Guide to buying Property in Portugal
The Legal Process
The purchase of property in Portugal is relatively straightforward provided the ownership of the property is clear and the purchase laws are strictly adhered to. The process, if it doesn't involve an offshore company, consists of two stages - the Promissory Contract (contrato promessa de compra e venda) and the Final Deed (escritura).
The purchase of property in Portugal is relatively straightforward provided the ownership of the property is clear and the purchase laws are strictly adhered to. The process, if it doesn't involve an offshore company, consists of two stages - the Promissory Contract (contrato promessa de compra e venda) and the Final Deed (escritura).
The Promissory Contract
This is a legally binding agreement between both parties. On signing the contract, the buyer pays a deposit which is normally 10 - 20% 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 vendor defaults he is legally obliged to return the deposit, plus compensation, which is usually equal to the sum of the deposit. This favourable law does much to prevent the frustrating practice of gazumping which often occurs under the English system of house purchase.
It is acceptable for both the vendor and buyer to ask for a copy of the contract translated into their mother tongue.
The contract covers a number of points including the following:
* Comfirmation of the precise identity of the vendor and the buyer
* Precise description of the property
* Confirmation of the clear title of ownership
* Agreement for payment of deposit and terms if the contract is broken
* Agreement concerning stage payments if applicable - usually with new buildings
* Confirmation of date of completion of the sale.
Before the contract is signed, the vendor has to produce all the relevant paperwork relating to the property. This is to show to the buyer (or his/her lawyer) so that necessary searches can be made to ensure there are no outstanding debts for example; rates, bank loans against the property. There will also be a habitation licence confirming the property is for residential use (not commercial). Since January 2009 the vendor must provide an Energy Certificate which will grade the property in much the same way as domestic appliances.
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It is acceptable for both the vendor and buyer to ask for a copy of the contract translated into their mother tongue.
The contract covers a number of points including the following:
* Comfirmation of the precise identity of the vendor and the buyer
* Precise description of the property
* Confirmation of the clear title of ownership
* Agreement for payment of deposit and terms if the contract is broken
* Agreement concerning stage payments if applicable - usually with new buildings
* Confirmation of date of completion of the sale.
Before the contract is signed, the vendor has to produce all the relevant paperwork relating to the property. This is to show to the buyer (or his/her lawyer) so that necessary searches can be made to ensure there are no outstanding debts for example; rates, bank loans against the property. There will also be a habitation licence confirming the property is for residential use (not commercial). Since January 2009 the vendor must provide an Energy Certificate which will grade the property in much the same way as domestic appliances.
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The Final Deed
This is the official document of the transfer of the property and has to be signed in the office of the official legal notary who checks all the previously mentioned documents.
The notary will also require documentary evidence issued by the local tax office (finanças) 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 condominium (as on Rocha Brava) an associated condominium agreement will also form part of the final deed 'Titulo Constitutivo'.
Unless the buyer understands Portuguese, the notary will insist on a verbal translation into the buyer's mother tongue.
The deed is then signed by both parties and the balance of the purchase price is paid to the vendor.
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 receive a copy at a later date.
All costs for professional advisers, notary charges, land registry fees, the final escritura, etc. are normally calculated on the agreed value of the property. If furniture and fittings are being purchased at the same time an allowance may be made for these.
The vendor normally pays his own lawyer and any commission to the real estate agent.
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The notary will also require documentary evidence issued by the local tax office (finanças) 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 condominium (as on Rocha Brava) an associated condominium agreement will also form part of the final deed 'Titulo Constitutivo'.
Unless the buyer understands Portuguese, the notary will insist on a verbal translation into the buyer's mother tongue.
The deed is then signed by both parties and the balance of the purchase price is paid to the vendor.
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 receive a copy at a later date.
All costs for professional advisers, notary charges, land registry fees, the final escritura, etc. are normally calculated on the agreed value of the property. If furniture and fittings are being purchased at the same time an allowance may be made for these.
The vendor normally pays his own lawyer and any commission to the real estate agent.
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Costs The associated costs of buying a home in Portugal are as follows:
Property Transfer Tax (Imposto Municipal Sobre as Transmissóes Onerosas de Imóveis - IMT)
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 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 practice so do not be tempted as the financial penalty may be severe if the avoidance is discovered when you come to sell the property at a later stage.
The IMT is levied at a rate of five percent on rustic properties and 6.5 percent on urban properties (as on Rocha Brava). Properties in excess of 510.000 euros are levied at 6 percent 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 percent and 2 percent. There is a nominal charge for stamp duty and for registering of property at the land registry following completion of the final deed.
Lawyer's fees
Normally between 1 and 2 percent of the purchase price although some lawyers charge a set fee.
Annual Rates (Imposto Municipal Sobre Imoveis - IMI)
This is an ongoing cost that continues after the sale and corresponds to annual rates paid on your home to the local authority (Câmara) it is calculated on the rateable value of your property and normally levied at between 0.8% and 1.3% depending upon 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 three and six years subject to the size and the location of the property.
Condominium Charges
On Rocha Brava these are paid in two halves; July and December, by the owners, towards the upkeep of communal facilities.
Condominiums are governed by a condominium contract that forms part of the purchase of the property in the condominium.
Property Transfer Tax (Imposto Municipal Sobre as Transmissóes Onerosas de Imóveis - IMT)
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 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 practice so do not be tempted as the financial penalty may be severe if the avoidance is discovered when you come to sell the property at a later stage.
The IMT is levied at a rate of five percent on rustic properties and 6.5 percent on urban properties (as on Rocha Brava). Properties in excess of 510.000 euros are levied at 6 percent 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 percent and 2 percent. There is a nominal charge for stamp duty and for registering of property at the land registry following completion of the final deed.
Lawyer's fees
Normally between 1 and 2 percent of the purchase price although some lawyers charge a set fee.
Annual Rates (Imposto Municipal Sobre Imoveis - IMI)
This is an ongoing cost that continues after the sale and corresponds to annual rates paid on your home to the local authority (Câmara) it is calculated on the rateable value of your property and normally levied at between 0.8% and 1.3% depending upon 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 three and six years subject to the size and the location of the property.
Condominium Charges
On Rocha Brava these are paid in two halves; July and December, by the owners, towards the upkeep of communal facilities.
Condominiums are governed by a condominium contract that forms part of the purchase of the property in the condominium.