Building a House in Portugal – the process and associated costs

Are you thinking about buying a plot of land for construction in the Algarve, in Portugal? If so, there are some key steps that you need to take in order to ensure as smooth a process as possible.

In the first instance, you need to ascertain whether the plot of land has building permission or not. A good rule of thumb is to look at the land and see if there is a ruin on it. Generally speaking, if there is no ruin or existing property on the land, it is likely to be classified as rustic land, which means you won’t be able to build on it. This isn’t to say that it’s impossible, but it will be highly unlikely.

If the land does have a building on it but the relevant Planning Permission has not gone through correct channels or followed the correct process, these buildings would be considered illegal and could attract heavy fines – in some cases, they may need to be taken down altogether. Therefore, it is important that this type of information is clarified before you purchase the land.

Once you have found your chosen location, you should check if it is large enough and suitable for the house you plan to build and if the land is viable for building on (Viabilidade de Construção). You should also inquire if there are any restrictions to possible building works in the form of water pipes, high tension cables or issues with right of way.

If you happen to find land with an approved project already in place, this will save you time as you will already be further down the process than those who start from scratch. Approved projects are usually valid for a year, although this can be extended in some cases if necessary. Where approved projects are already in place, you can expect the build to take between one and two years to complete – depending on how quickly the municipality issues the relevant licences.

All the above are questions that you can ask your realtor and they should be able to answer them for you. When it comes to drawing up the purchase contract, this should be dependent on obtaining the required building licence (Licença de Obras). The process of buying land or property in Portugal can be quite lengthy and it might take you a while to learn how to navigate all of the bureaucratic processes, as well as the associated costs. Therefore, finding a realtor who has experience in property and land purchases in Portugal will help tremendously at this initial stage. The team at Your Luxury Property are highly experienced in this field and are on hand to provide you with expert advice.

Associated costs

In addition to the purchase costs, there are also other associated costs when it comes to licences, architects, constructions, materials, etc.

The average cost per m² will depend on several variables, such as the materials you choose and the finishes you require. Another factor that will influence this cost will be the location. Generally speaking, you should expect to pay more when building on land that is located in an urban centre or near the coast. At the time of going to print, building costs range between €1000 and €2000 per m². However, as these costs are on the rise in a lot of areas, it is best to expect them to be at the higher end of this scale.

In the first instance, you should draw up a list of all the things that need doing, so that when you approach architects and contractors for a quote, all their proposals include the same items and are therefore easy to compare. Make sure that any proposals put through to you include a reasonable contingency fund, as it is prudent to expect the unexpected, and to be financially prepared for this.

The architect

When deciding which architect to use for your project, it is wise to go with a personal recommendation, as well as checking their credentials with the official body – Ordem dos Arquitectos. You should expect their fees to work out at about 10% of the total cost of the construction. However, some architects may charge higher fees if they feel these won’t be challenged. As architect fees are set by the Architect’s association, you can always check if their fees are reasonable or not, should you choose to do so.

Once you have appointed an architect, they should take responsibility for producing a topographical survey of the plot, as well as the architectural project itself. Once completed, this will then be submitted to the City Council for approval along with evidence that water and electricity is available for that plot of land.

The constructor

After you have appointed an architect, you will need to find a constructor. Again, if you are able to appoint one that has been referred to you, this would be preferable.

Make sure that you obtain written quotations from a number of contractors before signing a contract. When you receive these, check that they include IVA (VAT) and clarify whether it is an estimate or a fixed price. Materials may alter in value throughout the course of the construction so, check that this has been taken into account in the pricing process, whether it be included in the contingency fund or in material prices themselves.

Once you have found a constructor that you feel is a good fit for your project, ask if you can inspect other homes that they have built and whenever possible, speak to the owners of these properties. If you are happy with what you see and hear, you can at this stage start discussing the terms of the contract that you will then sign. It is of utmost importance that the builder has adequate insurance in place, or a termination guarantee, so that you are covered in the event that they go out of business before the property and its infrastructure are complete. In addition to this, the contract should include the following:

  • All the costs;
  • A list of the materials (cross-referenced with the architect’s plans);
  • A detailed breakdown of the building works to take place (including all the fixtures and fittings);
  • The exact building location and orientation;
  • The complete connection of utilities to the house;
  • The building and payment schedule;
  • A small percentage retention of the total costs, to act as a guarantee against defects;
  • How to deal with disputes;
  • A late completion clause;
  • All licences and permits.

You as the homeowner are responsible for making all the decisions to ensure that your home is built according to your personal taste, so that your expectations are met. If you expect to have recessed lighting in your property for example, you will need to make this clear to the contractor, as the standard in Portugal would be to simply leave the wire hanging from the ceiling, with some contractors possibly adding the light bulb fitting and maybe even the light bulb. You may also want to consider appointing an accredited civil engineer to help you supervise the build.

Licences

In Portugal, it is the builder who is responsible for coordinating all the legal and technical details. They will need to have a previous information request (Pedido de Informação Prévia), which they can obtain from the City Council. They are also responsible for submitting the engineering projects to the City Council for approval. These projects will include the technical plans showing all the information for water, sewage, electricity, gas, communication, etc. Once this is all been submitted, the City Council will then issue a building permit called Licença de Obras. This means that your building work may commence.

When the building work has been completed, it is once again the builder’s responsibility to arrange a building inspection (vistoria). A representative of the council will then come to the property to carry out this inspection and ensure that the building has been constructed following the plans and all building regulations. Provided the building has passed this inspection, a residential licence (Licença de Habitação) will be issued by the council. With this licence, you will be able to arrange for the connection of all utility services.

Don’t forget…

When you are in possession of the residential licence, you have to register the property with your local tax office (Finanças), so that it can be evaluated for the annual IMI (Imposto Municipal de Imóveis) payments – A yearly council tax which is calculated based on the property value attributed by the tax office.

The future of your home

Once your build is complete and the property is fully connected to all the utilities, what happens next? If this is to be your main home or your second home, this is the time when you will busy yourself with the interior design and all the home comforts you and your family would expect. However, if you have bought this as an investment project, you may want to put it on the market to turn a profit. You do of course also have the third option of renting the property out, either on a long-term basis or as a holiday let (AL – Alojamento Local). Whichever you decide to do, should you need expert advice from our experienced team, we are on hand to help and would love to be part of your journey.

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