Buying and Selling Real Estate Laws in Portugal

Buying and selling property is always tricky, whether you’re a legal resident, buying a vacation home, timeshare, office building or simply investing in the Portuguese real estate market, buying or selling is always an adventure in bureaucracy. As with your home country, there are regulations, requirements and rules to consider. Murphy’s Law holds that anything that can go wrong will go wrong.

Knowing the ropes, due diligence and expert assistance can make your transaction move forward more easily, if not more smoothly.

Lawyer or no lawyer?

Portuguese law used to require a notary, which is kind of like a minor solicitor, but that is no longer required. It’s a good idea to retain an attorney (avogado) or solicitor (solicitador).

Licensed realtor

Unlicensed realtors abound, so ask for the realtor’s AMI number. It should be printed on all company collateral, such as Web sites, brochures, business cards and letter head.

A licensed realtor has the state-required qualifications and uses the required documentation.
The INCI, the government department regulating real estate, also bonds realtors.
Seller pays the agent’s fees, usually 3% – 5%, plus tax (21%).

The mortgage

Unless it’s a cash transaction, as a buyer you need a mortgage, whether fixed or variable rate. If you go to a Portuguese bank, you’ll need to supply the bank with:

Proof of income, including bank statements
Health records (to be sure you don’t die before you pay the mortgage off)
Life insurance to cover the mortgage (see above)
Property valuation, blueprints, etc.
Residency card, passport and identification

The process

If you are a first-time buyer, you’ll need a fiscal number (cartão de contribuinte) before you can open a bank account.

The local tax office (finanças) can provide you with one, and it’s very easy to obtain.
The bank will also need copies of your birth certificate and passport.

When you’ve agreed a price (buying or selling), there’s a legally binding promissory contract (contrato de compra e venda) to execute.

At that time, a 10% – 20% deposit is required.
A lawyer will (or has already) prepare the contract and it must be signed on licensed premises or before a notary. The contract will include:

Identification of the parties
Identification (article number) of the property
Deposit amount
Signing date (closing date for the final deed-escritura)
Other considerations such as: use of the property before closing, etc.

Once signed, any default incurs penalties:

Seller’s default requires the seller to pay buyer double his deposit
Buyer’s default means seller keeps the deposit

As with any escrow, between signing the promissory contract and final deed, your legal representative will vet the property for:

Deed: use and planning restrictions
Clear title: no outstanding debt, liens, ownership or boundary disputes (unpaid debt follows the property, not the owner, including utilities and taxes)
Habitability: no unapproved building modifications and that the property has an occupancy license (licença de habitação)
Agreed fixtures and fittings in place

Once finalized, you’ll need to register the escritura with the Land Registry (Conservatoria do Registo Predial), tax office (Autoridade Tributária) and utility companies.

Registration with the Land Registry makes you the legal owner.
You’ll need your fiscal number for registration.

Buying and Selling Costs in Portugal

Beyond the purchase price, buying or selling property involves other costs. Everyone involved wants his cut, from the government right down to the lawyer. The realtor and your attorney have to make a living, too. The government of course is looking for revenue and when property changes hands, it’s a perfect opportunity to take a percentage.

When deciding on the price to pay, don’t forget to figure in fees and taxes.

Buyer’s costs

Resident buyer costs run between 8.5% – 10.5%.

Property taxes vary by municipal jurisdiction.
Unless it’s a cash sale, there are mortgage costs to consider, too.

Buyer’s costs (as percentage of purchase price)

Transfer tax: 6.5%
Stamp tax: 0.8%
Registration fee: 0.2% – 1.2%
Legal fees: 1% – 2%

Seller’s costs

A licensed realtor, who is also bonded by the government, has marketing costs and overhead.

Seller pays the agent’s fees, usually 3% – 5% of the sale price, plus value-added tax (VAT) of 21%.
Word of warning, not all but some developments/resorts can charge up to 10% + Vat!
A savvy buyer will also want to be sure your property taxes and utilities are paid up to avoid being on the hook for them.
Unpaid property taxes can mean the property is auctioned off for back taxes as opposed to sold.

If you’ve sold your Portuguese home and intend to buy another:

You’re exempt from capital gains tax (up to 25%) if you buy it 2 years before or 3 years after the sale and apply the sale proceeds toward the new home purchase.

Resident or foreign buyer/seller?

Buyers and sellers are not required to be Portuguese residents.

Nonresident buyers will incur a 10% transfer tax instead of the usual 6.5%.
Different tax rates apply to resident and nonresident sellers.

Residents are subject to personal income tax on all income, even overseas income.

The tax rate ranges from 11.5% – 46.5%.
There are tax treaties to avoid double taxation, so consult a tax professional.

Nonresidents pay 20% personal income tax on Portugal-sourced income.

Income from Portuguese real estate transactions is taxed at 10%.
The capital gains tax on real-estate proceeds is quite stiff for nonresident sellers at 25%.

Thinking of living, retiring or buying property in Portugal?

Click here for guides on living in Portugal []

Click here for guides on buying real estate in Portugal []

James Harrison has lived on four continents with his family and is now the founder of PropDom:

PropDom – worldwide guides to help buying a second home, investing in property and retiring abroad.

PropDom has guides for the following countries: UK – France – Portugal – Spain – Mexico – Brazil – Australia – New Zealand – Kenya – Morocco – South Africa – Egypt – Mozambique – Singapore – Thailand – Pakistan

PropDom knowledge: Investment – Financing – Construction – Design – Legal – Furniture – Valuation – Surveying – Terminology – Glossaries – and more

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Real Estate Tips For Beginners

Have you always wanted to invest in real estate but don’t know where to start? Here are some of the different areas of the industry that you can invest in:

Areas That You Can Invest In

Residential: these are properties such as townhouses, apartment buildings and vacation houses. Here a person or a family will pay you in order to live in your property. The length of time that an individual lives in your house depends on your rental or lease agreement.

Commercial: commercial real estate consists mainly of office buildings. When you construct office buildings you can rent them to companies and small business owners. Again the length of time that the business owners use your property depends on your agreement.

Industrial: this one consists of car washes, storage units and any other special type of real estate where customers use your facility on a temporary basis.

Retail: it consists of trip malls, shopping malls and any other retail storefronts. When you construct a mall, you can rent it to a person interested in running it or you can run it yourself.

Mixed-use: this is where you combine any of the above categories into one project. For example, you can construct a storied building with offices, malls and residential areas.

Real estate investment trusts (REITs): this is where you invest in real estate trusts. When the mortgages generate profits, you get a share of it.

Tips on How to Be Successful In The Industry

For you to be successful in the real estate business you need to do a number of things:

Involve an attorney: regardless of the area of the industry that you are interested in always involve an attorney. A good attorney will help you in finding the right construction company. The attorney will also help you in writing professional rental contracts.

Neighborhood: the area where you invest in greatly determines the amount of money that you will make from your investment. To be on the safe side always go for a neighborhood that is growing or has the potential of growing.

Run the numbers: many investors assume that when they construct a building they will have a tenant, which is usually wrong. Before you invest in a building you should run the numbers and find out if you will be able to pay the mortgage if the property sits empty. If you find that you can’t be able to repay the mortgage in the event that the property doesn’t have a tenant for a month or two, chances are that you are stretching yourself too thin.