BUYING A PROPERTY IN PORTUGAL
The Legal Process
Buying a property in Portugal is relatively straight forward provided the ownership of the property is clear and the purchase laws are strictly adhered to. The process, if it doesn’t involve an off shore company, consists of two distinct stages - the promissory contract (Contrato Promessa de Compra e Venda) and the final deed (Escritura).
The Promissory Contract
This is a legally binding contract between both parties provided all signatures are verified by the local public notary. On signing the contract, the buyer pays a deposit which is normally 10 percent of the agreed purchase price. This deposit is non-refundable unless specifically stated in the contract. If the buyer breaks the contract he loses the deposit and likewise if the seller defaults he is legally obliged to return the deposit plus compensation which is usually equal to the sum of the deposit. It is acceptable for both parties to ask for a copy of the contract to be translated into their monther tongue.
The contract covers a number of points including the following:
* Confirmation of the precise identity of the seller and buyer
* Precise description of the property
* Confirmation of clear title of ownership
* Agreement for payment of deposit and terms if the contract is broken
* Agreement concerning stage payments if applicable
* Confirmation of date of completion of sale
Before the contract is signed, the seller has to produce all the relevant paperwork relating to the property to show to the buyer or his/her lawyer so that necessary searches can be made to ensure there are no outstanding debts e.g. rates, loans against the property and a habitation license confirming the property is for residential use.
The Final Deed
This is the official document of the transfer of the property and has to be signed in the office of the public notary who checks all the previously mentioned documents. The notary will also require document evidence issued by the local tax office (Finançes) that the buyer has paid the appropriate property acquisition tax (IMT) and, if relevant, a document confirming power of attorney. If the property is part of a condiminium, an associated condominium agreement will also form part of the final deed. Unless the buyer understands Portuguese, the notary will insist on verbal translation into the buyer’s monther tongue. The deed is then signed by both parties and the balance of the purchase price paid to the seller. The property is then transferred to the name of the new owner at the land registry office (Conservatorio Predial) preferably by the buyer’s lawyer. This final registration is very important and the buyer should ask for a copy. All costs for professional advisers, notary charges, land registry fees, the final escritura, etc are normally calculated on the agreed value of the property. The seller pays his own lawyer and any commission to the real estate agent.
Costs
The associated costs of buying a home in Portugal are as follows:
Property Transfer Tax (Imposto Municiple Sobre as Transmissões Onerosas de Imóveis)
This is levied on a sliding percentage scale according to the agreed purchase price of the property. It has been common practice in the past to artificially depress the purchase price when buying a property in Porugal in order to decrease the amount of tax to be paid by the buyer. This is strictly illegal and the authorities are tightening up on this tax avoidance so do not be tempted as the financial penalty may be severe if the avaoidance is discovered when you come to sell at a later stage. The IMT is levied at a rate if 5% on rustic properties and 6.5% on urban properties. Properties under €81,600 are excempt. Properties in excess of €510,000 are levied at 6% whether rustic or urban.
Notary’s Fees
This is calculated according to the agreed purchase price of the property and levied at between 1.5% and 2%. There is a nominal charge for stamp duty and for registering the property at the land registry following completion of the final deed.
Lawyer’s Fees
Normally between 1% and 2% though some lawyers charge a set fee of around €2,500 plus IVA (IVA is currently 20% and is Portugal’s equivalent to VAT)
Imposto Municipal Sobre Imóveis
This is an ongoing cost that continues after buying a property in Portugal and corresponds to the annual rates paid on your home to the local authority (camara). It is caluculated on the rateable value of your property and normally levied at between 0.8% and 1.3% depending on the location of the property. First time owners who are resident in Portugal or retired pensioners are eligible to claim exemption for a period of between 3 and 6 years subject to the size and location of the property.
Before you transfer money into Portugal, it’s always worth talking to a foreign exchange broker. They can save you a great deal of money when compared with making a currency conversion at your local bank, then using them to make the transfer.
Talk to FX-Foreignexchange and get them to explain how they can save you money, or simply visit their informative website and make the currency conversion there.
Condominium Charges
These are paid on a montly, quarterly, bi-annual or annual basis by owners enclosed on a condominium development towards the upkeep of communal facilites and areas. Costs vary according to the level of services and ammenities. On average they range from €65 per month to sometimes as much as €500 a month in the more upmarket resorts. Condominiums are governed by a Condominium Contract that forms part of the purchase of the property within the condominium.
Offshore Purchase
It was common practice, but not so common now, that when buying a property in Portugal it was acquired through an offshore company in order to avoid taxation levied on on normal house purchase process. The buyer forms a company offshore and purchases shares of the company in ownership of the property. There have been a number of changes in government legislation regarding buying property in Portugal in this way and should take legal advice in this matter.
For a wide range of properties for sale in the Algarve visit www.algarveprop.com
For the largest selection of West Algarve properties for sale go to the specialist Portuguese property brokers where you can view the large range available.
Lagos, West Algarve, Portugal. This Luxury 3 bedroom Villa for sale in Lagos Algarve has stunning sea views. This villa with guest annexe is located in the Lagos area, and is in a seclued and quiet location overlooking the ocean.
Golf Villa in Parque da Floresta , West Algarve. This fantastic villa in phase 2 at Parque da Floresta Golf Course, facing south east it is possible to enjoy magnificent sea and golf views and enjoy the sun all day long. 
Villa for sale in Praia da Luz Algarve. Built to a very high standard this three bedroom villa is located in an attractive residential urbanization on the outskirts of Praia da Luz. This 3 bedroom, 3 bathroom villa, would make a great family home and would equally rent well.
Or, if you’re looking for somewhere where you can holiday and get a rental income from, how about this property in the most Western Town in the Algarve…. Sagres. The house has studio apartments with its own private garden and wine cellar. The property has: entrance hall, living/dining room with fireplace, kitchen, 4 bedrooms and 2 bathrooms and includes 2 studio apartments.
Despite the recent market conditions, property sales in Portugal seem to be bucking the trend. There are many reasons why people continue to buy property in Portugal.
