Real estate purchase in Portugal

Beyond Lisbon and Porto

Portugal is a small country which means that the journeys are short and less than an hour from the centre of the main cities of Lisbon and Porto, there are heavenly places where you can enjoy the best of nature, with the amenities of a metropolis a short distance from the capital. Between Setúbal, Sintra, Almada, Seixal, Cascais or Oeiras for the central region and Gaia, Espinho, Braga, Guimarães or Póvoa do Varzim for the northern region, there are many choices to buy or invest and especially at better prices than in the centre of Lisbon or Porto.

If you can have the best, why settle for less? And while proximity to major cities is not a very important factor, there is much more to explore, whether in the north, centre, south, coast or inland Portugal.

Choosing a good real estate agent

If buying a property in Portugal without the support of a real estate agent is very difficult, it will become even more so if you want to buy a house far from the big cities. Relying on a good real estate agent who knows the area where you want to buy the house, may be a guarantee that you will not fall for it. Good support is essential to ensure that the administrative aspects of the property purchase process are respected. In addition, Portugal is a country of multilinguals and you will most certainly be able to find an agent who speaks your language.

And after choosing the house to buy

Depending on whether the purchase of real estate in Portugal is made directly to the owner or with the intervention of a real estate agent, after choosing the house, the next step is usually the signing of a property reservation contract or the promise to purchase and sell contract, known as a CPCV.

In the CPCV, the buyer and seller formalize the contract of purchase and sale of the property by identifying the parties, the price, the data relating to the property, the terms and conditions up to the completion of the deal, the date of completion of the deed, the advance payment and its conditions. The CPCV is a legally valid contract that protects the rights and obligations of both parties until the conclusion of the act of purchase and sale.

Know the real estate taxes and fees to be paid

In Portugal, the transfer of the property is made by notarial deed, to a notary or land registry office which confirms the accuracy of all documents relating to the purchase of the property and verifies the payment of the corresponding taxes.

The Portuguese tax system includes 3 main taxes related to real estate:

• The municipal tax on the transfer of real estate, also known as LMI, which is paid each time there is a transfer of real estate between owners and is defined according to the purchase and sale value or taxable asset value of the real estate.
• Stamp duty, which is retained by the notary (0.8% of the declared sale value) and by the bank in cases where a loan is contracted for the purchase of real estate in Portugal (0.6% of the value of mortgage loans).
• Municipal property tax (IMI), paid annually by property owners (in the case of the purchase of a permanent home for 8 years), is collected on the tax value of the land.

There are also additional costs associated with the property purchase process such as notary fees, certificates, registrations and in the case of a home loan, costs and commissions to be paid to the financial institution such as:

• Property valuation
• Opening costs
• Documentation processing

Post-acquisition insurance

In legal terms, an owner in Portugal is required to have fire insurance for the property. However, for those considering taking out a home loan, life insurance may also be a requirement imposed by the credit institution to guarantee the risk associated with the home loan.

There are also other insurances such as Recheio Insurance, which are not mandatory but can provide additional security for those who can spend a significant part of the year abroad.

Home loans for house purchase

In most Portuguese banks, the financing of the acquisition of a principal residence, a second home or a real estate investment by non-residents can be granted up to 70% of the purchase price of the property, depending on the profile of the client and the guarantees provided.

There are several options on the mortgage market in Portugal for terms and types of interest rates (fixed, mixed or variable), so the best option is always to consult a mortgage specialist who can assist throughout the process and recommend the best option.

At a time when interest rates in Portugal are at historically low levels, taking out a mortgage can be not only the way to do good business but also a good financial investment to consider.

Buying real estate in Portugal: practical information

Supply and demand

Supply is still lower than demand in Portugal, which will keep Portuguese property prices high and you as a future buyer are unlikely to like it. However, this may not be an irreversible trend as it must take into account average financing capacity and limited national purchasing power. Some foreigners are no longer as attracted as before to the Lisbon and Porto areas because of the type of offer and prices.

New construction can be seen everywhere, although it is still rare and often planned, especially in the most central parts of large cities. The delay in the sale of apartments and houses in Portugal is beginning to lengthen, a sign that there is a potential drop or stabilisation in Portuguese property market prices.

Real estate credit

Although most banks in Portugal have a strong predisposition to provide home loans, there are still some restrictions due to the principle of prudence, guided by the ECB which does not want debt to increase (one of the symptoms associated with the recent housing bubble). Banks should therefore continue to lend up to a maximum of 90% of the value of the property and the maximum percentage for the payment of a down payment should not exceed 40% (in some cases the limit will even be 50% but it is not advisable to exceed 35%) of each person’s net income.

Taxes related to real estate

Real estate taxes are one of the major concerns if you want to make a real estate purchase in Lisbon or elsewhere in Portugal. It is necessary to check some changes in IMI. For vacant properties in areas that are difficult to access housing, there may be a substantial increase in taxation. The IRS may be more advantageous for those who choose to rent real estate in the interior of the country or for owners who sign long-term contracts.

The location of the property

Although most people do not consider buying a home as an investment thinking only of its current use, the fact is that it is an investment that you will sell one day or leave to your children or family. It is therefore very important when buying real estate in Portugal or elsewhere to check the location, especially with regard to existing or planned infrastructure:

• Access roads
• Safety and security
• The environment
• The population
• The installations
• Transport and transport
• Entertainment facilities
• Public services
• The shops

Real estate services in Portugal

Portuguese real estate brokerage companies have experienced strong growth in recent years, benefiting from a positive phase in the real estate market, rising prices and very strong demand. Some of these companies have invested in the development of their service and training and today there are already a considerable number of companies that can really help you if you want to buy, sell or rent an apartment or house in Portugal.

Working with the support of a professional real estate company (Agency, broker, independent…) will always be safer and less stressful. Good specialized real estate agents have the ability to support you and advise you on the best way to invest in the country. The success of a property purchase is largely dependent on the person who will accompany you and will be able to do so in a simple and quick way.

Although no significant growth is expected in 2019, there is increasing talk of the trend towards shared use and acquisition of real estate in Portugal. While co-working is already a strong reality in Lisbon and Porto, co-housing and crowdfunding are now starting to take their first steps in the Portuguese real estate market, which will have younger and more creative buyers in the near future.

Taxes and fees related to the purchase of real estate in Portugal

Once you have chosen the home, it is important to know the costs associated with buying the property you have chosen, so that you are not caught off guard and can make your calculations. To help you, you will find here all the costs related to buying real estate in Portugal.

Whether with or without financing, on the day of the deed, you will have to bear the costs related to taxes and property records and you will need to have proof of payment with you. Without them the act of purchase cannot be done. Although some of these values are presented in tabular form, as is the case for taxes, others vary depending on where the act is performed. Let’s look at the costs associated with buying a Portuguese home.

Costs of purchasing real estate in Portugal before the authenticated deed

IMT (Municipal Real Property Transfer Tax)

This tax applies whenever there is a change of ownership of a property and there is a real estate purchase. The calculation of this tax varies according to the type of property (urban or rustic), the location (mainland or island) and the object (permanent or secondary residence). The LMI calculation is based on the higher of the taxable asset value of the property or the value declared in the deed of sale. The higher of these two values is subject to a rate set annually in the State budget.

The ITM must be paid before the deed of sale and payment slips can be obtained online or from a tax office. There is an IMT exemption when the property is exclusively intended for clean and permanent housing, for properties up to €92,407 on the Portuguese mainland and €115,509.00 in the Autonomous Regions. Only above these values do the LMI tables apply.

Stamp duty

There are two types of stamp duty related to the acquisition of a property:

• Stamp duty on the transaction (purchase and sale), corresponds to a tax of 0.8% of the acquisition value of the property, which is included in the deed of sale
• Stamp duty on the loan, if the housing loan is used to buy the house, which corresponds to a rate of 0.6% on the amount of the mortgage

IMI (Imposto Municipal sobre Imóveis)

This is an annual tax which is calculated on the basis of the taxable property value of properties located on Portuguese territory, to which a tax is applied. The definition of IMI rates is annual and is the responsibility of the local municipality where the property is located, which stipulates a rate within a range defined by the Municipal Land Code (CIMI).

In 2015, this range was between 0.3% and 0.5% for urban buildings already evaluated according to the IMI Code and between 0.5% and 0.8% for other urban buildings.

It is in April that IMI is paid or starts to be paid:

• If the invoice does not exceed 250 €, you must pay the Imposto Municipal sobre Imóveis immediately
• If it does not exceed 500 €, you can pay twice
• If it exceeds 500 €, you can pay in three instalments.

The IMI exemption may apply to real estate used for own and permanent residence purposes as well as to real estate used for residential leases acquired from 2012 onwards (allocation must take place within a maximum period of 6 months after the deed of ownership). The exemption must be requested within 60 days of the award. It can be requested up to 2 times and only obtained if you do not have another IMI exemption in progress.

The exemption period is determined according to the taxable value of the property and if the household has a taxable income under the IRS of the previous year less than or equal to € 153,300. The exemption may be for a maximum of 3 years.

Documents and contracts for the purchase of real estate