All rights reserved. © Roger Warwick

BASIC DECISIONS & PREPARATION

1. Decide which kind of property

In Portugal, properties are mostly classified by the number of bedrooms. You will see apartments classified as T0, T1, T2, etc. with the number corresponding to the number of bedrooms (a T0 is a studio flat). This denomination comes from the word “tipologia”, or type.

This nomenclature is further complicated when one of the rooms is interior with no window or can’t be classified as a full bedroom. In this case, you will see properties shown as, for example, T1+1, meaning one full bedroom and another room that may not have a window or could be too small to be properly considered a bedroom.

Villas (moradias in Portuguese) have a similar classification, and are often labelled V4, V5, etc.

Land has one of three possible denominations: Urbano, Urbanizável and Rústico. Urbano means you can build on the land, and it should have access to basic utilities (water, electricity, sewage). Urbanizável plots of land are apt for construction, but normally don’t have access to the aforementioned utilities. The only new construction approved for Rustic land is as support for agricultural activities but cannot be residential. 

So, to purchase a property or land, you should first define your budget and property type, with the main factors for taking a decision being: location, number of bedrooms, area in m2, cost, if the property has any kind of outside space, and if you’re buying land, if it’s urban or rural.

Prices vary enormously, depending mostly on location. This author recommends doing a search on Idealista to get an initial idea of market values. You can filter for the number of bedrooms, location, and other factors. Once the selection has been made, check the list and compare prices. At the bottom of the page, you should also be able to see the average price/m2 for the selection. Local alternatives to Idealista are: Imovirtual, Casa Sapo and the larger agency sites such as Remax, ERA, Century 21, etc. International sites include Propertystar, and, for higher end properties, JamesEdition, but there are many more and everyone will have their favourite.

2. Obtain NIF, bank account

A NIF is the “número de identificação fiscal”, also called the “número de contribuinte” and is your unique fiscal number. A NIF is obligatory to purchase a property in Portugal and is essential for many other things as well, such as opening a bank account. It can be requested personally at any office of the fiscal authorities (Finanças) with your ID (passport or national citizen’s card) and proof of address. Proof of address can be, for example, a utilities bill or a bank statement and can be from your own country. 

Unfortunately, since the Covid pandemic, many Finanças’ offices no longer allow walk-ins, and their agendas are full for weeks or months ahead. Offices in smaller towns normally have more availability, but if appointments are scarce or you live abroad, you may have to use one of the many online services, with costs ranging from approx. €75 – €150 to obtain the NIF.

Most online services will require you to appoint them as your Fiscal Representative (FR). This isn’t a problem if you make sure you also obtain from them the password to access the Finanças website. This will allow you to sign up for electronic notifications later, which in turn allows you to eventually cancel the FR so that you don’t pay their yearly fee.

Strictly speaking, a bank account is not obligatory to purchase a property in Portugal but will certainly come in useful if you are going to be paying for utilities, insurance, condominium costs, and it will be very difficult, almost impossible, to pay the taxes and costs when signing the deeds if you do not possess a local account. To open an account in Portugal, you will need your NIF, proof of address, and ID. Recently, most Portuguese banks will open accounts only for residents, although this author has been told that Banco Best allows non-residents to open an account (not yet verified).

If you have difficulties at this stage, please contact the author, who can recommend an honest, competent, local lawyer to help you.

3. Hire a lawyer, buyer’s agent

The Portuguese property market is a veritable minefield, even for experienced property buyers. This is especially true if you don’t speak Portuguese, or are not aware of the traditions, habits and customs practiced here. The best piece of advice this author can possibly give is to adapt as quickly as possible. Please don’t expect the market to operate as it does in your home country. As soon as you realise that any new country will have its own peculiarities and idiosyncrasies, the sooner you’ll fit in to the Portuguese market.

All of this means that hiring a specialist lawyer is basically a must. A lawyer will be needed to check the property documentation and ensure that everything is in order. As you’ll read later in this document, due diligence of the documentation and the various legalities of the property is essential. A lawyer will also help you with the promissory note and final deeds signing, more of which later.

Appointing a lawyer is certainly not obligatory, and we don’t wish to give that impression. The author has bought and sold several properties with no lawyer involved but would never recommend it to anyone with little experience or a lack of Portuguese.

Similarly, we don’t wish to push the notion that you MUST appoint a buyer’s agent. However, an honest and competent buyer’s agent can only be a help, never a hinderance, although you must bear in mind that such an agent will only get paid when there is a sale, so be aware of any pressure to push the deal through against your wishes. It shouldn’t cost the buyer anything at all, since the buyer’s agent will contact the seller’s agent and negotiate a small share of the commission which is always paid by the seller. They will then accompany you at every step of the process, doing basic due diligence of the property and its documentation, giving advice on market values, and helping to organize lawyers, notaries, inspections, maintenance, and more.

4. Mortgages

Continuing the theme of the previous section, we would definitely recommend appointing a mortgage broker if you need to finance your purchase. Again, it certainly isn’t obligatory, but a broker will contact the major banks to obtain the best deal and at no cost to you (the banks pay the broker a commission). Please contact us if necessary.

Obtaining a mortgage is possible for both residents and non-residents. However, non-residents with no local income will almost certainly obtain less favourable conditions. 

The conditions of your credit will depend on your specific financial profile. If you can demonstrate high, regular earnings, then you will have more possibility of being approved. The concept of a credit score or rating doesn’t exist in Portugal. The bank’s risk department will approve your loan entirely based on your current ability to meet the monthly repayments. As a rule of thumb, your “taxa de esforço” (borrowing capacity) shouldn’t exceed 35% (ratio of monthly loan repayments to monthly earnings as defined by the Bank of Portugal).

Residents may normally obtain a Loan To Value (LTV) of 80%, which is the maximum defined by the Bank of Portugal for secondary residences, and sometimes up to 90%, the maximum for primary residences, while non-residents should expect a maximum of 70%. Your specific profile may allow you to obtain a higher or lower LTV, but in general, the above applies. Banks will often give a “pre-approval” up to a certain monetary amount based on your financials, but they will almost always do an appraisal of the property first before confirming the loan. The LTV will then be calculated according to either the appraisal amount or the agreed purchase price, whichever is lowest.

The mortgage will be officially registered on the property at the time of the deeds, and will also appear on the Certidão Predial, the land registry document.

THE PROCESS

5. MAKE AN OFFER

Once you have found a suitable property, it is time to make an offer, either personally or via your lawyer. How the offer is made will depend on the requirements of the selling agency – sometimes a simple email is sufficient, or you may have to fill in a specific form with well-defined fields. The process is very flexible, and sometimes it’s even possible to make a tentative, verbal offer, or to speak to the selling agent to try to determine what offer they believe would be accepted. One thing is for sure, no process is like any other, because humans are involved, and we all have different ways of doing things.

A typical offer will take the following structure:

• Final purchase price
• Deposit, normally 10%, to be paid when the promissory note is signed.
• Date for signing of the promissory note (known as the CPCV or Contrato-Promessa de Compra e Venda)
• Period until the deeds are signed (typically 30, 60 or 90 days from the date of the CPCV)
• Validity of the proposal (e.g., 15, 30 days)

All the above parameters can be adjusted as part of the negotiation process. If you receive information that the seller needs cash quickly, perhaps a larger CPCV deposit, or an earlier closure date will allow you to reduce the final price a little.

Judging what the purchase price should be is of course the hardest part of the equation. If you’ve done your homework, including using the average price per m2 on Idealista described in section 1, you should know if it’s a good deal or not. Otherwise, and as a rule of thumb, a 10% reduction on the advertised price is never a bad strategy. But allow yourself to be advised by your lawyer, your buyer’s agent, your instinct, your conversations with the selling agent or seller, and your experience. As stated above, each process is different, but be prepared for your first offer to be rejected immediately. The seller will then present a counterproposal, which you can then accept or make a further offer, until the two sides meet. If no counterproposal is forthcoming, you know that your offer was too low.

Honesty and integrity play a large part in the process. Although normally nothing is signed until the CPCV, it is expected that written offers are honoured, from both parties, even though at this stage, legally, you can still pull out whenever you wish.

Once an offer is accepted, some agencies will want to take a “reservation”. This is a small amount, perhaps 1% of the price or two to three thousand euros, paid by the buyer as a declaration of intent. A simple cheque is often sufficient for this amount, and some agencies will even return the original cheque when the CPCV is signed, others will discount it from the CPCV deposit. A reservation should mean that the property is taken off the market, or at least no further visits are scheduled. In practice, many properties are listed by more than one agency, and thus in this case, a reservation means only that agency cancels the listing, with other agencies continuing to sell the property. A reservation is effective when the agency is listing the property exclusively, with no other agencies involved. Always make sure you obtain a receipt for any payment at this stage, and try to move towards the CPCV as quickly as possible. 

In most cases, the seller will be asked to complete a KYC (Know Your Client) form, due to regulations regarding money laundering and financing of terrorism or “branqueamento de capitais e do financiamento do terrorismo” (BCFT), in Portuguese.

6. INSPECTIONS

Inspections carried out by a qualified surveyor are not the norm in Portugal. If the seller is Portuguese, expect a high degree of reticence to any suggestion of an inspection. Tradition and culture dictate that the property is purchased “as is” after the buyer has viewed the property personally, and if there are any leaks or mold, for example, then it is the buyer’s responsibility to fix these issues after taking possession. The expectation is that the final purchase price has been reached taking in to account any possible issues like these.

Having said this, we appreciate that having an inspection or survey done is very important to some foreign buyers, and it’s certainly possible if the owner agrees. However, we recommend that the results of such a survey are used as a guide to take the final decision about the value of the property, the possible work to be done after purchase, or even to decide to walk away from the negotiation. It shouldn’t be used to pressure the seller to lower the price without first presenting your offer, or to indicate that repairs and improvements should be made before selling. In the current market, this will most probably encourage the seller to walk away from the table and sell to someone else.

If an inspection does take place, it will typically cover structural problems like subsidence, rising damp, mold and the health and condition of roof structures. Utility systems, structural components and safety issues may be included. Prices are usually based on the size and location of the property but will normally be in the range of several hundred euros, depending on the detail required.  

7.THE PROMISSORY NOTE, OR CPCV

The promissory note is called the Contrato-Promessa de Compra e Venda in Portuguese, or simply the CPCV. It is a legally binding contract (as opposed to the written offer) between buyer and seller and sets out the conditions of the purchase. Many agents and lawyers now insist on the document being signed and each party’s signature being legally authenticated. It includes the name, ID, NIF, address, and other details of both the buyer and seller, as well as information identifying the property, such as the land registry registration number.

The purchase price will be stated, as well as the deposit amount, and the deposit payment method. It will almost certainly state that the remainder (purchase price minus the deposit) will be paid by banker’s cheque at the time of the deeds’ signing, which is also defined as a number of days hence, such as 30, 60 etc.

The contract will require the buyer to inform the seller of the final date of the deeds within the defined period, and with a 10 or 15-day notice. The seller is required to provide all necessary documentation, and the buyer agrees to pay all taxes and costs related to the sale (see below), except for the selling agent’s commission, which is paid by the seller.

The most important clauses deal with the deposit itself. By law, if the final purchase doesn’t go ahead due to a fault of the buyer, the seller gets to keep the deposit. If the deal isn’t closed and it’s the seller’s fault, the buyer receives his original deposit plus another equal amount, meaning the buyer receives double the amount paid.

Other clauses may mention that the purchase depends on the favourable result of a survey or inspection, or the successful application for a mortgage. Such clauses are called cláusulas resolutivas in Portuguese, and if included in the CPCV, provide much more flexibility for the buyer, meaning that the seller may object quite strongly to such conditions. 

As indicated above, a competent lawyer will properly revise the CPCV contract, making sure your interests as the buyer are fully guaranteed.

8. THE ESCRITURA, OR DEEDS

It is the privilege of the buyer to choose the notary’s office where the signing of the deeds takes place. The seller should be notified within the timeframe defined in the CPCV and all documentation from both sides checked and prepared, with the aid of the lawyer and the notary’s office.

In a format similar to the CPCV, the deed will mention the seller’s and buyer’s details and will fully identify the property. The purchase price will be indicated, and the payment method stated right down to the number of the cheque.

The seller must declare that the property is sold free of any onus, charges or occupants, and this will be verified by the notary, since any outstanding mortgages or charges appear on the land registry certificate, or certidão permanente.

It is not uncommon for the seller to have a mortgage, which they intend to pay off with the sale of the property. In this case, the seller requests that the bank issues a mortgage cancellation certificate, called a “distrate” in Portuguese, and which must be presented at the deeds signing, often personally by a representative from the bank, and it’s possible that the buyer has to write one cheque to the bank to pay off the mortgage, and another to the seller. A representative from the buyer’s bank will also be present if the buyer is depending on a mortgage to purchase the property. If the property is in a condominium, shared or “horizontal property” building, the seller is also required to present a document from the condominium administrator confirming that there are no debts to the condominium.

The buyer must also declare the purpose of the property, whether it will be the primary residence, secondary residence, destined for resale, or for rental. This will also determine the property transfer tax rate, and possibly the mortgage conditions. 

The notary will also check if any institution has exercised their lawful preference rights. By law, the local municipality and other public institutions have preference on the property and can acquire it for the same price. This rarely happens, but it is a distinct possibility. The sale is listed on an official website and is only considered free from such rights if no public entity indicates they wish to exercise their rights after 10 working days.

The buyer hands over the cheque, and receives in exchange the keys, and all relevant property documentation: original copies of the energy certificate, the “licença de utilização” or exemption certificate, the “ficha técnica” if applicable, and possibly a floorplan. Both sides will also receive a copy of the deeds document, with the buyer receiving an authenticated copy, the seller a simple one.

PROPERTY INFORMATION AND PAYMENT 

9. Documentation

When a property is bought and sold, certain documents are essential, and due diligence of this documentation should be done by the lawyer. Essential documents provided by the seller:

• The “caderneta predial” or tax document of the property. This document is supplied by Finanças and can be downloaded from the seller’s personal area on the Finanças website. It includes the “Valor Patrimonial Tributário”, or tax value, which is used amongst other things to determine the yearly property tax.
• The “certidão do registo predial”, “certidão predial”, “certidão permanente” or “certidão de tior” are all names given to the property registration certificate from the land registry. This indicates the owner of the property, registration details, areas, and what rooms or sections it contains. It also shows any charges on the property such as mortgages.
• Energy certificate. By law, any property sold must possess an energy certificate.
• “Licença de utilização” or usage licence, obligatory for properties constructed after 1951 or if the property has been renovated by licensed works. If it is a pre-1951 property, then most notaries these days require that an exemption certificate is issued by the local Câmara, or municipality.
• “Ficha técnica”. Technical datasheet, obligatory for properties constructed after 30^th March 2004.
• “Distrate”. As mentioned above, all onus and charges on the property must be cancelled before the sale. The distrate is a certificate issued by the seller’s bank confirming that the mortgage will be cancelled with the sale.
• “Declaração de não dívida do condomínio”. It is now obligatory, unless the buyer agrees to disregard this requisite, for the seller to present a declaration from the condominium, if the property belongs to such a building, indicating that the owner is fully paid up regarding all quotas and payments.
• Technical datasheet, obligatory for properties constructed after 30^th March 2004.
• The number of the “direitos de preferência” listing, mentioned above. The sale must be listed on the Casapronta website, allowing public institutions to consult the details so they can decide to exercise their preference rights or not. The notary will consult this listing to check that more than 10 days have passed with no entity exercising their rights. Lastly, for rural land purchases, the owners of adjacent tracts of land must be notified of the sale, since they also have preference rights.

10. Payment

Final payment for the property, at the time of the signing of the deeds, is almost always made by guaranteed banker’s cheque, requested by the buyer to their bank and prepared a few days previously. The CPCV deposit can also be paid by a banker’s cheque, but it is not obligatory. Such CPCV deposits are usually paid by a simple bank transfer, with the promissory note stating that the contract is void if the transfer isn’t received in the seller’s account within a certain number of days.

The concept of escrow is not well known in Portugal. It does exist, and can normally be set up by your lawyer, but since it is not the norm, it wouldn’t be unusual for the seller to refuse such a transaction. The custom is for the CPCV deposit to be paid directly to the seller. This author can appreciate reticence from buyers accustomed to using escrow in other countries, and certainly the risk is greater here when looked at objectively, but this is simply the way that all players expect the game to be played. If your lawyer succeeds in obtaining escrow for the deposit, then consider yourself very lucky, or congratulate yourself on having an excellent lawyer.Transferring monies to Portugal from other countries may be done in several ways, from a simple bank transfer to using platforms like Wise or Revolut. Wise is almost always a good option, but it will depend on the exact amount and the country the capital is being transferred from. Make sure you simulate the transfer on different platforms to make sure you’re using the cheapest method.

11. Taxes and other costs

When a property is bought in Portugal, the following taxes and costs are incurred:

– IMT (Imposto Municipal Sobre as Transmissões Onerosas de Imóveis, or municipal property transfer tax). This tax is calculated according to a sliding scale depending on property value and if it’s a primary residence or not. We recommend budgeting approximately 6% of the purchase price but it could be more or less. You can simulate the exact cost here: https://www.doutorfinancas.pt/simulador-imt/

– IS (stamp duty). 0.8% of the property price.

– fees for the notary, registration, and deeds. If you budget for €1000, you’ll probably see some change. You can find out the exact costs once the notary is known. It will be more if it’s necessary to register a mortgage as well as the purchase.

– lawyer fees (variable, some charge a one-time cost, some an hourly fee. Requesting a % of the cost is now in disuse, and shouldn’t be accepted)

– mortgage fees, if applicable (variable)

Once the property is purchased you will pay IMI (Imposto Municipal sobre Imóveis, or yearly property tax which, in most cases, will be less than €500/year), and a condominium fee if it’s a property in a condominium building, which will be variable, depending on the common costs and services in the building.

If you rent out the property, you’ll have to pay tax on your earnings.

POST PURCHASE

12. Requirements and documentation

If the property is part of a condominium, the owner is required by law to pass on their details to the condominium administration and will sometimes need to send a copy of the deeds document to prove ownership.

Insurance against the risk of fire is obligatory in condominium buildings, and this may be organised by the condominium for all owners, or each property must possess its own insurance – check with the condominium management. It may also be prudent to obtain multi-risk insurance for the property.

The notary, or your lawyer, should send you an updated copy of the land registry certificate, although this will probably take a few weeks. You should also eventually see the “caderneta predial” in your area of the Finanças portal. This can also take a few weeks to be updated, but it’s normally possible to speed things up by sending a PDF version of the deeds document via the e-Balcão system and requesting an update.

13. Property taxes and costs

The yearly property tax is known in Portugal as IMI (Imposto Municipal de Imóveis) and is charged to the owner of the property on 31^st December. This means, for example, that if you purchase a property in February 2024, you will only pay the 2024 IMI tax in 2025. It also means that if you sell the property on 1^st December 2023, the next owner will be responsible for the 2023 tax, due in 2024.

The IMI tax is determined by a very simple calculation: (IMI Coefficient x VPT) – Family Discount, where:

• IMI Coefficient (Taxa de IMI) is determined by the local municipality and can be consulted at this link: https://www.portaldasfinancas.gov.pt/pt/main.jsp?body=/imi/consultarTaxasIMIForm.jsp
• VPT (Valor Patrimonial Tributário) is the tax value of the property and can be found on the caderneta predial document mentioned above.
• Family Discount (Desconto Familiar) is a reduction on the final tax of approximately €20 per child, depending on the municipality, and which can also be consulted at the link above. 

If you don’t want to do the calculation manually, it is very easy to simulate the final tax at this link: https://www.pordata.pt/simulador-imi-quanto-vai-pagar-de-imi

If the property is your primary residence, you can apply to be exempt from the IMI tax for 3 years. This is possible only if the VPT amount on the caderneta predial is not greater than 125,000 euros and the joint yearly family income is not above approximately 153,000 euros.

Owners are normally notified in April of the IMI tax to be paid in May, although this can be fractioned in two or three payments during the year if the tax is above a certain amount (to be paid in May and November, or May, August & November).

The tax can be paid using a direct debit set up on the Finanças portal or by using the multibanco system, after receiving the payment references by letter, or electronic notification.

Apart from the insurance costs already mentioned above, if the property is part of a condominium, there will be the monthly condominium fee to pay, and which can range between around 30 euros to a few hundred euros, depending on the services and facilities the condominium provides.

Finally, if you rent out the property, you’ll have to pay tax on the income (covered in other quick guides written by the author).

14. Capital gains

If you decide to sell the property in the future, then you should account for capital gains tax. The capital gain is calculated as the difference between the sale price minus (purchase price multiplied by the monetary inflation coefficient published in the ordinance Portaria n.º 253/2022) minus any sale/purchase costs minus the cost of any improvements done in the last 12 years.

Sale and purchase costs include the previously mentioned IMT, IS, cost of deeds, registration and notary, and estate agent commissions.

Improvement/renovation work done on the property in the last 12 years can be deducted from the gain if you have valid, original invoices with the owner’s name, NIF, and the address of the property.

The tax on the gain (known as your IRS rate) is then determined according to predefined progressive tax brackets depending on your worldwide income. This rate is then applied to 50% of the gain and must be paid in the calendar year following the year of the sale.

You may be exempt from capital gains tax if the sold property is your primary residence, and you use the full sale amount to invest in another primary residence within the EU. If the full sale amount is not used, then tax is applied proportionally to the excess. This exemption is possible if the new primary residence is purchased in the 24 months before the sale of the first property, or in the 36 months afterwards.