Buying Off Plan Investment Property in Portugal

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Portugal – Investment Guide (Buying Off Plan Property in Portugal)

Portugal represents an established country for property investors who prefer more of a low risk investment. Areas such as the Algarve on the southern coast have been attracting second home buyers since the 1960's and are well served by regular flights from northern Europe - plus a growing number of budget airlines - a solid infrastructure and hundreds of thousands of repeat visitors annually. Along with Spain and France, Portugal is one of the most popular countries for Europeans wishing to retire abroad.

Portugal's coastal areas are currently home to a vast range of off plan developments, which cater for most budgets from small and inexpensive studio apartments, to state of the art luxury homes on some of the best golf courses in Europe or 5 star resorts by the beaches. He government has stated that density limits on construction cannot exceed 8% on the Algarve. This principle will hopefully be carried forward to new areas so that the beautiful Portuguese will not be spoilt.

Coastal areas are predominantly where investors tend to purchase for various reasons:

• High Occupancies
• Established rental incomes
• Easier to exit the market in the future
• Properties are appealing to both national and international future buyers

There are a number of larger off plan resort developments in construction in Portugal which offer investors value for money, easy payment terms, onsite management and a wide range of quality amenities. Buying with an established developer tends to be attractive to many investors, but do not discount some of the smaller builders in Portugal who construct in niche markets and can offer some very exciting real estate at extremely competitive prices.

It is worth pointing out to newer investors and beginners that although capital appreciation is a major incentive, it is often rental revenues are hugely important in helping to pay your monthly outgoings until you can exit the market. By buying a property in Portugal within a larger development, you will not achieve the true rental potential until the development is completed and is no longer a building site. Smaller developments often mean that the entire off plan project is completed at the same time - as against in phases - and this will be attractive to potential buyers and renters especially if they have children.

Rental Yields in Portugal

Property rentals in Lisbon and in established coastal areas are presently averaging around 10% per annum gross. Although other countries and cities can perform better, there is a certain stability that comes with investment properties in Portugal that other areas can offer.

Investing in residential off plan developments should be a consideration if you plan to keep the property for several years, as long term tenants will cover most of your outgoings and the property will be suitable both for personal use in the future and for resale when the time is right.

Aside from the coastal areas, city real estate has been very profitable for many investors, typically those used to investing in properties that are put on the corporate lettings market. Lisbon as the capital of Portugal has a strong financial and industrial sector and like other cities around the world has a high demand for quality properties from visiting managers and directors of international corporations. Lisbon and Portugal in general have very strong ties to South America in particular Brazil as well as many other former colonies and much of the trade is orchestrated from the capital city. The Portuguese government has an ongoing plan of investment to restore many of the old buildings in the city and in turn rejuvenate city centres and encourage inner city growth and employment. You can now see many historical buildings being reformed alongside brand new modern buildings in the major cities around Portugal.

Prices of urban properties have risen steadily in recent years and in our opinion still represent solid investment over a medium to long term. Apartments in the city are ideal for visiting company directors, given the easy city commute, however they are also popular with the national market as many of the older properties boast larger floor-plans, high ceilings, ornate fixtures and fittings plus a piece of Portuguese history.

A growing group of foreign nationals are now investing in inland properties as a future home for their retirement or in areas that are just a few years away from potential new urban planning, which they can then sell at a handsome profit. This type of investment is often best left to those who know the inside track when buying rural land with a view to sell or develop several years down the line.

The Portuguese have long been accustomed to under-declaring values of resale properties so as to reduce capital gains taxes and other fees.

This is illegal and should not be done under any condition!

This cultural difference has often been the deal breaker for many overseas buyers of property in Portugal and it has led to the preference of the majority of investors to purchase off plan developments. With a new development it is the developer who sets the price and this will tend to be non negotiable unless several units are to be purchased by a single investor.

The developer should have all paperwork and building licenses in order to meet financial regulations from their lenders and also so that they can prove that they have insurance to ensure that the development will be completed if they run into financial difficulties.

Many developers will either have stage payments in place to assist in your purchase or will be able to recommend a lending institution to you. We recommend that you speak to several banks and mortgage companies prior to taking a developer's 'in-house' bank as the terms are not always as favourable as they may first appear. If you feel more secure raising finance in your home country, there are a number of banks that offer mortgages on properties in Portugal.

The Portuguese economy is one of the fastest growing in Europe having received almost 23 billion euros of funding from the European Union. These funds have been allocated to improve transportation infrastructures and open new areas of Portugal to both the tourist markets and the international housing markets particularly potential residential tourists.

Recent privatisation of state owned companies and a diversified service based economy are now providing two thirds of the Portuguese GDP.

Portugal has a number of double taxation agreements with various countries including the UK. Property owners in Portugal will be liable for VAT, Wealth Tax, Capital Gains Tax and income tax based on rental revenue of the property. Non residents must complete an annual income tax declaration divulging any revenues derived from rentals, which will be taxed at 25% - there are no deductions allowed against mortgage interest costs. Inheritance taxes are known as stamp duties in Portugal and are not payable when a property is passed to a member of your immediate family.

Future residents of Portugal should take professional advice as they will be subject to taxation on their worldwide income, VAT, capital gains, inheritance taxes plus a host of other miscellaneous taxes

Summary

• Plentiful flights from international destinations plus a growing number of budget airlines
• A economically sound and growing country with a democratic government whose investment policies are pro-foreign and pro-business
• Relatively low unemployment at 7.8%
• Portugal boasts Europe's most cost-efficient workforce.
• A popular destination for tourists
• A preferred place to relocate and/or retire
• A lower cost of living
• High standards of build quality
• An improving infrastructure
• Growing GDP - estimated at 2% for 2008
• Only a couple of hours from most European countries
• Reasonable prices for established locations and cheap in rural areas
• Excellent value for money
• World Class sporting amenities
• A pleasant year round climate
• Low crime rate