Buying Off Plan Property in Portugal

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Buying Off Plan Property in Portugal - Buyer's Guide

Portugal has been much sought after property destination for a several decades now and was and in fact still remains an excellent option if Spain is just too overdeveloped for you. There are many reasons to choose Portugal including, very regular flights from northern Europe to Lisbon, Faro and Oporto throughout the year, Portugal is well known for its excellent sporting facilities, low density developments are prevalent in keeping with government planning and of course the climate.

Years ago, foreign buyers bought properties on the Algarve on Portuga's south coast, drawn by the refreshing climate and the undiscovered coastline which promised sandy beaches, rocky peninsulas, hidden coves and warm waters set against a simple lifestyle in a semi rural environment in the sun. As the Algarve has expanded so has the mentality of the investors and since the turn of the century the more adventurous investors have been discovering different regions of Portugal especially in the Lisbon area and on the Costa da Prata - Silver Coast - and more recently on the Costa Verde - Green Coast.

Real estate on the Algarve is some of the most sought after in all of Europe with luxury villas on the fantastic golf courses and near the stunning beaches being at the forefront of many wish lists for those with healthy budgets. Although expensive by local standards they still represent value for money when compared to other Mediterranean hotspots such as Marbella or Monaco as in fact, do most categories of property in Portugal.

Where to buy in Portugal?

The Algarve remains one of the most popular areas for many foreign investors. With an established tourism history, a solid infrastructure and professional services galore, the Algarve is a first choice for many overseas buyers. The rental revenues can be fairly accurately estimated by experienced rental companies or estate agents and this is an important factor for many buyers who wish to buy a property in Portugal but would like to have the purchase subsidized one way or the other with rental income.

Buying off plan properties in Portugal represent an easy purchase option for many international investors due to the financing that is offered by many developers and banks. The off plan developments in prime locations can be expensive but you will be paying for a great location. However there are many options if beachfront is not in your budget and they can compare very favorably with especially with resale properties with the trade off being modern design and high quality fixtures.

Off plan developments along the Algarve offer a range of apartments, townhouses and villas in newer areas where shops and amenities are on your doorstep as against resale properties which tend to a short drive away, outside of the more established communities. These new off plan developments have been designed to be suitable to both the local home buyer as well as the foreign investor boasting more square metres per unit and built to a higher specification than developments in other areas of the Mediterranean.

The western region of the Algarve is where you will find some excellent off plan resorts, nestled close to quaint fishing villages, complementing the natural landscape and nearby to the sandy beaches and tranquil coves.

The eastern are of the Algarve remains relatively untouched in comparison, but the lush green landscapes and rolling hillsides are slowly being marketed to second home buyers and lifestyle purchasers who are looking to enjoy the same climate, the same blue waters and the wonderful sports facilities without living in a bustling environment.

The Spanish and Portuguese tourists have long been attracted to the Atlantic coast on the Costa Azul and Cota da Prata. These areas are now being discovered by investors from outside of the Iberian Peninsula, who are willing to invest in coastal areas which are being promoted as being the 'Real Portugal'

New off plan developments in these areas tend to offer more traditional architectural styles which may suit some buyers and tourists who enjoy the appeal of Portugal as it was years ago. You will still get modern materials and high qualities; they will just be integrated in to a more traditional style

Investors more experienced in investing in major cities are rapidly finding cities such as Lisbon and Porto offer a range of modern off plan developments nestled beside historical buildings, serviced by new improved infrastructures. Millions of government Euros, have been invested in some of the older buildings to redevelop the properties and rejuvenate the local areas, especially in the city centre's where demand is high for quality real estate with heritage.

Rural areas of inland Portugal essentially remain as they were fifty or even a hundred years ago and large country homes and Quintas can be readily found in the hinterland at very attractive prices. If country life is to your liking then there are plenty of stunning locations from which to choose including the Douro Valley and certain areas of Alentejo.

If mainland Portugal is not for you, then take a look at Madeira or the Azores. Both of which are Portuguese protectorates and have established tourist industries as well as being popular destinations for retirees and second home owners.

Buying a property in Portugal.

The rules, regulations and legal schemes in Portugal are very similar to those that are apllied to citizens of Portugal

All residential property must legally have the following:

• Habitation Licence for all property constructed after 1951
• Official record at the Land Conservatory
• Caderneta Urbana (detailed description of the property) from the Tax Office

After you have decided on the property that meets all of your requirements you will make a verbal agreement with the vendor, normally followed quickly by a reservation deposit of a few thousand euros which will remove the property from the market place.

Your lawyer, who should speak your language fluently, will begin his initial searches and due diligence on the property, checking the title deeds or building licenses if you are buying an off plan property. You are obliged by Portuguese law to obtain a Fiscal number when buying properties in Portugal. You can ask you lawyer to help you when submitting the simple form to the Tax Office - Finanças.

A preliminary contract of sale - contrato de promessa de compra e venda - will then be signed, which stipulates the terms of the sale and will include the completion date. You will be asked to pay a deposit of between 10% and 30% which will be forfeited by you should you back out of the sale. If, however the vendor reneges on the contract they will be obliged to pay you double the amount that you paid.

Completion will take place in front of a Notary and signed by both parties. The balance of the sales price will be paid at this point, along with all fees and taxes prior to signing the Escritura de compra e venda - Title Deeds - and transference of .ownership

Once the sale has been completed, it is essential that the new deeds and transfer of title are lodged in both the local tax office and the land registry - Conservatória do Registo Predial

NB/ Some developers will ask for stage payments from buyers investing in off plan properties. These stage payments should be written in the preliminary sales contract.

Taxes and Fees

Legal fees in Portugal are typically around 2% of the sales price depending on whether you are taking out mortgage

Average estate agents fees are approximately 3%

Registration, stamp duties, administration and Land Registry fees will be between 1% and 2.5%

Transfer tax in Portugal - Imposto Municipal Sobre or IMT - varies from area to area and on the type of property - resale or off plan - that you are buying. This can be anything up to 8%

You should ask you lawyer to check local fees and taxes as they too vary from one municipality to another.

VAT in Portugal is 19%. Your lawyer will advise you on which services you will need to pay this

CEMI, is a variable state tax which requires payment prior to completion of sale. This tax may not be required but we advise you discuss it with your lawyer

We would advise all clients to allow for around 15% of the total sales price for these fees and taxes

For overseas investors it can be advisable to make a Power of Attorney - Procuração Pública - so that your lawyer can sign contracts for you if you will not be present at any of the stages of the purchase

Annual property taxes - Contribuicao autarquica - in Portugal are municipal property taxes and calculations are based on the registered value of the property and can range between 0.8% and 1.3%.

Current areas for off plan property investment in Portugal include:

Algarve, Costa Azul, Costa da Prata, Costa Azul, Costa Verde and Lisbon.

See our Guide to Investment Property in Portugal