Buying a house in Portugal, associated costs

Buying a property in any country can be quite a minefield of paperwork and bureaucracies. However, compared to many other countries, buying a house in Portugal is in fact quite a straightforward process. As you read through our guide, you will soon come to realise that buying a property in the Algarve as a foreigner is not terribly complicated and doesn’t have to be a stressful experience.

Getting Started

Before you embark on your new adventure, there are a couple of essentials that you need to get organised. Firstly, you need a NIF (fiscal/tax number). You can apply for this physically at your local Finanças (finance/tax office) or, if you are not present in the country, you can get a temporary NIF via a Portuguese lawyer or fiscal representative acting on your behalf. 

This temporary NIF will eventually get replaced with a permanent one. In terms of documents required for the application process, you will need to provide a valid photographic ID – a passport or, for those from the EU, an ID card should also be accepted. If you would like to read more about this first step, have a look at the article wrote by a specialised lawyer for our readers.

If you are already living in Portugal, you will need to provide a proof of address (e.g. utility bill) but, if you are using a representative, the power of attorney along with copies of your ID should suffice. If you are investing money in Portugal through a Golden Visa scheme, you can apply for a NIF at the same time.   

As mentioned above, a legal representative is advisable. Although you can buy a property in Portugal without legal representation, unless you are prepared to do all of the legwork yourself, having legal representation will make the whole process much smoother.   

Once you reach this stage, you can start your property search. These days, it is very easy to search for real estate to buy in the Algarve using the internet. However, it is always advisable to go through a reputable agent as they will not only offer you peace of mind, but you will also benefit from their knowledge and expertise. 

As it is the seller who pays the agent fees, you can make use of their services without having to think about any of the costs attached. If you are looking for property within the Golden Triangle, we have an extensive portfolio of property to buy in the Algarve that is sure to fulfil your search criteria.

Contact our team of experienced advisors who will happily guide you through all of the options available.

After you have found your dream home in the sun, negotiations begin. At this stage, you will normally be asked to put in a formal offer in writing with details of all your conditions – possible completion date, deposit amount when you sign the Promissory Contract (CPCV), fixtures and fittings, among others.

Putting in an offer

Your agent will handle all the communication and will ensure all the elements are gathered so that negotiations run smoothly. At the end of the negotiation process, it is up to the agent to present a formal offer to both solicitors or legal representatives involved in the process, with all the details included.

Due Diligence

Once your offer has been accepted and the contract is being prepared, the next stage is to start gathering all the relevant paperwork. If you don’t want to deal with the bureaucratic part of the processes yourself, you should appoint a legal representative at this stage.

Once you have found the right lawyer, you can sign a Procuração (Power of Attorney) with specific powers for them to take certain actions on your behalf. This is a relatively easy process to take care of in a Notary’s office.

For the purchase of the property, you or your legal representative will need to obtain a Certidão Permanente, which provides details of the property ownership. You will also need a copy of the Caderneta Predial, which proves the property has been registered for tax purposes.

The other document you will need is the Licença de Utilização – a license of the property usage/purpose (e.g. Habitation, Commercial). These three documents are relatively easy to get hold of at a nominal cost.

The Promissory Contract (CPCV)

The CPCV (Contrato de Promessa de Compra e Venda) is a legally binding contract that is prepared by the buyer’s lawyer, which contains all of the details relating to the property in question, the buyer & seller details, the values and timelines agreed.

At this stage, a deposit (normally 10% to 20%) is payable. If someone pulls out without a valid reason, penalties are payable. If the buyer is at fault, their deposit is forfeited; if it’s the vendor at fault, they pay double the deposit amount to the buyer.the same rules apply. Once the buyers and vendors sign this contract, it is legally binding. 

It is not uncommon for the purchase/sale of a property to take place without a CPCV being signed in cases where it is a quick sale, and the turnaround does not warrant the extra paperwork.

The Escritura / Final Deed

This is the final stage that takes place approximately 30 – 60 days after the CPCV has been signed. On the agreed date and time, the buyer, the vendor, lawyers, bank representatives (if credit is being sought or paid off) and the notary all gather in the notary’s office. Here, the final contract is read out, in Portuguese, and all the documents are checked and verified.

Once all this has been done, bankers drafts are handed over to the vendor and if applicable, to the vendor’s bank representative in payment of any outstanding debt.

If you do not speak or understand Portuguese, you will need the services of a translator or an English-speaking lawyer, as it is essential that you understand the contents of the contract being read out.

Speak to your lawyer about this (if you have appointed one) or, you can consult with The British Foreign and Commonwealth office who provide a list of translators and interpreters in Portugal, as well as a separate list of English-speaking lawyers. The US embassy also lists translators in Portugal, divided into geographical areas.

Purchase costs

Although there are obviously costs involved with the buying and selling of a property, these are not too complicated. However, it is important to know what these costs are and more or less when to expect them to arise.

If you have appointed a lawyer, you should expect to pay 50% of their fees at the start of the process and the remaining 50% at the end.

A survey is optional in Portugal and should you wish to have one done, this will vary between 300€ and 500€.

At the escritura, you will be expected to pay the following fees:

-> Notary fees – this varies so it is best you check beforehand.

-> Property Transfer Tax (IMT) – This is a percentage of the property purchase price that is payable by the buyer and is calculated depending on if the property is a primary residence, a secondary one, a holiday home or a rental property. There are online calculators which can help you work out this amount but, for a more accurate figure, it is best that you ask your lawyer or the agent to calculate this for you.

-> Mortgage Stamp Duty – If you are taking out a mortgage, you will at this stage also have to pay this tax which is based on the value of the mortgage.

In general, it is advisable for you to budget for around 10% of the purchase price as a guide for the costs involved – though it is often less than this. It is worth noting that the IMT, as well as some other fees, are not applicable when buying a property which is held offshore. Looking for more information re property taxes in Portugal? Check our detailed article “Property Taxes in Portugal“.

You should also consider the tax regime for non-habitual residents in Portugal, as this brings with it some tax gains in relation to property acquisition. Be sure to ask your lawyer for more details if either of these apply to your situation.

Ongoing costs

Once you have completed the property purchase process and are the proud owner of your dream home in the Algarve, there are some ongoing costs that you should be aware of.

-> IMI (Property Tax) – You should be advised of this value at some stage throughout the purchase process, so be sure to ask.

-> Rental income tax – For Portuguese residents, this is added to the wage and the income taxed as a total amount. For non-residents, tax is payable on the total income of long-term rentals (minus costs) and in the case of short-term rentals, only on a percentage of the income.

-> Life insurance (optional, unless you have a mortgage)

-> Buildings insurance – It is advisable that a complete guide to home insurance is consulted so that you make the most informed decision possible. Fire insurance is the minimum cover required by all homeowners with a mortgage, with multi-risk being the preferred option for most – as it has more comprehensive and tailored cover.

Hopefully, this brief guide has given you a helpful overview of the homebuying process in Portugal and as a result, given you the tools to take the right action at the right time. With this in mind, all that you have left to do now is take the first tentative steps to buying your little piece of paradise in the sun!

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