The Portuguese market and buying process

Long stuck in Spain’s shadow, Portugal, especially the Algarve, is an increasingly popular alternative and now one of the most desirable places to purchase a property abroad.

Although there is a surplus of homes in some parts of the country, Portugal has generally avoided the problems that arise when there is an oversupply of properties, largely due to its stricter planning regulations. The country’s responsible approach to planning began in 1991 with the introduction of ‘Portugal off plan property investment and opportunities’ (PORTAL) legislation, which ensured tighter planning controls to avoid overbuilding and to protect the environment.

Although Portugal’s economy, like some other European nations, is currently in recession the economic downturn has not been as severe as some other eurozone members such as Ireland or Spain, largely because unlike its European counterparts, Portugal never really experienced much of a sustained economic or property boom during the good times, a few years ago.

While many European countries recorded rapid property price rises pre-credit crunch, Portugal was one of the few nations to post little or no average property price growth nationwide; no boom-and-bust scenario.

Recession is nothing new to Portugal. The country’s economy has generally performed poorly in recent years, dipping in and out of recession, which left the country reliant on subsidies from the European Economic Community. Average wages have been lower than Western European standards, while average gross domestic product (GDP) has been gradually falling. This means that now is a potentially good time to negotiate a bargain property purchase in Portugal.

Portugal has a magical appeal. There is everything from timewarped sleepy villages, and busy Lisbon with its rumbling trams, to the miles of sandy beaches along the rugged coast. It’s a laid-back land with an outdoor lifestyle that embraces watersports, cycling and hiking, as well as fresh, regional, tantalising food and drink.

Portugal has seen its economy start to grow, albeit more slowly than its neighbour Spain. The OECD (Organisation for Economic Co-operation and Development) has pronounced its growth momentum as stable. Austerity measures by a centre-right government helped it exit its bailout scheme in 2014 and the socialist party voted in last year aims to ease the strings on the public purse.

Property here has always been popular with the British. There are 20,000 property-owning Brits in Portugal. Prices dropped by up to 50% in the years following the crash in 2008 and, although they remain cheap by many standards, they are rising. In 2015, they increased by 5%. Construction is picking up again and interest is coming from the French, the Scandinavians and the Chinese.

This growing international demand, combined with a limited supply of property, means that prices are likely to continue rising for the foreseeable future. Interest rates are low and the Golden Visa scheme means foreigners who spend more than €500,000 on property are given residency permits. Those who rent out homes attract a simplified tax scheme, whereby 85% of rental income is classed as expenses. Tax is paid on the remaining 15%. There’s also the Non-Habitual Residents Tax (NHR) scheme, which has attractive tax advantages.

And did we mention the 300 days of sunshine?

Top 10 locations to live

  1. Algarve
  2. The Algarve has long been a favourite among Brits. Our love affair spans more than 40 years; back to the days when Portuguese entrepreneur Andre Jordon founded the Quinta do Lago property scheme in the region.

    Located in the south of Portugal, the sunny Algarve is packed with some of the country’s finest beaches and is essentially considered to be Europe’s premier golfing destination, with an array of first-class courses to choose from. This has traditionally attracted overseas property buyers, driving property prices in the region beyond the national average.

    The most desirable and expensive place to own property is typically in and around the Golden Triangle in Central Algarve, a popular celebrity haunt, where home prices can cost tens of millions of pounds.

    However, since the A22 trans-Algarve motorway was built in the 1990s, a growing number of residential developments and infrastructural improvements have been made to the west and the east of the region, easily accessible from Faro airport.

  3. Lisbon
  4. Located in the heart of the country, the Portuguese capital of Lisbon has undergone a spectacular change in the past 15 years, with elegant shops, charming hotels and fashionable restaurants opening up in and around the city centre. Trams trundle over the streets where the warm stone houses tumble down to winding cobbled alleys draped in bougainvillea. Tables spill out of tiny bars and restaurants, and life takes place in the open air.

    Lapa, Principe Real, Bairro Alto, and the Parque da Nacoes are among the most popular places to buy property in Lisbon.

  5. Cascais
  6. Head west from Lisbon in the heat of summer, with the smell of the ocean in your nostrils, and you come to Cascais, a bustling seaside resort. Its three beaches glow gold in the sunset as the bars start to pulse. There’s a glossy marina here, and surfers love the shore just north of here.

  7. Silver Coast
  8. Just 30 minutes north of Lisbon is the Silver Coast, which has grown in popularity in recent years. The medieval walled village of Obidos is enchanting and now it’s easy to get to, too, since the new motorway linking Lisbon and Porto was opened. The coastline is popular with lovers of watersports and the summer temperatures are not as high as further south.

  9. Coimbra
  10. A university city with centuries of pedigree, Coimbra is both charming and lively. The historic streets echo with the haunting melodies of the fado as night settles into every crevice of the ancient walls. The university moved here from Lisbon in 1537 and its magnificent library is well worth a visit. During term-time, the students add a vibrancy to the city, although they also drive up property prices to a certain extent.

  11. oporto
  12. Portugal’s second city is a romantic mix of colourful houses, narrow lanes and stairways zigzagging up the hills. It’s the birthplace of port, and the wine cellars along the banks of the Douro, which are open daily for tastings.  Its airport has won European awards for standards of service.

  13. Chaves
  14. This spa resort has been popular since Roman times. Its location in the north of the country is near the border with Spain and the mountains around it, mean the temperatures don’t get too high in the summer. Although winters can be cold, there is rarely any snow. The thermal springs produce some of the hottest bicarbonate waters in Europe.

  15. the azores
  16. These volcanic islands are spectacularly rugged, yet green, a blip of comforting colour in a wide expanse of ocean. This far-flung archipelago can be found 850 miles to the west of Portugal. The islands attract tourists; whale-watchers and dolphin-followers, divers and water-sportsters. Hikers and geologists alike can strike out up the 7,713ft Mount Pico, descend into one of the world’s longest lava tubes and peek into a caldera. The cost of living is low here and there are opportunities for

  17. Madeira
  18. Madeira is the largest and most popular of all the Portuguese islands, and offers a pleasurable, year-round subtropical climate, a range of five-star leisure facilities and hotels. Not to mention a wonderfully lush and tropical landscape. It’s 620 miles from Europe and 310 from Africa.

    The island has long been a popular second-home destination, particularly with the Brits and Germans, and was a special holiday retreat for former Prime Minister Sir Winston Churchill.

    Some of the most popular areas to buy property in Funchal include tourist areas such as Lido and Praia Formosa, while the Palheiro Estate, located on the outskirts of the city, is also well-liked.

  19. Porto Santo
  20. The idyllic island of Porto Santo, which lies 40 miles northeast of Madeira, remains untouched by mass tourism. Porto Santo’s property market is far more in its infancy compared to Madeira, and as a consequence property prices tend to be a lot cheaper.

Buying property off-plan

Buying off-plan property inevitably involves higher risk than buying re-sale property. If you are considering buying off-plan in Portugal there are a number of points to consider.

  • Obtain a bank guarantee to cover your stage payments.
  • Check with the Land Registry to make sure the land which is going to be built on is registered to the developer.
  • Once construction has been completed, ask for proof from the seller that the construction has been finished in accordance with the description given in the plans. You can also check with the Land Registry.

Repossessed properties in Portugal

Portuguese banks are offering financing for properties in Portugal in an effort to shift the last remaining discounted properties on their books. Some of these are listed for sale online on the major Portuguese banking websites, as well as dedicated Portuguese property portals.

Buying process

Before you do anything else, make sure you get the official tax and registration documentation for the property (registo predial and certidao predial) which will ensure the property is free from any debt. In Portugal, any mortgage or tax debts attached to the property stay with the property.

Next, there are two main phases in the purchasing process. The first is the promissory contract (‘contrato de promessa de compra e venda’) between buyer and seller. You can add any conditions at this point. A deposit is normally 10% although it can be negotiated at a higher percentage. Following this, your lawyer can carry out searches and checks for encumbrances or mortgages on the property.

There may be consequences for the defaulting party. The buyer may lose their deposit if they pull out of the deal, while if the seller fails to comply with the obligation set in this contract or gives up the sale, they are obliged to pay back double the deposit.

The second phase of the transaction is the ‘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 by both parties in front of the public notary, but only once the property transfer tax has been paid. The final contract is then sent to the Land Registry. With the conclusion of the public deed the stamp duty tax should be paid.

Buying costs

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) 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!

 

Continue to section 2: Legal matters

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