Buying a Property in Portugal

Portugal has developed in recent years as an excellent alternative to other European real estate markets. Buying a property in Portugal has become very popular among international investors for various reasons:

  • high quality of life
  • advantageous tax models
  • cheaper real estate prices
  • very good value appreciation 
  • high cultural diversity

We at Pearls of Portugal offer the leading buyer’s agent service for buying a property in Portugal and always have selected offers on our website. We are the market leader for accompanying international customers in Portugal. 

If you have any questions, please do not hesitate to contact us!

How to buy a property in Portugal

When buying a property in Portugal, it is advisable to have a lawyer accompany the purchase process in case of any ambiguity. We cooperate with several trustworthy lawyers. The costs for the most important lawyer services are included in the fixed price when working with us.

Our lawyers examine the legal situation of the properties. The focus is on the legitimacy of the seller, the existence of encumbrances, and the completeness of the documents. In addition, it is checked whether the property even officially exists in the form visited. It can also be checked in advance whether the basic requirements for a later tourist rental are met. When buying a property in Portugal, it is always advisable to have a survey carried out before the purchase. This can be included as a separate clause in the preliminary contract.

The Portuguese land register (Registo Predial) contains the legal registration of the property and provides information on how the property is constructed. However, you can also obtain information about the legitimacy of the seller and the financial encumbrances of the property. The Caderneta Predial is the extract from the tax register with information about the tax situation and tax obligations associated with buyng the property in Portugal.

The checks are included in the pre-contract of sale (Contrato de Promessa de Compra e Venda – CPCV) that is customary for the purchase of a property in Portugal. The preliminary contract is legally valid even without notarial involvement. It is also possible to register the preliminary contract at the Land Registry office in Portugal, but this is not common.  If one decides to do so, the real estate transfer tax IMT of the regular purchase must be paid already to the preliminary contract. If the purchase does not take place, the tax is refunded within 30 days.

It is customary to pay a deposit of around 10% of the total amount. In the preliminary contract, the seller must already provide the necessary energy certificate of the property. The same applies to an extract of the land register entry. The preliminary contract must include the corresponding registration numbers of both documents, which should always be checked. In addition, houses built after 1951 should have an official license of use (Licença de Utilização) that corresponds to the actual structural conditions. The same applies to additions, outbuildings, or garages. It often happens that not all documents are complete. This is per se not a serious matter and will be dealt with accordingly by your lawyer.

The CPCV usually contains a time clause that obligates the buyer to complete the notarized purchase contract. Normally there are 2-3 months for scheduling the notary appointment. However, this period is negotiable and does not have to be completely exhausted. Important clauses or conditions for the purchase are also included in the preliminary contract. Otherwise, claims for damages are usually formulated in case the actual contract does not materialize. The buyer is liable with his down payment of approx. 10% of the purchase price if he withdraws from the purchase without justification. Sellers are required by law to pay back to the prospective buyer twice the down payment (i.e. the down payment plus the same amount as a penalty) in the event of non-compliance with the preliminary contract. In the preliminary contract, the seller must also disclose or list existing tenants.

The subsequent purchase contract requires a notarial form.  The contract is formulated by a traditional notary or solicitor and does not contain essential clauses agreed between the buyer and the seller. These are part of the preliminary contract. In contrast to other countries, the usual registration of the buyer in the land register is not required for the actual change of ownership, so the buyer becomes the owner of the property in Portugal upon the conclusion of the notarial purchase contract. However, the registration has to be done by a lawyer or the notary at the latest two months after the purchase. The registration costs about 250 EUR.

The real estate is always paid for with a Portuguese bank check (cheque bancário). One must open an account in Portugal for this check. A prerequisite is the possession of a Portuguese tax number (NIF), which can be applied for in Portugal at the tax office or the Portuguese embassy for a small fee. The tax number is issued on the same day of application. For further information please contact us! 


Buying a plot in Portugal

In addition to buying an existing property in Portugal, buying a plot of land in Portugal is an increasingly popular alternative. You can often find an old house on the plot, which can be renovated or removed. You can buy fantastic estates, especially in the interior of the country, for very reasonable prices. On the coasts, especially in the Algarve, this is much more difficult. If you are interested in buying a property in Portugal, you should plan your purchase well despite the low prices and take various aspects into account when choosing. To what extent the renovation is worthwhile compared to the new building should be checked beforehand. The new building of houses is often profitable because the construction costs are relatively low, and you can realize your personal ideas.

Property Costs

The cost of land with a building permit varies by area. In rural areas close to major cities, prices range from €20 to €40 per square meter, whereas on the Atlantic coast, prices can go up to €120 to €180. In the Algarve, prices can even range from €400 to €1000 per square meter (and more) for a first-class property. Inland, the costs are significantly lower, and in rural areas, agricultural land can be purchased for a few euros per square meter. Depending on the quality and location, the construction costs range between €400 and €1,600 per square meter. The real estate transfer tax (SISA) is 6.5%.

Buying a property in Portugal should not be underestimated despite the lower prices. The most crucial point is that the investor has the necessary building permit (Terreno Urbano) and that the property is large enough for the construction of a house or for the building you are considering. If there is already an old building on the property that was legally built, the process is much easier. Therefore, make sure that the housing inventory has been officially registered in the land register.

You should also check what exactly has been entered. It can happen that only a part of the property was legally built or auxiliary buildings were converted into living space, which can become a problem when you would want to sell the property later. It is also possible to build on agricultural land. However, there are strict limits for land and buildings. You can get this information from the local Town Hall (Câmara Municipal). Some properties are not suitable for construction because they are too steep or protected. Make sure that there are no restrictions through high-voltage lines, water lines, or rights of way that could affect the planning of the building. Keep in mind that the cost of providing real estate services in a remote rural area can be more expensive, and a reliable water supply is required. When buying land in Portugal, you should make sure that the purchase contract is dependent on obtaining the necessary building permit.

You should get a written confirmation that the property is correctly entered in the local land register. Also, check whether the right building permit is available. Some of the plots are offered in sections for sale, although the division has not yet been officially approved. The approval should be available upon purchase or be part of the preliminary contract as an agreement. It is also always advisable to have the property officially measured before buying it.  If the building permit is incorrect or the old building has already been built illegally, you can expect high penalties. A new building usually has to be demolished again.

Note that it can take a long time to get a building permit in Portugal. Most of the time, it takes about six months until you get approval. Most construction companies offer package deals that include the land and cost of construction for your home. However, it is not always advisable to buy the building land in Portugal from the construction company. It is advisable to compare the different land and building costs and look out for other offers. If you decide to buy a complete package from a contractor, you should insist on separate contracts for the plot and the property. In the best case, you will receive the title deed before signing a construction contract. 


Viewings

Visiting properties in Portugal is not much different than in other countries. One difference, however, is that larger companies, in particular, can have their visit to the property logged with a signature. This often triggers irritation among buyers, as you are asked to sign something that you might not understand yet. However, the background of this signature is an internal process and not bad intentions. If in doubt, sign with “Mickey Mouse.” We have put together a series of tips in a checklist to make it easier for you to view properties in Portugal:

  • You can use Google to explore the house and the surrounding area before your visit. Use this opportunity to get a picture beforehand and cancel the appointment if necessary.
  • Check the photos in the advertisements in advance for mold problems. A lot of damage or wall discoloration can already be seen in the pictures.
  • Be punctual on time on the agreed date. Even if you are on vacation and it is a southern European country, the broker will leave after a while and will not come back so quickly.
  • If you like the property, you should first keep this to yourself. We have often seen customers run euphorically through the house and later wondered that price negotiation was complicated. Stay cool.
  • The taste of furniture is customary in Portugal. Some customers consider the furnishing style more than the nature of the house. Focus on the house and not the furniture.
  • Ask the broker for everything that is important to you. In case of doubt, you should not rely on the statements of the broker or the owner. You should clarify many points such as construction options, neighboring properties, etc. with the city administration through a lawyer.
  • Pay attention to moisture damage on the walls. The areas around the windows and weather sides, in particular, are often weak spots. In Portugal, there are usually no moisture barriers installed, which can be seen in the areas of the baseboards.
  • Also, review places in the property that may not be immediately accessible. If the house has access to the attic, be sure to take a look at it. Look behind closets if possible. In the basement, it usually looks rather untidy. However, you should still look in the corners to see if there are any building defects or moisture. Wrong restraint is out of place here.
  • Take enough time to visit and take pictures if necessary. We have often seen buyers walk through the property, and questions remain unanswered later.
  • Take your time to explore the area around the house. Take a long walk or drive through the city by car. If necessary, it is worth returning to the property at a different time of day and getting a second impression. Rule out that nothing is bothering you significantly, such as loud dogs, street noise, or hotels in the area.
  • Check the sun’s orientation when visiting the property. Everyone has their preferences here. Some like it very sunny and some more sheltered.
    Some houses are already in tourist rental and are advertised as such. In these cases, be sure to get an overview of the rental income and read the comments of the visitors. Both can be done over portals such as Airbnb or Booking without much effort.

Costs of Buying a property in Portugal

As in other countries buying real estate brings along another cost besides the actual price. Some of these costs are obligatory, other costs are optional. We are happy to help.

Obligatory costs (Continental Portugal):

  • Notary fees: They are between two and three percent of the purchase price and are incurred during the actual purchase;
  • Property Transfer Tax (IMT): The tax is staggered and a maximum of eight percent is due. For real estate under 92.407 euros, there is no transfer tax. You can find a tax simulator on our site;
  • Property tax: This tax differentiates depending on the region and must be paid annually. The rate is between 0.3 and 0.8% of the property value according to the land register entry. One should therefore not be surprised if the registered information on the value and size of the real estate usually deviates strongly from reality;
  • Application for a tax number (NIF) approx. 15 EUR;
  • Land registry entry (about 250 EUR);
  • VAT on new real estate;
  • Stamp duty: This is paid at the tax office and must be presented to the notary when signing the purchase contract. This is 0.8% of the purchase price.

Optional costs:

  • Legal fees: If you hire a lawyer, the costs are between 2-3% percent of the purchase price.
  • Brokerage commission: If you hire a  Portuguese broker, you pay up to 5% of the purchase price.

Mortage in Portugal

Even as a non-Portuguese citizen or when you are not a tax resident in Portugal, you can have your property financed by a Portuguese bank. As in the rest of Europe, interest rates are currently quite cheap. Financing can be linked to a fixed or variable interest rate. The variable interest rate is based on Euribor. Euribor is an interest rate set daily by a group of European banks.

The interest rate on a variable rate loan in Portugal is linked to the 3 or 6-month Euribor rate. Banks increase this rate by the current margins. At the end of each period, the bank adjusts the interest rate to the average of the previous months. As a rule, non-resident buyers in Portugal can have 60 to 80% of the property’s value financed. Terms are up to 30 years, with a limit of 70 years. Such as in other European countries, banking offers differ not only in interest rates but also in payment options and ancillary costs. Prepayment fees are fixed in fixed interest rates (2%) and variable interest rates (0.5%). Therefore, you should obtain information from an independent financial advisor or individual banks.

We recommend that you don’t deal with only one bank when it comes to financing. Within 2 to 3 months after signing the preliminary contract for the purchase of property in Portugal, the buyer must attend the notary’s appointment. Banks need about six weeks to make the final decision on a loan. During the process, it is not uncommon for the bank to worsen the conditions initially guaranteed. To not rely on just one bank, buyers should talk to 2-3 banks at the same time. 


Insurances

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Building and homeowner’s insurance is required by law in Portugal. The correspondingly combined policies are offered by all insurance companies under the name “Seguro Multirriscos”. If you finance your real estate with a Portuguese bank, the conclusion of a policy is usually already included in the bank’s contracts. The policyholder is responsible for keeping the insured capital of the building insurance up to date throughout the entire term of the contract.

You should focus on the costs for the reconstruction of the property, taking into account the same construction and other factors. As a rule, the leading insurance companies in Portugal offer very similar insurance terms. The buildings and household insurance are usually offered in three performance classes. The insured property value is particularly decisive for the price of the insurance. Here it would help if you chose a realistic amount in order not to risk underinsurance.

Values that are too high also make no sense, since insurance companies only finance a proportionate property in the event of damage. The costs for medium-sized buildings and homeowners’ insurance are usually between 200€ and 300€, depending on the location and type of the property.

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