DISCLAIMER – WE CANNOT GUARANTEE ACCURACY OF THIS INFORMATION TO CURRENT MARKET CONDITIONS. WE STRONGLY RECOMMEND THAT YOU SEEK PROFESSIONAL ADVICE FROM A QUALIFIED SPECIALIST TO UNDERSTAND THE COSTS ASSOCIATED WITH BUYING AND OWNING A HOME IN PORTUGAL.

PROFESSIONAL SERVICES

As is usually the case, the golden rule of all business dealings is to ensure that you have a lawyer and financial/ tax advisor working entirely in your interests. Getting a quote up-front is the best strategy to ensure there is no doubt on what you will pay for services. 

Your estate agent will likely recommend a lawyer but it is wise to get recommendations and find your own legal representation independently to ensure there are no conflicting loyalties.

Keep in mind that agents are working for the seller. The higher the price, the greater their commission. 

When you purchase a property in Portugal, all documents must be signed in the presence of a notary for them to be legally binding. The notary is usually involved from the signing of the initial Promissory Contract until the point of completion and the signing of the Final Deed.

Portuguese notaries are compulsory in any property transaction in Portugal. They officially act for the government, and not for either the buyer or vendor.

The role of a notary is to oversee and rubber-stamp the paperwork in a property transaction. They also check all necessary taxes are paid, and register the property with the Portuguese Land Registry. 

Some of the costs of buying in Portugal include:

• Estate agent’s commission: This is usually 5% of the property price and is covered by the seller.
• Transfer Tax (IMT): A property tax that is based on several factors, including price, location, and whether it’s your primary residence. Rates start low for rural, low cost homes and run higher for high-value urban houses. Typically 2-8% of purchase price.
• Municipality/ Council Tax (IMI): This is typically between 0.2–0.8% of the property price, depending on the property type and value.
• Stamp Duty (Imposto do Selo): This is typically 0.4–0.8% of the property price, depending on the property type and value.
• Wealth tax: There’s an extra 0.7% tax on properties over €600,000 and 1% on properties over €1 million. However, this is an individual allowance, so married couples would only start to pay on a jointly owned home with a value of €1.2 million
• VAT (IVA): Professional services charge IVA at 23%. Ensure quotes are inclusive of IVA.
• Independent Legal Fees: The services of a lawyer will likely cost 1-2% of the purchase price.
• Notary: Notary is a mandatory service in Portugal and usually costs between 1-2% of property price.
• Property survey costs: While they’re not common in Portugal, a property survey should not cost more than €1,000 should you decide to have one carried out.
• Post-purchase/ Other costs: Think about the funds needed after your move, which could include land/ property registry fees, local property taxes, maintenance costs, travel costs, utilties, moving costs etc.

BUDGET

It’s important to remember that your budget should take into account more than just the purchase price. Don’t underestimate additional costs such as furnishing, utilities, landscaping, security. A good general rule is to assume you will need to spend another 10% on top of the purchase price. This is separate to the property purchase fees listed above.

Another consideration is whether this will be a primary or vacation residence. If it’s not a primary year-round residence, property rental could be something to consider in order to generate rental income to fund or offset maintenance/ running costs while also ensuring your property is looked after.

This is also an important consideration for your budget as generating rental income could justify increasing your budget, however this is considered a business activity so it is important to get advice on the cost and implications of renting your property. Property & Rental Management Companies are in abundance in the area so it is recommended that you speak to a few of them in advance to get a sense of what’s involved.

You will also need to understand the impact currency fluctuations (if applicable) might have on your purchase.

DEPOSITS

Once you’ve committed to buying a property in Portugal, you could lose your deposit if you choose to back out of the transaction. So, while it’s not common practice in Portugal, it’s best to arrange an independent survey before you reach that level of commitment. It’s possible you may be able to arrange for a clause to be added to the contract that allows you to back out if anything undesirable is found, though this isn’t a standard practice.

SURVEYS

Surveys provide a through assessment of a property on older properties could uncover structural problems, unauthorised alterations, or all kinds of other problems from termites to damp.

Damp and mould during a wet winter is always something to look out for in Portugal, and something that won’t show itself if you’re viewing your property during the summer months.

Just because homes are new, it doesn’t mean corners haven’t been cut. It makes sense to go and speak to your potential new neighbours to get a grip on what to expect in terms of building quality and other potential issues.

THE LEGAL PROCESS/ STAGES OF BUYING

In Portugal, you generally need to pay a holding deposit very soon after having an offer accepted on a property. This is held by your lawyer. As such, it’s a good idea to have a chosen lawyer in mind before you start house hunting.

Next, it’s down to the lawyer to check all of the details of the property and paperwork before you proceed to the Promissory Contract stage. At this point, you’ll usually need to increase your deposit.

Making an offer/ Letter of Intent to Purchase

After choosing a property, you would usually make an offer via your agent. When the offer is accepted, a small deposit usually changes hands and the property is taken off the market/ reserved. This is the point at which you instruct your solicitor, who perform all the necessary checks, such as ensuring the property legally belongs to the owners and they have the authority to sell.

Assuming you decide to get a survey done, you’ll want to arrange this before any more money changes hands.

The Promissory Contract

The next step in the legal process is your solicitor preparing the Promissory Contract of Purchase and Sale. This is a legal contract between the buyer and the seller, both of which sign in the presence of a notary. This document will include all the identification details of the seller and buyer, as well as those of the property, the planning of the payments and dates, as well as the explicit indication that the property will be sold free of burdens and charges.

At this point, upon signing the contract, you pay the official deposit on the property.

There’s no rule on the value of this deposit but 10-30% of the purchase price is quite standard, less the reservation deposit already paid. 

Under Portuguese law, if the seller does not comply with the contractual obligations, (s)he is legally obliged to reimburse double the deposit to the buyer. If the buyer pulls out of the deal, the deposit is non-refundable/ forfeited.

To pay, your solicitor should release the deposit and transfer it to the vendor’s representative, then you should be given a target date for transferring the final deed. Typically, this will be anything from 3 weeks to 3 months from when the initial contract is signed.

Final/ Public Deed

The signing of the final deed requires both you and the property vendor to be present (or someone with power of attorney). It also takes place in the presence of a notary.

After you have transferred the balance of funds, the documents are read aloud and signed by both parties. This is the equivalent of completing.

It’s at this point that you also pay the purchase tax (IMT). It’s the notary’s job to ensure that this is paid before the property changes hands.

Registration

While the property is yours after you sign the final deed, you must then, with the guidance of your solicitor, register the property with the local tax office and the Land Registry.

Source: propertyguides.com