Portugal is a popular destination for property buyers, thanks to its stunning landscapes, rich culture, and warm climate. Whether you’re looking for a holiday home, a place to retire, or an investment property, Portugal offers a wide range of opportunities. However, purchasing property in a foreign country comes with its own set of challenges and potential pitfalls. To ensure a smooth and successful purchase, it’s crucial to be aware of the specific factors that can impact your property purchase in Portugal. Here are seven key things to watch out for when buying property for sale in Portugal.
1. Legal and Bureaucratic Complexities
One of the most critical aspects of buying property in Portugal is navigating the legal and bureaucratic landscape. Portugal has a well-defined legal system, but it can be complex, especially for foreigners unfamiliar with local procedures. Here are some specific aspects to be mindful of:
Due Diligence
Before signing any contract, ensure that a thorough due diligence process is conducted. We can’t stress this enough. This involves verifying the property’s legal status, checking for any existing debts or liens, and confirming that the property is correctly registered with the Land Registry (Conservatória do Registo Predial). Hiring a qualified lawyer who specializes in Portuguese real estate law is highly recommended.
As part of due diligence, ensure that you also obtain the following documents: a declaration of non-debt, an energy certificate issued by the National Energy Agency, user license (proof that the property has been inspected and legally compliant), title search (information on the owners and location and composition of the property), property description document, a building data sheet (technical and functional characteristics of the property), and a land registry certificate
Promissory Contract (Contrato de Promessa de Compra e Venda)
In Portugal, it’s common to sign a promissory contract before the final deed (Escritura) is executed. It’s often referred to as the CPCV and confirms the intention to buy. This contract outlines the terms and conditions of the sale, and a deposit is typically paid at this stage. This amount is typically 10% of the price of the property and is paid by check or bank transfer directly to the seller or the seller’s lawyer. It should be mentioned here that paying into an escrow account is not common in Portugal. Ensure that all details are clear and that you understand the implications, especially regarding deposit forfeiture if the sale does not proceed. While it is not mandatory, if a seller does not want to sign a CPCV, this is a red flag, and you may want to consider backing out of the deal.
Final Deed (Escritura de Compra e Venda)
The final step in the purchase process is signing the deed in the presence of a notary. This is when the remaining balance is paid, and the property is officially transferred. Be aware that the notary’s role is to verify the legality of the process, but they do not act as your personal legal advisor. Again, having a lawyer to oversee this stage is crucial. It is also important to bring a translator to the signing of the deed if your lawyer cannot do this for you.
2. In the early stages of the property search, watch out for lifetime rental contracts connected with the property
Lifetime rental contracts, also known as “Contrato Vitalício de Arrendamento” or “Contrato de Renda Vitalícia,” are a specific type of lease agreement in Portugal designed primarily to provide housing security for elderly tenants. These contracts allow elderly individuals to rent a property for the remainder of their lives under specific conditions.
Typically, these contracts are targeted at older adults, usually those aged 65 and above. The exact age requirement can vary depending on the specifics of the contract or any associated government programs. The contract remains in effect for the lifetime of the tenant. It automatically terminates upon the tenant’s death unless other stipulations are made in the contract.
The rent is usually agreed upon at the outset and may be subject to limitations on increases to protect the tenant from significant rent hikes. These limits are often tied to inflation rates or other economic indices. Tenants under a lifetime rental contract are generally protected from eviction, provided they adhere to the terms of the lease, such as timely payment of rent and proper maintenance of the property.
The tenant has the legal right to remain in the property for the rest of their life, regardless of changes in property ownership. This means that even if the property is sold, the new owner must honor the existing lifetime rental contract.
If you browse real estate websites, you may see a good price for what appears to be an amazing property. Be careful to read the fine print in the description, however, to see if there is already a lifetime tenant in place. Depending on your situation, you may decide to purchase the property and become a landlord to the current tenants or you may opt to look for a different property that will allow you to live there.
3. Be aware of the preference right in Portugal, which gives current tenants the option to buy the property
Article 1091 of the Civil Code includes a preference right, which allows current tenants in a property the right to say whether they wish to buy the property that they are renting, when the landlord decides to sell the property. The landlord must inform the tenants about his intention to sell. If it is in the interest of the tenant, they may exercise the right of preference, moving to the front of the line as the third party interested in buying.
To be able to exercise their preference right, the lease must last for at least two years. The landlord is obligated to communicate, by registered letter, the sale and the details of the purchase and sale contract. The price of the sale, the conditions and terms of the deal, and the deadline for exercising the tenant right must be included in the communication. Typically, this period of time is eight days, but it could vary if another shorter or longer period is stated, as written in article 416º, nº2 of the Civil Code.
If the landlord does not respect the preference right and does not communicate his intention, the tenant may file a civil action to have their right recognized. This civil action should be filed within six months of the notice provided by the landlord.
A friend of mine experienced this firsthand when trying to buy a property in Lisbon. He offered a purchase price, and the sellers strangely returned with a lower sales price, which he accepted. One day before the signing of the CPCV, the seller’s real estate agent informed my friend that the tenants had exercised their preference right and had decided to buy the property instead, thus pushing my friend out of the deal.
4. Ask about the status of the condominium
If you are buying an apartment in Portugal in a building with multiple units, it is important to check if a condominium has been set up. This is similar to the ownership of a condominium in the United States, although there is no concept of a homeowner’s association in Portugal. If a condominium has been set up, the new owner will need to pay a monthly condominium fee which will go towards electricity and maintenance on common spaces in the building, including the roof. You will need to also attend a condominium meeting once a year, which can be done online or in person.
5. Be aware of property taxes and fees
When buying property in Portugal, it’s essential to be fully aware of the various taxes and fees associated with the purchase. These can significantly impact your overall budget:
- Property Transfer Tax (Imposto Municipal sobre Transmissões Onerosas de Imóveis – IMT): IMT is a significant tax that is paid upon the purchase of property in Portugal. The rate varies depending on the property’s value, location, and whether it will be your primary residence. Understanding how much IMT you’ll owe is crucial for budget planning.
- Stamp Duty (Imposto do Selo): In addition to IMT, buyers are required to pay a stamp duty of 0.8% of the property’s purchase price. This is typically paid at the same time as the IMT.
- Ongoing Property Taxes (Imposto Municipal sobre Imóveis – IMI): Once you own the property, you’ll be responsible for paying annual property taxes. The rate of IMI varies depending on the municipality and the property’s valuation. It’s important to factor in these ongoing costs when considering your purchase.
To pay IMI, you have three options:
- For annual IMI tax under 100 Euros, the full amount is due in April.
- For IMI between 100 and 500 Euros, it is possible to pay in two instalments: one in April and one in November.
- For IMI over 500 Euros, it is possible to pay in three instalments: one in April, one in July, and one in November.
6. Learn about the neighbors
As we learned back in point #2, the people you share the building with you in your new Portugal property may be there for the rest of their lives, so it is important to understand who your neighbors are, even if you can’t meet them before buying the property. The most important thing to try and determine here is how loud they may be and if it will be something that you can handle.
Try and visit the property at least three times at different times of the day if you can and listen for noise around you both inside and outside of the property. This may not sound like a big deal, but it can really make an impact on your everyday life if you are going to live in the property yourself.
7. Check the utility connections
For properties located out in the Portuguese countryside, make sure that the property is already connected to essential utilities such as sewage, electricity, and water. You may find that significant upgrades are needed to help with property comply with modern standards.
Another energy-related element to be aware of when buying a property in Portugal is the amount of power that you can use in your home. When you sign up with a power provider, you select the maximum power you can use at the same time. This is known as the “potência contratada.” The lower the potência, the cheaper your electricity bill, but this also reduces the amount of power that you can use. If your electricity keeps being shut off when you use the oven at the same time as your hairdryer, you may need more potência.
We recommend a minimum of 4.6 KVA for yourself or 6,90 kVA for a family for the “potência contratada.” This should allow you to run the oven, dishwasher, and AC/heating at the same time.
8. Mold/Humidity
If you’re thinking of buying a property in a basement in Portugal or even on the ground floor, make sure to consider the level of humidity and subsequent mold that the property may be subject, especially in the winter. Due to the Atlantic climate and the mild and often rainy weather in the northwestern part of the country, Portugal suffers from a lot of humidity. This makes walls moist and become a prime place for mold to form.
Any basement or ground floor apartment/house should constantly have dehumidifiers running throughout the house to prevent mold and other humidity-related wear and tear on your walls. Some walls may need to be reinforced or repaired almost every year in the most humid of cases.
Final Thoughts
Buying property in Portugal can be a rewarding experience and offer the opportunity to enjoy a high quality of life in one of Europe’s most beautiful and welcoming countries. However, it’s not without its challenges. By being aware of the potential pitfalls and taking the necessary precautions, you can ensure that your property purchase in Portugal is a successful and satisfying investment.
From navigating the legal complexities and understanding taxes to assessing the property’s condition and potential noise pollution, thorough preparation is key. Engage with local professionals, do your research, and take the time to understand the unique aspects of buying property in Portugal. With careful planning and attention to detail, you can find the perfect property that meets your needs and allows you to enjoy all that Portugal has to offer.
