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Buying Property in Portugal

By: Chris Hogan MSc - Updated: 30 Sep 2012 | comments*Discuss
Portugal Algarve Costa Verde Silver

Although the Algarve has taken most of the attention of British second home buyers it has not been over-developed in the same way as many of the Spanish coastal areas. And Portugal, being one of the smallest and least developed European countries, also offers bargain rural escapes in a number of idyllic areas.

Algarve in the Lead

The Algarve takes 48% of all tourists so it’s not surprising that most of the second home buying action is there, 90% in fact. With 300 days of sunshine a year, summer temperature averages of 25°C, and winter of 12°C, it’s no surprise.

Many buyers are looking for a holiday home to rent out, use themselves, and then retire to when the time comes. Golf resorts are becoming increasingly popular locations for this kind of investment, as they are more likely to attract year-round rental than a villa on the coast. The West coast of the Algarve is now more accessible with the extension of the A22 motorway and capital appreciation in this previously less developed region is expected to be high.

Atlantic Coast

As prices rise in the Algarve, other areas attract the attention of the bargain hunters. The Silver Coast, facing the Atlantic between Lisbon and Porto, is relatively untouched by tourism and has beautiful fishing villages full of architecturally interesting stone houses ripe for restoration. Inland, on the banks of the River Tagus, the fertile countryside offers bargain farmhouses and village dwellings, and yet is within striking distance of the main north-south motorway, the A1.

To the north of Porto the Costa Verde, extends to the Spanish border and offers more lush countryside. Away from the coast are some great bargains in rural property, prices falling with the increasing distance from the coast. Look at Barcelos, a scenic medieval town for a true picture of the old Portugal, with many unspoilt villages in the surrounding countryside.

The Buying Process

So once you’ve found your dream home, and gone through the obligatory haggling, how do you make it yours? The first step is to appoint a lawyer, who will check all the documentation associated with the property.

As a foreigner, you will need to apply for a Fiscal Number from the local tax office, which is like a UK National Insurance number. Then a deposit, normally 10%, is handed over and a contract, which stipulates all the various aspects of the sale, is signed by both parties. This contract is lodged with the public notary and, with some exceptions, if either party pulls out of the deal the deposit is forfeit.

Final Signing

As soon as any conditions stipulated in the first contract have been met and the money is available, a final deed is prepared and then signed by both parties at the office of the public notary. After paying the balance of the purchase price and the associated taxes and charges, the notary prepares the escritura, the record of the sale, and lodges it with the land registry and the local tax office.

There is a property transfer tax of between 2% and 6.5% payable on the purchase price above €80,000 (below this it is free), or 5% if you are buying land only. This tax is not payable on new properties, but VAT at 17.5% is. The notary fee is fixed, currently at €153, legal fees should be around 1 to 2% and the deed registration fee will be about half that.

Take Care

Be warned that the under declaration of property values at the final stage, in order to cut the amount paid in taxes and fees, is still prevalent, particularly in rural areas (although Portugal is not alone in this). You must be aware that this is completely illegal, regardless of the vendor’s insistence.

The government is taking a much closer look at property transactions as values increase and with them, their potential losses, and the increasing computerisation of land registry and taxation records make it easier for them to sniff out anomalies. Even without this, it means that your Capital Gains Tax liabilities when you sell will be larger than they would otherwise have been, and your vendor is unlikely to compensate you!

Lifestyle Choice

Portugal has been experiencing a property boom but new (and admittedly necessary) building restrictions have slowed the pace somewhat. It’s not a country for short-term capital growth, unless you are very shrewd or very lucky, as prices tend to keep pace with inflation or exceed it slightly. But if you’re after the change of lifestyle and pace that Portugal offers, and good rental returns when you’re not using your property, then Portugal could be right up your street.

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