligatory fiscal number and arrange for your payment, if necessary, of the CEMI, a variable state tax payment, prior to completion of sale.
This contract details all the conditions of the sale is a legally binding contract that is witnessed by the Notary. At this time, you are required to pay a deposit (usually 10% of the property value). Should the vendor withdraw from the sale after signing this document, he will be obliged to pay you double this amount and if you pull out, you will lose your deposit to the vendor.
The Act of Sale
Normally you will be ready to sign the Act of Sale, or Escritura de Compra e Venda three or four weeks after the Promissory Contract, once all the legal checks and transactions have been completed. The Notary verifies all necessary documents are correct prior to the actual payment taking place. Finally, you will receive a photocopy of the entry of sale which will be signed and sealed, and your new ownership will then be registered at the land registry.
It is wise to set aside 15% on top of the purchase price to cover transfer taxes, notary fees (2.5% of property price), stamp duty, mortgage arrangement fees and surveyor’s fees. Legal fees are normally set at between 1 and 2% of the property price. A power of attorney will set you back a further approx. 200 GBP if you are unable to be present for the Act of Sale.
If you are building a property, 17% VAT is chargeable on all your building materials and builders’ costs.
Should you be purchasing property in Portugal that you do not intend to live in permanently, the Portuguese law requires you to nominate a fiscal representative (your lawyer or a good friend) to receive your correspondence from the Portuguese tax authorities.
Euro mortgages are available for foreigners in Portugal to fund between 60 and 80% of the property price and will vary according to bank and your particular financial background. Both repayment and interest only mortgages are widely available with fixed and variable rate options. Currently interest rates in Portugal are low, at around 3.40% (2007).
The maximum loan term spans 30 years and the minimum loan value is set at 20,000 GBP. Lenders will not normally take into account rental income when calculating an applicant’s level of borrowing.
Some developers of off-plan developments offer buyers installment plans over a period of years. Charges applicable vary according to developer and repayments are index linked. Although these deals can sometimes be highly beneficial, it is always advisable to shop around for the best mortgage or other finance arrangement to suit your needs.
If you own property in your own country and would like to borrow against this in an equity release plan, it is recommended that you look for an independent financial advisor to assist you in raising the necessary finance.