What to Consider When Buying Property in Portugal

Portugal, nestled on the Iberian Peninsula and sharing the same time zone as the UK, ranks as the 15th best country to live in. While it's long been a favourite holiday destination for sunseekers, it's also increasingly a target for expats, second-home owners, and those seeking a permanent move to sunnier shores.

Good news for potential buyers: Portugal is reconsidering its stance on digital nomads, with tax breaks for skilled foreigners back on the table. This signals that now is a prime time to consider purchasing or investing in super-prime property in the country.

As a coastal nation, many prime property hotspots are understandably linked to the sea. The Atlantic shoreline is famed for its rugged beauty and massive waves, particularly at the surfing mecca, Nazaré. To the south, overlooking the Straits of Gibraltar and the gateway to the Mediterranean, lies the Algarve, part of the Faro district—a tourism hotspot known for some of the world's best golf courses. For those seeking a metropolitan lifestyle, the major cities of Lisbon and Porto offer intimacy, history, culinary delights, beautiful architecture, and a vibrant buzz. Other sites of incredible historical significance include the UNESCO-listed University of Coimbra, founded in 1290, the Monastery of Batalha, and the eclectic hilltop palaces at Sintra. Despite its long border with Spain, this area remains distinctly Portuguese, although the Schengen Agreement allows for easy cross-border travel.

Property Buying Process

Thankfully, the property buying process in Portugal is relatively straightforward, though it involves several key steps to be mindful of:

• Preliminary Agreement (Contrato de Promessa de Compra e Venda) Once you find a property, both parties sign a preliminary agreement outlining the terms of the sale. A deposit (usually 10-30% of the purchase price) is typically required at this stage.
• Due Diligence Conduct thorough due diligence, including verifying property ownership, ensuring there are no outstanding debts or encumbrances, and confirming that the property complies with local regulations.
• Final Deed (Escritura Pública de Compra e Venda) The final deed is signed in the presence of a notary, and the remaining purchase price is paid. The notary ensures all legal requirements are met and registers the property transfer.
• Registration The property must be registered at the local Land Registry (Conservatória do Registo Predial) to officially transfer ownership.

As with any property purchase, it's advisable to hire a lawyer, ideally a local one who specialises in real estate, to guide you through the legal process, ensuring all aspects are handled correctly and efficiently.

Tax Implications

It's also important to consider the tax regime when it comes to property transactions, including:

• IMT (Imposto Municipal sobre Transmissões Onerosas de Imóveis): This property transfer tax is payable by the buyer. The rate varies depending on the property's value and type, ranging from 0-6% for residential properties.
• Stamp Duty (Imposto do Selo): A stamp duty of 0.8% of the property's purchase price is also payable by the buyer.
• IMI (Imposto Municipal sobre Imóveis): Annual property tax based on the property's rateable value. Rates vary between 0.3-0.45% for urban properties and are determined by the local municipality.
• Income Tax: For those considering renting their property, it's important to know that rental income from Portuguese properties is subject to income tax. Non-residents are taxed at a flat rate of 28%, while residents are taxed at progressive rates.

Historical House Prices

Like many European nations, Portugal has seen significant growth in house prices over the past decade, particularly in popular areas like Lisbon and the Algarve. Plus, house prices tend to be quoted on a per square meter basis, typically averaging €2,950. With luxury coastal villas costing north of one million euros, but property hotspots with swimming pool, multiple bedrooms and gold access can command prices of more than three million euros. A quick snapshot is as follows;

• Lisbon: The capital has experienced a substantial increase in property prices due to high demand from international buyers and limited supply, partly fuelled by a buoyant tech start-up scene.
• Porto: Known for its historic architecture and vibrant culture, Porto has also seen rising prices, though it remains more affordable than Lisbon. It also serves as the gateway to the famed Douro Valley with its imposing hills and renowned vineyards.
• Algarve: This region remains a favourite among retirees and holiday home buyers. Demand is strong, with consistent price increases driven by its desirable coastal location.
• Nazaré: Known for its giant waves and picturesque scenery, Nazaré offers unique investment opportunities with more relaxed market growth compared to Lisbon and the Algarve. There has been significant growth in the development of modernist homes here.

But bear in mind that despite these price increases, Portugal still offers relatively affordable property compared to other Western European countries, making it an attractive investment option with potential for further appreciation. And arguably commutable from London and other central European capitals.

Incentives for Expats

Portugal is also renowned for offering several incentives for those looking to relocate to the country. These are designed to help stimulate growth; these include attracting skilled workers for large businesses who have reported a deficit of engineers, researchers and managers. Incentives currently include;

Golden Visa Program

Portugal's Golden Visa programme allows non-EU citizens to obtain residency by investing in Portuguese real estate. Benefits include:

• Residency: A minimum property investment of €500,000 grants residency rights.
• Visa-Free Travel: Access to the Schengen Area.
• Path to Citizenship: Eligibility for citizenship after five years.

Non-Habitual Resident (NHR) Regime

The NHR regime offers significant tax benefits for new residents, including:

• Tax Exemptions: Foreign-sourced income, such as pensions, dividends, and royalties, may be tax-exempt for ten years.
• Flat Tax Rate: A flat 20% tax rate on Portuguese-sourced income from specific professions.

Timing it Right

Purchasing or investing in the Portuguese property market offers numerous benefits, from attractive investment potential to favourable residency and tax incentives. Whether you're considering Lisbon's dynamic lifestyle, Porto's historic charm, the Algarve's coastal allure, or Nazaré's unique appeal, understanding the legal and tax considerations, market trends, and expat incentives is essential.

Working with an expert who can navigate the process and access the full finance potential in the market is key. This is where Global Bridging Finance's expertise is of immense value, as many lenders may lack the knowledge and expertise required. Of course, when considering any market, it's always worth doing your research and partnering with a broker who understands the market and has experience financing property in the area. And it's always better to talk early to save time later.