A Guide To Buying Property In Portugal As A Foreigner

Woman Holding Property Keys

Buying Property in Portugal has become a popular investment choice for many foreigners, attracted by the country’s stable real estate market and alluring lifestyle. Whether it’s the charm of Lisbon’s historic quarters, the Algarve’s sunny beaches, or the tranquility of the Azores, Portugal offers a diverse range of properties to suit any preference. So you may be wondering how to go about buying property in Portugal as a foreigner.

We’re here to give an essential overview for non-residents navigating the Portuguese property market, from understanding current market trends to the legalities and financial implications of the purchasing process. With steady interest from international buyers and a robust investment potential, buying property in Portugal remains an attractive option despite recent changes in residency investment programs.

Overview of the Portuguese Property Market

Current Trends in Portuguese Real Estate

The Portuguese property market has shown remarkable resilience amid global economic changes. Home sales have been a general slowdown, with a 9% year-on-year decrease. However, the impact on housing prices hasn’t been as severe as you might’ve expected.

The market has maintained steady interest from international buyers. Purchases by non-tax residents in Portugal, primarily foreigners, have decreased by only 2.5%. This contrasts with a more significant 22% drop among Portuguese nationals.

This trend is particularly significant if you’re seeking residency through investment. Non-EU citizens’ home purchases have actually increased by 9% year-on-year. The demand from international buyers and a limited housing supply that struggles to meet residency needs have kept the market robust.

The number of planning permissions for new housing remains below the annual net household creation, indicating a supply shortage that could keep prices on the rise. Despite the end of the Golden Visa program, which introduced some uncertainty, the market continued to see stable demand.

Prices in high-demand areas such as Lisbon and the Algarve have seen significant increases.

Types of Properties Available

Portugal offers a wide array of properties catering to different tastes and budgets. Whether you’re looking for modern city apartments or rustic villas in the countryside, there’s something for you. The Algarve, Lisbon, and Porto are some of the most sought-after locations for international investors.

The types of properties reflect the characteristics of these regions. Coastal areas offer luxurious beachfront properties, while urban centers provide contemporary living spaces.

Popular Locations for Buyers

The Portuguese lifestyle continues to draw foreign investors. The Lisbon metropolitan area and the Algarve are the top choices for property buyers. These regions have seen the highest median sales value increases and offer cultural richness and excellent infrastructure.

The Algarve has been identified as a property hotspot. Areas like Quinta do Lago are experiencing soaring prices due to their high investment potential and quality of life.

Price Range and Investment Potential

Property prices in Portugal vary significantly by region and property type. The average house price is $258 per square foot. Metropolitan Lisbon is the priciest area, while the Azores are the most affordable.

The Alentejo region has seen the highest year-over-year price increase, indicating a growing interest in this less-explored area. Investment potential in Portuguese real estate remains strong, with rental yields averaging around 4% to 6% in major cities.

Lisbon boasts the highest average asking price, reflecting its popularity and investment viability. If you’re looking to rent out your properties, the market presents a promising opportunity.

There’s a high demand for rental properties and a current shortage of supply.

Gavel And Property/House Toy Held In Hands

Legal Requirements for Buying Property

Foreigners enjoy the same property acquisition rights as locals, with no special restrictions. However, the pathway to residency via the Golden Visa program is no longer available.

Necessary Documentation for Purchase

To proceed with acquiring real estate, you must present a valid photo ID and obtain a NIF. This identifier is crucial for all financial activities in Portugal.

A CPCV is required, which is a legally binding agreement with the seller, typically involving a deposit of about 10% of the property’s value. An Energy Certificate, proof of Stamp Duty payment, and the Caderneta Predial are needed to complete the purchase.

Understanding the Fiscal Number (NIF)

The NIF serves as a unique identifier for tax-related matters and is indispensable for legally finalizing the purchase of real estate. It is also necessary to open a bank account in Portugal.

Role and Importance of a Local Lawyer

Hiring a local lawyer is advisable to ensure the transaction adheres to legal standards. They will conduct due diligence, verify the property’s legal status, and clarify the various taxes involved in the transaction, such as IMI, IMT, Stamp Duty, and AIMI for properties of higher value.

Property Registration Process

After finalizing the documentation and payments, the Escritura is signed before a notary to transfer ownership officially. Subsequently, the property must be registered at the Land Registry to complete the ownership process.

The Buying Process Step-by-Step

Searching for the Right Property

Identifying a property that aligns with your investment objectives is crucial, particularly for those considering residency by investment. With the real estate market flourishing, the average house price has escalated to 2,73610 $/m2 in 2023. The Golden Visa program’s recent adjustments encourage exploring areas such as the Azores, Madeira, and the interior, as properties in Lisbon, Porto, and along the coast are excluded from the program.

Making an Offer and Negotiating

After selecting a suitable property, the next step is to propose an offer. Effective negotiation can influence the final price. The Golden Visa requires a minimum investment of $436,000 in low-density areas or $545,000 in high-density areas. Alternatively, investing a minimum of $381,000 in a property that is at least 30 years old and located in an urban rehabilitation area is also an option. This investment can be achieved through the acquisition of multiple properties or in conjunction with other investors.

Signing the Promissory Contract (Contrato de Promessa de Compra e Venda)

Agreeing on a price leads to the signing of the CPCV, which outlines the terms of sale. To proceed, a NIF is necessary, obtainable through a local bank or a tax office. A deposit is usually paid to secure the property, and the CPCV details penalties for non-compliance.

The Deed of Purchase and Sale (Escritura Pública de Compra e Venda)

The finalization of the purchase occurs with the Escritura Pública de Compra e Venda, typically at a notary’s office. Required documents include your NIF, identification, and payment for the outstanding balance. Proof of IMT and stamp duty payment must also be presented. After the notary reads the document and both parties agree, the keys and payment are exchanged, and the notary registers the deed.

For those pursuing the Golden Visa, it’s important to act swiftly, as the program is anticipated to conclude in 2023. Applications are still accepted until the law is enforced, with pending ones processed under a D2 Entrepreneur’s Permit. The visa offers residency benefits, including family reunification and minimal stay requirements. For those spending over 183 days annually in Portugal, the NHR tax regime may offer attractive tax advantages.

Person Holding Property/House Toy Another Holding Calculator For Buying Cost Estimate

Financial Considerations

Financing Options for Non-Residents

Portuguese banks offer non-residents mortgage options, which can benefit those not looking to pay the entire property cost upfront. Typically, a minimum down payment of 30% is required, with banks providing up to 70% financing.

Mortgage durations can extend to three decades, catering to individuals up to the age of 70. Fixed-rate mortgages ensure a stable interest rate throughout the loan period. On the other hand, variable-rate mortgages are tied to the EURIBOR. They may start at a rate of 3.3% annually with a 30% down payment.

It’s important to note that while the initial investment for residency programs must originate from funds outside of Portugal, mortgages can finance amounts exceeding this threshold.

Understanding Property Taxes in Portugal

Acquiring property in Portugal involves several tax considerations. IMT varies from 2% to 8% based on the property’s transaction value. IMI is consistently set at 0.8% of the property’s cost.

For property sales, non-residents are subject to a 28% capital gains tax on profits. However, tax residents who reinvest their gains into Portuguese real estate within a specified period may be exempt. Inheritance tax is not levied on direct family members, although a stamp duty of 0.8% is applicable.

Budgeting for Additional Costs

Additional expenses are an essential part of your financial planning. Legal fees typically range from 1% to 2% of the property’s value. Notary, registry, and tax office charges for processing deeds are approximately $1,300.

When obtaining a mortgage, the government deducts 0.60% of the loan value from your bank account. Furthermore, obtaining life insurance is a prerequisite for mortgage borrowers in Portugal.

Currency Exchange and Transfer of Funds

Effectively managing currency exchange and fund transfers is crucial, particularly for residency by investment participants. Non-resident taxpayers with Portuguese income must designate a fiscal representative to oversee their tax obligations.

This representative ensures compliance with Portuguese tax regulations, manages financial transactions related to your property, and oversees the calculation and submission of necessary tax payments.

Laptop Saying Property On Screen

How Long Can I stay in Portugal if I Own a House?

The Portuguese Residency By Investment Program

Owning property in Portugal opens up a pathway to residency. The Portugal Golden Residence Permit Program, commonly known as the Golden Visa, has undergone significant revisions as of October 2023. Real estate investments are no longer qualifying contributions for this program. However, alternative investment routes, such as capital transfers to specific funds, remain viable.

The Golden Visa is a five-year scheme that grants residency and visa-free access to the Schengen Area. It requires a minimal physical presence of seven days per year in Portugal, making it ideal for those not looking to relocate permanently.

After maintaining legal residency for five years, you can apply for Portuguese citizenship without renouncing your current nationality. The program offers various investment options, including contributions to research, support for artistic production, or efforts to preserve national cultural heritage. Initiatives that create a minimum of ten jobs or involve setting up a commercial company also qualify. Investments in sparsely populated areas receive particular encouragement.

Applications for the Golden Visa are processed by SEF. The initial residence card is valid for two years, and subsequent renewals every two years. Applicants must provide biometric data and maintain up-to-date documentation.

The process for obtaining residency through investment can exceed 18 months. Engaging a law firm is recommended to navigate the application and renewal stages. Legal fees will depend on the complexity of your situation and the number of family members included.

The financial threshold for the Golden Visa starts at $272,500, one of the lowest in Europe. Property ownership incurs additional expenses, such as transfer tax and notary costs. Property rental income is subject to a flat tax rate of 28% on the net amount. Profits from property sales are also taxable if the property was acquired after 1988.

The program has attracted substantial foreign investment, with over 12,396 main applicants and approximately 20,000 dependents, contributing around $7.7 billion to the Portuguese economy.

The Golden Visa does not impose tax liability unless you reside in Portugal for over 183 days annually. Additionally, the NHR program offers income tax exemptions for the first decade of residence, which is attractive to investors.

At NGE, our team of multi-national citizenship professionals have the experience and expertise to help you and your family apply for the right citizenship or residency program for your Portuguese journey.

Your Gateway to a Portuguese Residence

Embracing the Portuguese way of life through property investment unfolds an exciting chapter for many non-EU nationals. While the landscape has shifted with changes to the Golden Visa program, alternative investment avenues continue to offer a foothold in this vibrant country.

Remaining adaptable, informed, and engaging with local expertise are keys that turn the lock to your new home and potential Portuguese residency.

Whether soaking in the sun-drenched Algarve or mingling in the bustling streets of Lisbon, your property here is more than a structure—it’s a bridge to a new community and a plan for your future residency.

Revisit this guide and your strategy as you delve into the market, and may your investment journey in Portugal be as rewarding as the life that awaits you here.

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Author:
Rihab Saad

Managing Director
Next Generation Equity

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