Buying Property in Portugal

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Buying Property in Portugal

The process of purchasing or selling any type of property or land is not as strictly regulated in Portugal as it is in Spain and France. However, the level of bureaucratic red tape and the Portuguese legal idiosyncrasies can make it a complex transaction. Therefore those with little knowledge of the country, language, legal and administrative system are recommended to hire a local lawyer to act as a broker in their interest. They will take care of the paperwork so that things can go more smoothly.

Below is a summary of what to expect when purchasing a property in Portugal: 

Buying a property in Portugal

To buy a property in Portugal you will need a Fiscal Number from the Tax Office. However a Portuguese non-resident entity in order to buy a property in Portugal will need to designate a Portuguese Tax Representative.

There are three options:

• Buy for cash – a relatively easy option
• Re-mortgage the main property in the home country to raise the capital. Again a relatively easy process and one that doesn't have to deal with any Portuguese banks
• Get a mortgage from a local company, building society or bank at home specialising in international property transactions, or borrow the money from a Portuguese lender, bank or mortgage provider

The Costs of Buying a Property

Whether considering a cash purchase or to finance the property through mortgage borrowing, there are several costs which have to be met by the purchaser.

• The Deposit (Entrada) - usually between 10% and 20% of the purchase price
• The Portuguese Government Property Tax (Imposto Municipal sobre Transmissões). Generally speaking the government will take 5% of the value for a property in the countryside, 6.5% for an urban property, in case such urban property is designated exclusively for the residence of the buyer the local taxes varies at a rate up to 6% according to the property value, and 8% for a property purchased using an offshore account.
• The purchaser will also be liable to Notary Fees and Land & Property Registration Fees, which vary according to the purchase price of the property. A lawyer acting on the purchaser's behalf will usually sort this out but a list can be obtained from the local municipal or town council (Câmara Municipal)
• A useful place for information and advice on Notaries are the Citizens' Shops (Lojas do Cidadão)
• Stamp Duty (Imposto de Selo) – generally 0.8% of the purchase price
• Estate Agency Fees These are normally around 5% and are included in the sale price
• The costs of the mortgage (Credito Habitação)

Mortgages

How to get a mortgage in Portugal

For those who have a Portuguese Residency Card (Cartão de Residencia), a Portuguese Tax Code (Numero Fiscal de Contribuinte), a Portuguese bank account (Conta Bancaria em Portugal), proof of regular income and / or contract (Contrato) with an international or national company in Portugal, and a good credit rating it is fairly easy to take out a mortgage.

Most banks offer attractive mortgage packages for legal residents and some have tailor-made services aimed at foreigners.

• Banco Éspirito Santo
• Barclays International Portugal

There are no building societies in Portugal but there are building societies in many countries which have departments and offer services for those looking to purchase property in Portugal.

• Abbey International

Many Portuguese banks have branches in the main European capitals and the USA such as Paris, London, Rome, Zurich, Miami, New York. These can arrange mortgages in Euros.

Mortgage arrangements

Normally, based on their valuation (Avaliação), Portuguese banks will lend between 70% and 90% of the value of the property for Portuguese citizens and legal residents holding a Residency Card, and 60%-70% to non-Portuguese citizens and non-residents. Of course other factors are taken into account such as income and age of applicant.

The mortgage company will send out a valuation agent (Calculista de Obra/Superintendente de Vistoria/Avaliador) to assess the value of the property (Vistoria) and the cost of this is included in the charges made by the bank for the mortgage application, which varies according to the purchase price of the property (usually around 1%). Once the mortgage has been applied for, funds will be required to cover the bank charges.

What is necessary to apply for a mortgage in Portugal?

• Proof of sufficient income to meet the mortgage payments
• Life Assurance (Segurança da Vida) to cover the terms of the mortgage
• Valid passport and identity card (Passaporte e Carta de Identidade)
• Pay slips (or two years' accounts for the self employed) and tax declaration from country of residence
• Residency card (Cartão de Residencia)
• Bank statements for several months proving receipt of income and loan repayments
• Medical examination (Atestado Medico) for insurance purposes

Working out the price range

It is important to establish the price range you can afford and most banks will offer to work out a simulation (Simulação) based on the price range required and average monthly income. The purchaser also needs to make sure they have enough funds to cover the deposit and legal fees.

There are three possibilities when seeking a mortgage:

• Directly from a Portuguese bank – the majority have English speaking staff and some even have international departments for foreigners. Most of the banks in Portugal have similar lending criteria on the terms of the mortgage, how much they will be prepared to lend, what mortgage products they offer and their arrangement fees
• Use a mortgage broker. The purchaser pays extra but has the added advantage of being advised how much can be borrowed and the best mortgage products to suit individual circumstances. They will save time and hassle with language and culture barriers and provide quotations from the lenders most suitable to the client
• Some estate agents (Agencia de Imobiliario) may offer a mortgage service and offer similar services to mortgage brokers

Life Assurance (Seguro de Vida)

All mortgages in Portugal require life assurance and many lenders will offer packages from their own life assurance company partners. Some lenders have different policies and insist on both full disability cover as well as life cover, while many will require a medical examination.

What kind of mortgages are there?

Capital & interest repayment mortgage (variable rate)

A flexible mortgage where the repayments are known and the interest rate applicable is revised on a regular basis. If interest rates fluctuate the repayments stay the same – only the term of the loan is affected. It is possible to make lump sum payments or redeem the mortgage early; early settlement usually attracts a penalty which can be negotiated. If the purchaser decides to convert to a fixed rate they will have to pay a charge in the event of early redemption.

Capital & interest repayment mortgage (fixed rate)

Repayments are fixed for the whole term of the mortgage. The property owner knows exactly what will be paid each month and how many payments will have to be made. Fixed rates are usually higher than variable rates. Financial penalties can be incurred for redeeming the mortgage early, or changing to a variable interest rate. It is advisable to check what each bank's financial penalties are.

Interest only

These are rarely offered to non-residents.

Finding a Property

There are innumerable sources for property hunting, including the English language newspapers such as the Lisbon & Algarve Resident, the Portugal News, and Portuguese newspapers such as Publico, Correio da Manha, Expresso, Sol, Metro, etc.

The Steps Involved in a Property Purchase

Step 1: Get a lawyer

It is advisable to use a Portuguese speaking broker and solicitor who knows their way round the system.

Note: Many solicitors speak English and French but the purchaser may wish to use the services of a translator for documents and the official signing.

Step 2: Find an estate agent (if the property you want to buy isn't already in the hands of one)

The most common type of broker is an estate agent (Agente Imobiliario) who is usually local to an area and will only have properties for sale in that area. The agent earns commission from the sale of the property and will try and get the best possible price for the property, while knowing what price the vendor will accept. They will also know all the other fees and property charges expected to be paid by the owner. An estate agent should be licensed by the government. Ask to see the certificate. A list of reputable estate agents can often be found through the purchaser's Chamber of Commerce.

• See also, in the AngloFILE: Property & Real Estate

There are also Property Searchers that will search for a property for the client that matches price bracket, location and requirements. Most offer viewing services and will charge a fee or take a percentage commission from the estate agent.

Step 3: Obtain the Deeds Certificate

Once a property has been found, the lawyer representing the client will obtain a Deeds Certificate (Escritura) from the Land Registry confirming that the property is available and for sale. Make sure the solicitor has the Escritura.

Step 4: Contract of Sale & Deposit

The solicitor will draw up a Contract of Sale (Contrato de Promessa de Compra e Venda) which is a legally binding document setting out all the conditions of the sale. It is drawn up by a Notary and will eventually be signed by all parties and their legal representatives.

On the day the Contract of Sale is signed the buyer will be required to pay the agreed deposit (usually between 10% and 20% of the purchase price). For new properties under construction the payment terms are made in stage payments as the construction is completed. These terms are negotiated with the estate agent or builder. It is advisable to pay the deposit cheque to the agent, lawyer or broker representing you, and not the vendor. The deposit is held by the agent until completion.

The drawing up of a contract indicates a legal intention to purchase and sell. If the seller decides to withdraw from the sale they are legally obliged to repay twice the deposit paid. If the purchaser decides to drop out of the purchase they lose the deposit.

Step 5: Exchange of Contracts

The solicitors representing both parties will agree upon a date when contracts will be exchanged. This is usually one month after the Contract of Sale is drawn up. During this time the solicitors need to make all the necessary conveyancing checks on the property to make sure that what is outlined in the contract is as stated. The solicitor will also need to check that there are no outstanding mortgages or unpaid taxes against the property.

Step 6: Pay the Property Tax

Once all the legal checks have been made and before the contracts are exchanged, the property tax (Imposto Municipal sobre Transmissões, which replaced SISA in 2003) must be paid. The lawyer representing the client will deal with this at a tax office nearest to the property in question. How much is paid depends on the value of the property and type of property.

Step 7 – Transfer of ownership

Once all the checks have been made both the Contract of Sale and the Transfer of Title Deeds (Título de Propriedade/Escritura de Compra e Venda) can be exchanged and witnessed by a notary. These documents are signed by both parties and their lawyers in the presence of the notary (Notariado). The notary makes various copies and keeps the original. Each of the parties has a copy and one is registered with the public records office. The lawyer will arrange for registration with the Land Registry in the purchaser's name which ensures proof of legal ownership.

Step 8 – Pay the Stamp Duty Tax

With the conclusion of the public deed, in the presence of a notary, stamp duty tax should be paid at a 0.8% rate over the property value.

Property Taxes & related topics

• For a full explanation of all the taxes payable see the Government Tax website

Property Transfer Tax (IMT)

Property Transfer Tax (Imposto Municipal sobre Transmissões) used to be called SISA. All new properties are valued and existing properties are re-valued in line with current market prices. In Portugal the following criteria are used to value a property:

• Cost of property
• Size of property (number of rooms, land area etc)
• Type of use (residential, commercial, industrial, rental)
• Location of property (does it have breathtaking views out to the sea, etc)
• Quality of the surrounding infrastructure (roads, rail links, distance from airport, facilities)
• Property's age

Generally speaking, the government will take 5% of the value for a property in the countryside, 6.5% for an urban property, and 8% for a property purchased using an offshore account.

The tax should be paid before completion as the IMT certificate will be required by the Notary for the signing of the Deeds. The IMT can be paid at any local tax department (preferably in the area where the residence is)

Note: There is generally NO exemption from paying IMT. Do not confuse IMT with IMI (Council Tax)

Property & Land Registry fees

Fees will typically be around 1% of the total value of the property.

Council Tax

Portuguese Council Tax (Imposto Municipal sobre Imóveis) or IMI is calculated on the new or current property value of a given property. While each property is different, the purchaser can expect to pay anything between 0.2% and 0.5% on a new urban property, 0.4% and 0.8% on an existing urban property, and 0.8% on a country cottage or house (vivenda/rustica)

Note: Properties held via offshore financial institutions have to pay 1%

Stamp Duty (Imposto de Selo)

Stamp Duty has been around in Portugal since 1660 and was reformed and simplified in 2000. It determines the taxable value of property bought and given according to the rule of the Código do Imposto Municipal sobre Imoveis (CIMI). Anyone who acquires property; is given or inherits a house, shop, office, warehouse or any property or who has taken out a property loan (i.e. a mortgage) must pay stamp duty.

As a general rule 0.8% Stamp Tax is paid on the value of the property. For example on a 150,000 Euro property 1,200 Euros goes in Stamp Duty. In the case of gifts the amount is 10% except for donations made to descendents and ascendants, which are considered to be exempted.

Buying property as an investment

If a purchaser buys a property with the intention of renting out all or a part of the property then they are liable to pay tax on the rental income which is typically 15 percent in Portugal.

• For Further information see the Public Notary's website (Direcção-Geral dos Registos e do Notariado - DGRN)
• Or the Portuguese Tax Information website: Impostos

Glossary of Portuguese Property Terms

Further Information

• Lisbon Land & Property Registry (Conservatória do Registo Predial de Lisboa)
  At: Rua Visconde Santarém 32, 1000-287 Lisbon
  Tel: 218 436 490
• Portuguese Tax Information 
• Government Tax website
• AngloINFO INFOrmation page Selling a Property in Portugal