Fun fact: Of all the Western European countries, Portugal has the highest percentage of people living in rural areas.
For some people, buying a property in Portugal is their path to residency and eventual citizenship. The Golden Visa (or visa by investment) is a popular option, especially with the well-to-do from countries such as the US, Canada and the UK.
Apartments in Portugal are a good option for some, and others prefer to live in a house. There are advantages and disadvantages to both.
It is common for foreigners to buy property in Portugal as a seasonal retreat or an investment. The strategy to use a property for part of the year and rent it out the rest of the time is a popular option, especially with those who plan to retire in Portugal someday but aren’t ready to pull the trigger just yet.
Whether you are buying as investment or simply to solve your shelter needs, there are some things you should know about property in Portugal. About 75% of Portuguese citizens own their homes.
There are no restrictions on foreign ownership of property in Portugal. Most expats prefer to rent apartments in Portugal for a while to see how much they like an area before buying a property there. The vast differences in the various parts of Portugal make the “try before you buy” approach appealing. As little as a few weeks in each place will give you a good idea of what you can expect if you were to decide to live there.
Real estate agents are involved in almost all property transactions in Portugal. There are large, international real estate brands present in Portugal, along with many smaller, independent real estate agencies. Most agents specialize in a specific geographic area and you will be able to find English-speaking agents in the urban centers and popular coastal towns.
The suburbs surrounding the large urban areas (Lisbon and Porto) are home to many more residents than the urban centers. Apartments in Portugal are prevalent in the urban centers and single family homes are prevalent just about everywhere else.
Parts of Portugal can be damp and cold in the winter. Many homes do not have central heating (or any built-in heating) or insulation. Some homes have fireplaces, but many people rely on space heaters and layers of clothing to stay warm.
The homes are classified with code that looks gibberish if you don’t know what it means (you’ll see the code in ads and property websites).
They use codes of T0, T1, T2, T3 and so on to describe the number of bedrooms in houses and apartments in Portugal. A T0 apartment is a studio. A T3 apartment is a three bedroom apartment. If there are small rooms that could be used as bedrooms, they are classified with a +. A two bedroom apartment with an additional small room is T2+1. Single family houses use a similar system, but they use a V instead of a T. A two bedroom house with two small additional rooms is V2+2.
Tenants have significant rights in Portugal. As a renter, that may make you feel good. As a landlord, that may make you a little nervous.
All rentals in Portugal are required to have written leases (even short-term leases). The leases outline the standard terms you would expect:
- Who pays for utilities
- When the rent is due
- What common spaces are available for tenants to use
- What happens to the deposit at the end of the lease term
- If pets are allowed
- The number of people who can live there
- What are the conditions for ending the lease early
- Who takes care of things like the lawn or bushes or pool maintenance
It is important that you understand what you are signing even if that means hiring a translator to translate the lease document for you.
One thing you might not have considered to check: Does the house have heating? It won’t matter much in the warm parts of the country or during the summer months, but many homes in Portugal do NOT have heating. They are designed to stay cool in the summer, which means they also stay cool in the winter. The cold houses are a common complaint from expats who are spending their first winter in Portugal and are caught off guard.
The best places to find houses or apartments in Portugal for rent are on estate agent websites in the areas where you are considering living, and paid advertising websites such as Facebook (yuck) or the local newspaper websites. There is no national website that lists properties for rent like you find in the US, UK or Canada. You may also have some luck by walking or driving the neighborhoods in the areas you like to look for “arrendar” (for rent) signs in windows.
Construction and renovation
Renovating old properties in Portugal can be an appealing option for those who have some experience. It is not recommended for those who have never undertaken a renovation project.
One of the golden visa options is to purchase a property worth at least 350,000 euros that needs to be rehabilitated. There are rules around which properties are allowed for visa purposes, so be sure to check on the nitty gritty details if you plan to go that route.
Building a property from scratch is another option. Before embarking upon a brand-new construction project, you will want to double check the local zoning laws for your property and the type and size of construction that’s allowed. Some property is zoned agricultural where you would not be allowed to build a house.
There are also size considerations in many places that govern how big of a house you can build on a lot, and other things like whether you are allowed to put in a pool. The local town council will be able to guide you on what’s allowed and not allowed for any piece of property you are considering.
Permits for any major works will be required from the local council (this mostly applies to houses, but not apartments in Portugal). The permits have a time limit to them (usually one year), so don’t dilly dally if you are granted a permit. Minor renovations that don’t change the footprint of the house or are internal renovations usually do not require special permitting.
Once the renovation or construction project is complete, you will need to alert the local council to have the property revalued. The new valuation will be used to calculate your tax bills moving forward.
There are plenty of new development options in most coastal areas in Portugal. This is handy if you are looking for a new property, but don’t want to deal with the headaches and hassles of building it yourself. Be sure to check the reputation of the developer before committing to anything.
Mortgages for expats are difficult to obtain, but not impossible. The preferred funding methods are cash, or a credit line attached to your assets in your home country. Some banks will consider your credit score from your home country and others do not. In either case, they will do a comprehensive review of your financial situation before they approve you for a mortgage.
The maximum age allowed for you to have a mortgage attached to your property is 75 years. So if you retire at 65 and move to Portugal, the longest term available to you would be ten years.
The down payment requirements for expat mortgages are also hefty. They range from 30% to 50% depending on your financial situation. There may also be a life insurance requirement depending on the bank issuing the mortgage (insurance can be purchased through the banks).
You will have to show some regular income in order to qualify for a mortgage as well. Your mortgage payment will not be able to exceed 30% of your regular monthly income.
How real estate agents work in Portugal
As a rule, every property transaction in Portugal involves real estate agents (“imobiliárias”). As a buyer, the agents don’t cost you anything (the commission is paid by the seller). You might as well use them instead of banging your head against a wall trying to find a way to cut them out.
Remember: The listing agent always represents the seller, not you as the buyer. They may not be entirely honest about that part of the deal, so be careful what you share with them and what you share with your buyer’s agent while they are within earshot.
Agents in Portugal are required to be licensed, but there is no regulatory authority that governs them. Most of them do not carry errors and omissions or professional indemnity insurance (there are low limits if they carry insurance at all). Warning: There are many “agents” in Portugal who operate without licenses. A reputable agent will gladly show you proof of their licensing status.
The licensing status of an agent probably won’t matter much until you get to the point of writing an offer and making a deposit. At that point, you will want to be sure you are working with someone reputable (especially if they are touching or directing anything to do with your deposit).
For rentals, local estate agencies will have short-term and long-term options available for you. Many of the apartments don’t make their way onto the estate agency websites, so you’ll want to make friends with a few local agents who work rentals. You can also use websites such as Airbnb to find long-term housing. Pro-tip: Find housing that’s available for the times you need and contact the owners before booking to see what sort of discount they will offer for a long-term tenant.
The purchase process
Once you have found a property you like and have made an offer that’s accepted, there are a few moving parts that need to be carefully managed.
You should plan to hire a solicitor (lawyer) to represent you as well. This is especially important if you do not speak Portuguese and are not familiar with Portuguese laws and customs (basically, the target market for this book).
Your solicitor will help you make sure you complete all the necessary legal steps in the transaction and provide you with advice along the way. The solicitor is also responsible for creating the contracts and checking the title history and tax history to be sure there are no problems that might jeopardize the transaction.
Portuguese law requires you to hire a notary to “oversee” the transaction (notaries work for the government). The notary serves as an independent person in the middle of the transaction to make sure all the ducks are in a row regarding the title, transfer taxes, contract paperwork, local registrations, etc.
Once the contract terms are agreed upon and the title search is satisfactory, the contract becomes legally binding between the buyer and the seller. A deposit is required by the buyer at this stage. Anything from 10% to 30% is typical, and the exact amount is part of your initial contract negotiations. At this point, the property transfer taxes need to be paid to the local tax authority.
The final steps are for the buyer and seller to sign the deed in the presence of a notary who will record the deed and the balance of the purchase price to be paid to the seller. These steps happen simultaneously.
Property transfer taxes
The transfer taxes for houses and apartments in Portugal are brutal. Brace yourself.
The buyer will have to pay 10% of the property’s purchase price as a transfer tax. There are also registration fees, stamp duty, legal fees, and a notary fee. The total taxes and fees paid by the buyer usually total 12-14% of the purchase price.
Sellers are responsible for the real estate agent commission (4%-6%) plus VAT of 23%. There are also filing and legal fees paid by the seller.
Rental income and capital gains taxes are calculated differently for residents and non-residents. You must also register your property as a rental with the local authorities if you are using it primarily as a rental property.
Residents add rental income to their total income from other sources for the year and income pay taxes on the rate for their tax bracket. Non-residents pay income tax of 28% on any rental income. Local property taxes, repairs, maintenance and insurance can be deducted from rental income (mortgage interest cannot be deducted).
Capital gains for residents are added to their total income for the year as well and taxed at the same rate as their other income. Capital gains tax for non-residents is 28% which is paid at the time a property is sold.
There are a few exceptions to capital gains tax.
- If the gains are reinvested in another property, only 50% of the gains are taxed.
- If you are a tax resident in Portugal, the property is a primary residence and you purchase another primary residence in Portugal, there will be no capital gains tax. This applies to primary residences purchased up to two years before or three years after the sale.
- If the property was a primary residence and you reinvest the gains into another primary residence located anywhere in the EU, there will be no capital gains tax.
This excerpt was borrowed from our bestselling guide about moving to Portugal that is available on Amazon. It is only available in the Kindle format because the laws and rules change so much, it doesn’t make sense to have paperback versions floating around. They would quickly become outdated!
If you don’t own a Kindle, don’t fret. You can download a free Kindle app on any modern smartphone and read it that way. Enjoy!
Follow this link to search houses and apartments in Portugal.