Property Buyers Advisory Guide to Portugal & The Algarve

21st November 2019

Why buy a luxury property in Portugal?

The Portugal Golden Visa program has proven to be the most popular scheme in Europe with investors attracted to its flexibility and benefits. Launched in 2012, the investor visa program has been actively promoted internationally by the Portuguese government. An investment of €500,000 (or €350,000 reduced option) in real estate in Portugal will gain a residency permit for a family including dependent children. The Golden Visa can be renewed every two years providing the applicant spends two weeks in the country every two years. Portugal is also one of the most inheritance tax-friendly environments in Europe.

Portuguese luxury property financial planning

The first thing we would recommend you do is sit down and review your numbers, ideally even before you start looking at properties.

It may be that you can afford to spend more than you had thought with some thorough financial planning.

Luxury Portugal villa Mortgages

Even if you have sufficient capital to buy property in Portugal outright, you may wish to consider using a mortgage to fund the purchase for various reasons:

– Fiscal: you may be eligible for tax allowances
– Financial: you may earn a higher rate of return on capital invested than you would pay to service a loan
– Security: a bank will carry out its own due diligence and only lend against a property that meets its criteria
– Overseas purchasers generally need a minimum deposit of 20% of the property’s purchase because borrowing varies from 60% to 80% of the purchase price, depending on the lender with loans available on a variable rate or fixed rates
– Mortgage applications require a property valuation before a loan is approved.

In order to explore all your financial options, we strongly advise you to schedule a meeting with us so we can understand your lifestyle plans

The process of buying a property in the Algarve

Once you have found a property, the procedure is generally as follows:

– With finances in place, and an offer accepted, you need to find an English speaking lawyer, especially if you cannot speak Portuguese.
– Once a provisional offer has been accepted, the buyer will often lodge a Reservation deposit with their lawyer as proof of their intention to complete the purchase although both the vendor and purchaser can still pull out of the sale at this point.
– Prior to signing a binding contract, usually about two weeks after an offer has been made and accepted, it is essential that you instruct your legal representation to carry out due diligence checks on your behalf.
– This should include checking the legal status of the property, that it is free of debts and charges; that utilities and community fees are paid and that there is correct planning permission and licenses for future improvements
– Your lawyer requests a fiscal number on your behalf from the Tax Office
– The Promissory contract (Contrato de Promessa de Compra e Venda) is the only legally binding agreement between the purchaser and the vendor that will be drawn up by your lawyer. Included will be the negotiated terms of sale including price, payment schedules and completion dates. The agreed deposit amount is paid to the vendor with the signing of this contract, usually between 10% and 30% of the property price.
– The final stage is when the deeds are signed at the notary’s office. At this time, the balance of the purchase price is paid and the notary enters the transaction into the official records.

There is a lot of information to digest, so if you prefer, we would be happy to arrange a meeting and we can get more of an understanding of your financial requirements and help with your fiscal planning.

Portuguese property purchase taxes

Aside from the actual purchase price, there are extra costs that you need to consider. You generally should allow 5-10% on top of the purchase price to cover things as:

– Purchase Tax IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis) which is based on a sliding scale from 0% to 8% of the declared value
– Notary charges
– Stamp Duty
– Legal charges usually cost 1% to 2%. Find out how much your lawyer will charge before you instruct them to do any work!

Portuguese Property Survey costs

Surveys are not compulsory but we always recommend them. In the case of mortgage requests, it is the bank that will carry out the survey prior to granting the mortgage.

Currency exchange in Portugal

Currency prices fluctuate all the time so it is a good idea to fix your rate via a specialist foreign exchange company. You can literally lose or save thousands of euros depending on the currency provider you use. In most situations, a specialist FSA regulated currency broker can offer you a much better exchange rate than your bank. Please contact us for our list of recommended currency brokers. We recommend you only use brokers regulated by the FSA.

Cost of property ownership in Portugal

Once you own a property in Portugal, it is important to understand the associated expenses. These include Council tax, in Portugal is called ‘Imposto Municipal sobre Imóveis’ (IMI). Rates are calculated on the property’s rateable value and vary from 0.3 per cent to 0.8 per cent, according to the local council and property type. As a guide, for a €350,000 villa or townhouse in a tourist area in the Algarve, annual IMI will be circa €400-€800, depending on the property. Often in the Algarve there will also be communal fees, typically known as condominium fees.