When you finally decide to take the plunge and buy a property in Portugal or relocate to the sun. The challenge of finding a straightforward and easy way to move your funds overseas will be far down your list of priorities. However, using a specialist can be a straightforward way of saving money, time and hassle.
Portugal, which is understood to be called home by roughly 900,000 expats offers a great combination of culture, fantastic coast, golf courses and friendly, often bilingual locals.
The property market in Portugal
The trend of increasing house prices in Portugal over the decade did not wain in 2020. The property market saw prices rise by 2.7% last year despite the implications that have arisen from the pandemic. The market has been supported by local appetite, if not an international investment. Whilst the increases have decelerated slightly, the end of lockdown and the increase in appetite for low rate financing will almost certainly see the market pick up in 2021.
Moody has forecast a decline in prices in 2021, anticipating a fall of around 2%. However, this assessment is a very general view considering location, inventory and age of buyers. The assessment also considered the impact on the tourism economy, which is now rising from the ashes. As yet, demand in these critical areas remains encouraging.
Should you buy or rent in Portugal
Many will ask themselves this question before making a move to Portugal. As think to stand for those with a deposit of 30% (property value) or more, it’s believed that owning a home is roughly €260 less expensive than renting. In some cases, the cost of renting a home approximately 70% of the total cost of renting.
According to the estate Remax agency, a home in Lisbon with a monthly rental cost of €900 will cost a tenant €378,000 over 35 years. Then taking into account a tax relief of 15% (€17,570) deduction, the 35-year tenancy would total €360,430.
Remax believes that the same property when purchased for €195,000 by two owners with a 20% mortgage deposit for the same period. It would cost €250,000 with all associated legal costs, insurances and upkeep fees. To summarise the cost would be unlikely to reach 70% of the total cost of renting.
The financial implications aside, the big question of whether to rent or buy will be linked to your circumstances. Are you sure you love Portugal enough to move lock stock and barrel? Are the family settled? How long will your work contract last? Once you feel confident answering these questions affirmatively, the opportunity to buy a home or relocate to Portugal might be too good to miss!
Best places to buy in Portugal
Portugal is far from lacking in desirability stakes and has a range of areas that many consider the best places to buy in Portugal. The addition of prices remaining achievable and the quality of life means that many of can benefit.
Lisbon – As the most well known and popular city location, many people flock to Lisbon in search of a second home or property to relocate to. Those looking for a property as an investment could be disappointed with prime areas commanding €10,000 per square metre. Values are therefore approaching levels seen in Madrid and Barcelona.
However, for those looking for a cultured location that offers an excellent quality of life, look no further. For business owners and those relocating for work, Entrepreneurs provides a great consumer market. Lisbon offers all the facilities one could ever need combined with a fantastic city atmosphere.
Porto – Offering much better value than Lisbon prime property in Lisbon is priced at around €2,500 to 5000 per square meter. The tourism market in Porto is significant, with forecasts of 12-14 euros PA of rental income being generated for every €100 invested in property in Porto. The arrival of low-cost airlines has fuelled the tourism market, with Porto now welcoming three times the amount of tourists than it once did.
This large Portuguese city with a solid background in agriculture and industry reaches roughly 1.m million from the suburbs and surrounding areas.
Whilst the property market isn’t as active as that in Lisbon and therefore less liquid. The reduced costs attract investors.
Algarve – Popular with Portuguese and overseas holidaymakers alike. The Algarve is the number one destination for second homeowners wishing to rent. Short term rental properties vastly overrun the long-term rental market, with the area’s population swelling during peak months.
Naturally, rental prices decline dramatically in the low seasons, with a month rental in the down season equating to a weekly rental value in the high season.
Holidaymakers and retirees are treated to fantastic Cape St. Vincent, Ponta de Piedade and the Praia da Falesia.
Demand for property in the Algarve is lower than in the cities mentioned above. Those looking to sell in the Algarve should always find a reputable estate agent with the correct credentials.
Can a foreigner buy a property in Portugal?
Portugal has no limits on those who can buy property in the country. Portugal offers several attractive terms for foreigners purchasing a property. These include the Golden visa program, which allows a non-EU citizen to live, work and invest in Portugal. After five years of residency, you can then apply for a permanent residency visa and gain Portuguese citizenship if desired.
Associated costs of buying in Portugal
Like any property buying process, there are many associated cost when buying a home there. These include the following…
- Transfer tax and stamp duty – transfer taxes and stamp duty are charged by the government and apply to all Portuguese property transactions. Legal fees – a specialist property solicitor will take care of the conveyancing of your home or investment in Portugal. They look after the buyer’s interests at every part of the transaction, ensuring every license and permit is in place to take ownership. They’ll oversee all contract and be able to answer any legal questions you might have.
- Notary fees – a Notary is an official department within the government that provides all certified documents to prove you own the property.
- Mortgage stamp duty – this is an additional duty that will be added to the amount you borrow in mortgage for your Portuguese property.
- Property registration fees – the Portuguese land registry record the new legal owner and supply confirmation to the lawyer
To summarise, the cost highlighted above will typically represent 10% of the property’s value, with the initial associated cost being lower for off-plan properties.
Newbuild property or resale?
The choice of buying a new build or resale property will come down to several key points. These will include the timing of your move, budget and area. Here are a few of the pros and cons of both:
Benefits resale property in Portugal
Budget – resale properties can be cheaper than new build home in Portugal. Refurbishment bills can offset this saving.
Location – In prime city locations, resale properties may be the only option. Land can become scarce in prime locations, and some historic villages may have bans on development.
Timing – if you are buying to relocate immediately, you may not have the option to purchase an off-plan home.
Less bureaucracy – buying a resale home typically needs less paperwork to be completed, both on the legal side and mortgage financing.
Negatives of resale property
No guarantees – only newbuild property benefits from a 5-year warranty.
Upkeep costs – resale properties upkeep increases with age. It is advisable to keep a small fund for renovations and repairs.
Sold as seen – any issues upon taking ownership are yours to overcome.
Benefits of newbuild property
Ability to customise – floors plans and room configurations can be changed easily on Portuguese newbuild property.
Newer improved materials – as with everything, the durability and quality of materials improve over the years. Affording you a solidly built home in Portugal.
Energy efficiency – New build properties in Portugal efficiency must meet higher standards than in previous years. Meaning running your new build property will be easier on your pocket.
Warranty – All new build homes include a compulsory five-year warranty, which means carefree ownership for five years.
Negatives of newbuild property
Takes longer to buy – New build properties can take roughly 12 months to complete construction.
Less desirable locations – Newbuild properties are developed further away from amenities. Meaning the location can be less desirable than resale properties which are closer to amenities.
More Bureaucracy – The process of buying a new build property can take dramatically more protracted than a resale property. Some developers offer a “key in hand” service to manage the process. However, the delay in ownership is still more than a resale buying process.
Most expensive areas in Portugal
The most expensive areas to buy a property in Portugal are as follows:
Lisbon – the average purchase price being €541,750, the capital boasts some of Portugal’s highest-priced properties.
Faro is located close to the Algarve, its beaches, and the main international airport. Faro is classed as the leading holiday destination for foreigners. The Dutch, French, and UK all enjoy holidays in the Algarve. Prices are reaching over €1700 per square meter in April 2021.
Madeira – know for its famous wine, the island of Madeira is known as a great holiday destination and considered amongst the most expensive areas in Portugal. Well located two-bedroom apartments will cost more than €250,000, which is much greater than some areas of the Algarve.
Least expensive areas in Portugal
Portalegre – located in the Alentejo region of Portugal, Portalegre is the cheapest area in Portugal. Houses in need of renovation can be found for as little as €10,000 but will need lots of TLC. The average price for a home in good order is around €113,000.
Beja – situated in the south of Alentejo region is the ancient Roman city of Beja. Properties in need of renovation are priced similarly to those in Portalegre. The average sale price for a home in good order is around €130,000.
Castelo Branco – with the knight templar castle providing a dramatic backdrop. Castellano Branco can be found in central Portugal whilst summers can be intensely hot. Those looking to use a property all year round may enjoy its mild winters. The average property price is around €121,000, with renovation projects starting at just €7000.
Most popular areas in Portugal with expats
Whilst the location requirement as an expat will be defined by whether you need to source work or not, these are the most popular locations with the expat community in Portugal.
- Lisbon – the capital, is the most popular location for expats in Portugal.
- Chaves – located near the Spanish border, Chaves is considered the gateway to Portugal.
- Porto – rich in industry and tourism, it’s the second-largest city in Portugal.
- Braga – located in Northern Portugal Braga is the 3rd largest city after Lisbon and Porto.
- Aveiro – dubbed the Venice of Portugal Aveiro is often overlooked by tourists, with most expats looking to retire there.
- The Algarve – boasting the best selection of beaches and golf clubs, the Algarve is the go-to location for retired expats.
Top tips for those buying Portugal
Financing your home purchase – Speak to a mortgage broker beforehand to avoid disappointment. The lending criteria across Europe have recently changed, with some banks requesting more deposit and higher-income clients. Specialist mortgage brokers have several banks at their disposal. They can scope the best institutions for a finance deal that fits your needs and budget.
Foreign exchange management – managing your payments to Portugal is vital. Euro exchange rates fluctuate all the timing meaning your property could cost a lot less or much more. Always seek guidance when sending money to Portugal.
Buying in the right location – never feel ashamed in asking to view your potential new home multiple times. Traffic can swell during rush hour, and if close to a shop or school, ensure you feel happy with the amount of foot traffic.
Retirement plan – whilst those relocating to Portugal can enjoy up to 10 years tax-free on their pensions. It’s worth consulting with an independent financial adviser before moving to ensure your project is as tax efficient as it can be.
Portuguese social life – the social scene is a lot different to many other locations. Expect to eat later and more often. Eating out is much cheaper than other European destinations, and the ‘Prato do dia’ dish of the day is served in the majority of restaurants and typically costs 5 to 6€
Health insurance – if you live and work in Portugal, you will benefit from Portugal’s social security system. Not all treatment will be free, so it’s worth purchasing a top-up plan, particularly if you have had previous health complaints. The cost of a health insurance policy will vary due to the age and size of your family.
Financing a home in Portugal
Portuguese mortgage lenders offer opportunities for foreigners to secure a mortgage loan. But before you shoot off to the next Portuguese bank, there are a number of things you should know.
When it comes to mortgage rates Portugal can be less favourable than other areas of Europe. Portugal bases its retail mortgage rates on the Euro Interbank Offered Rate (Euribor), plus an applied interest margin typically between 1.50% and 2.50%.
A Portuguese bank will also normally insist on the client having to take the bank’s own or proposed home and life insurance, which could increase on additional purchase costs.
Non resident mortgages Portugal
The Portuguese government openly encourages foreign investment in property, so there aren’t any restrictions on non-EU residents looking to purchase property. However, if you are not going to be a full-time expat resident in Portugal, most lenders will only provide a loan up to 70-80% of the purchase price. Meaning you’ll need to find at least a 20% deposit to buy.
However, for people planning on living in Portugal, mortgages of 80% or even 90% of the purchase value are available.
Transferring money to buy a property in Portugal
Once your administrative tasks have been taken care of. The easiest part of your move or Portuguese property purchase will be finding a great exchange rate via an international payments company. Getting set up only takes 5-10 minutes, and minimal paperwork, if any, is required. Specialists such as Rational FX and Newbridge FX can assist and offer excellent security and value, both offering their services with no transfer fee. Those transferring money from the United States should consider FairFX or MoneyCorp who can assist in every US state.
Documents to open an International money transfer account
- A full copy of valid ID (passport, drivers license or photo card ID)
- Utility bill (gas, electric bill, local government correspondence – must be less than three months old)
Requirements to open an account to make business transfers may vary from sector to sector. You should consult with your selected FX broker, who can conclusively advise. Sending money to Portugal or from via a specialist will be a much more cost-effective way of transferring and many offers around the clock dealing both online and via telephone and application.
The international transfer specialist can assist with one-off property payments, regular rent transfers or pension payments. Suppose you are planning on establishing a business in Portugal. In that case, they can also help with business payments when receiving payments from clients or purchasing products or goods from overseas.
Opening a bank account in Portugal to buy a home
In recent years, the Portuguese government has also offered several attractive tax breaks for expats, including a flat rate of 20% for NHR’s ( non-habitual residents) employed in Portugal.
The new tax breaks introduced in 2009 boost the economy following the global recession and entice skilled individuals from overseas to relocate and work in Portugal.
The NHR can be extremely interesting for those collecting a UK pension or overseas income, in which case money can be received and remains untaxed. Naturally, the policy is vulnerable to changes or potential discontinuation after Brexit, however as it currently stands, the procedure is in place.
Finding a home in Portugal
For those buyers who are time short or searching for a more unique and rare property in Portugal, you may wish to enlist the services of a specialist property buying agent. This agent will typically work on a retainer basis and present you with the best options available both “on and off the Portuguese market” in your chosen area. This agent will then provide you with house valuation and bidding advice- and assist you with financing and legal matters through to the property sale completion. Specialist buying agents typically operate at the pricier end of the market on properties over €1,000,000 and profess to negotiate at least their fee off the final purchase price of the property. Providing buyers with access to properties that are not for sale on the open market. This is an excellent service, particularly for those unable to travel due to work commitments or unclear on the Portuguese house market and property buying process.
The property buying process in Portugal
- Reserve your dream property
Once you’ve viewed properties in Portugal and found your dream home, you’ll need to secure the property and make sure you reserve it. A fee of €6000 is typically requested to reserve the property, and then the legal ball starts to roll.
- Promissory contract
Typically within a couple of weeks of reserving the property, the buyer and vendor will enter into a promissory contract. The contract will stipulate the following –
- Agreed purchase price
- Confirmation of buyer and vendor
- Date of exchange and when the completion will take place
- What belongings or furniture is included in the purchase
- Property payments terms
- And other contractual stipulation or conditions
A promissory contract is used in almost every property purchase in Portugal. The agreement will details every part of the process and what is included. A deposit after that must be paid, which typically equates to 30% of the property value. The contract can be signed by the buyer and sellers or their legal representatives.
- Public purchase deed
Once the property purchase is complete, the public deed will be signed. This signing occurs in front of the notary and is used to confirm the vendor pays any debts or taxes. The new property owner is registered as the proprietor at the land registry.
Moving into your home in Portugal
If you are moving into a city location or your removal lorry risks blocking the road, warn the council. It never creates a great first impression to block your new neighbour out on the first day. You may also need a parking permit of permission to unload, so ensure all of this is confirmed by your estate agent or solicitor.