Property Purchase Process | Property Purchase Costs | Mortgage Finance

 

Introduction:
Before you even start to consider the financial and legal complexities of buying a house in Portugal, you should make sure you have the money to cover all potential costs. Your first move should be to visit an accountant versed in overseas property purchases to discuss all potential costs with her.

Foreigners are given the same rights and obligations as the locals. However, Portuguese law is largely based on an outdated civil code and does not always cater well for today's property buyers' needs. Portuguese property laws protect both buyer and seller, but a solicitor is still essential. The level of protection afforded to purchasers in Portugal is exceptionally high.

The buying process in Portugal is pretty quick. Generally speaking, the signing of the final contract and deed will take place three to four weeks after the initial contract for sale is signed.

Stages of Standard Purchase Process:

1. Finding the right place
The first step in the purchase process is to consider what kind of property you are looking for, what purpose will it serve and which areas you're prepared to consider. Other than price, a key question is the issue of how much work you are willing to pay, including added costs. At one extreme, you could take on a renovation project requiring a lot of hard work, at the other end of the spectrum you could purchase a modern apartment in a serviced complex with all amenities on site.

Once you have an idea of the kind of place you're looking for, you can start your search. With the explosion of media specialising in property – magazines, websites, even TV channels now – it's relatively easy to get a flavour of the kinds of property that are available in your chosen areas without leaving the comfort of your home. However, ideally you should also visit your selected area and meet with estate agents (imobiliarias) who will show you round a selection of properties which match your criteria. Most Portuguese agents have English-speaking staff.

You should bear in mind that outside the main urban and tourist centres, many properties are sold privately. So in these instances, look out for “For Sale” (vende-se or para venda ) signs in the windows of houses then speak directly to the owner.

Important things to check for when looking round properties include damp, subsidence, access and boundaries. It's useful to go in prepared with a checklist, then take notes and photos as you walk around.

2. Organising legal representation
Once you have found a property you're interested in, the next thing to organise is legal representation. There are three legal professionals you would be advised to deal with:

• A public notary (notario ) – Unlike traditional lawyers, Portuguese notaries (notarios) are neutral government legal representatives who act as witnesses to and registrars of property transactions. Under Portuguese law, only deeds of sale (escrituras publicas de compra e venda ) witnessed and authorized by a notario can be registered at the land registry. He or she will carry out checks on the property and ensure all the appropriate paperwork has been filled out for registration can take place. The notario also has a responsibility to make sure the appropriate property taxes are paid on time. Outside of the Algarve, Lisbon and Porto you are unlikely to find a notary who speaks enough English to adequately explain the process to you, which means that you run the risk of not receiving important advice on matters such as inheritance. Finding a notario is relatively straightforward. The local phone book will have names and numbers, and the estate agent will be able to put you in contact with the notarios they use regularly. 
• A reputable English-speaking Portuguese solicitor (advogado) – It is essential to find an independent lawyer to represent your interests and offer impartial legal advice. If an estate agent recommends a lawyer, always be aware that this lawyer may be working for the seller and therefore may not have your best interests at heart. 
• An UK solicitor versed in Portuguese property law – Although you may be able to find a reputable, independent Portuguese solicitor who speaks good English, this solicitor is unlikely to be versed in UK law. So it can be advisable to also engage the services of a UK professional who has specialist knowledge of Portuguese property law in addition to a Portuguese solicitor to advise on the international dimensions of the transaction and on the critical issue of UK taxation.

3. The survey
Unlike in the UK, a survey (inspecao) is not a compulsory part of the purchase process. However, a survey is advisable for your own peace of mind as well as giving you an idea of what to budget for in terms of renovation and repairs. A survey is particularly advisable if you are buying a property without a builder's warranty. If you are taking out a UK mortgage then you will need to have a survey carried out in any case.

Important things to check include:

• The plan of the land at the land registry and the plan of the building which should be included with the property details 
• The land boundaries and whether there is any construction work planned on the land neighbouring the property 
• It's useful to measure the living space in square metres as this will give an idea of the selling price per square metre, which is a common yardstick used to negotiate on price in mainland Europe 
• Don't just believe what it says on the plan or in the details. Check for yourself, as any discrepancy could work to your advantage in any negotiations over price.

A full structural survey will usually cover all the main issues.

4. Applying for a fiscal card
Before you can undertake any financial dealings in Portugal – such as opening a bank account or buying a property – you will need a fiscal or tax card (cartao de contribuinte); this applies equally to residents and non-residents alike. Your fiscal card will detail your fiscal or tax identity number (numero de identificacao or NIF) which is the Portuguese equivalent of your UK National Insurance number. Estate agents are unlikely to take you very seriously until have a fiscal card and number so it's best to get this sorted early on.

While your final NIF number is being issued, it's possible to obtain a temporary NIF number in the interim. Just take certified photocopies of your passport along with the original and a small fee to the fiscal department of the local tax office (financas) to arrange this. A lawyer (advogado) can also apply for your NIF on your behalf. You should keep hold of the notification of your NIF, as this information is crucial for all future correspondence with the tax authorities, including the registration of your property with the Land Registry.

5. Negotiating a price and reservation contract
Now you are ready to start negotiating over price. Many Portuguese vendors will assume foreign buyers are relatively ignorant of local prices so you should make sure you research the local market thoroughly to give you a sense of what you ought to be paying for the property. If you identify alternative properties in advance that you would also be happy to buy, it will be easier to walk away from the deal if you don't secure your minimum requirements, making your negotiating position stronger.

In Portugal, there is a local practice where some of the purchase price is paid “under the table”. This means that some of the price is paid to the vendor in cash, undeclared to the tax authorities, while the balance is paid in the normal visible manner. Although the practice is common, it is illegal and there are severe penalties. Furthermore you could end up with a larger capital gains tax bill when you sell up than you would otherwise have.

Once you are happy with the price you can pay £2,000-£3,000 for the property to be taken off the market while your lawyer checks the proposed contract. You can have it written into the contract that this is refundable if you don't go ahead because your lawyer finds a problem.

6. Arranging your mortgage
Now you are ready to arrange mortgage finance for your purchase. See below for full details of eligibility, availability, terms and rates, etc.

7. Instructing your solicitor to carry out legal investigations
You should now instruct your Portuguese solicitor (advogado) to carry out certain essential legal checks on the property to start the conveyancing process. These include:

• Confirming the vendor actually owns the property and has legal authority to sell it by checking the title deeds (escritura) against the land registry certificate (certidao de teor do Registro Predial). The certidao will show any faults or structural problems that have been noted in the past. 
• The certidao also details any charges or mortgages which exist on the property. Your advogado will ensure that there are no outstanding taxes or utility bills to be paid. It is vital to get a certificate (certidao de registro) from the local land registry confirming that the property is free of all such encumbrances which should be discharged before signing of the transfer deed. 
• Checking that the property is registered at the tax office and that the vendor has an official tax number (caderneta predial). The caderneta will detail the property's fiscal value which will determine the rates and taxes that will be charged on the property.

8. Signing a preliminary contract
Once all the necessary legal checks have been completed satisfactorily, you will be ready to sign an initial promissory contract (contrato promessa de compra e venda , literally meaning “promissory contract of purchase and sale”). Before this stage you should have had the contract translated into English and ideally have English-speaking assistance on hand during the signing. The contrato promessa can be signed in front of a notario or privately.

The contrato promessa details the finer points of exactly what you are purchasing, and includes all the fundamental information about the sale such as the purchase price, the list of fixtures and fittings included in the sale, and the completion date when the deeds will be signed and the property transferred into your name.

This agreement commits both buyer and vendor to complete the transaction and at this point the buyer must pay 10% of the purchase price as a deposit. If the buyer walks away from the deal subsequently, this deposit will be forfeited; if the vendor walks away, they are liable pay the buyer twice the value of the deposit in compensation.

9. Completion
After all the legal paperwork has been completed, you will be ready to sign the title deeds (escritura). This is the moment of truth when ownership of the property passes from vendor to buyer. The notary (notario) must be present at this event to formally witness and register the transfer of ownership on behalf of the Portuguese government.

Both parties will need to provide passports or other proof of identity and unless you speak good Portuguese, the notary will insist that a translator is present to ensure you understand the full implications of the contract you are entering into. If you aren't able to sign the deeds in Portugal , you can either grant power of attorney to a representative (probably your Portuguese advogado) to sign on your behalf, or you can arrange for a UK-based notary to witness your signature in the UK.

Upon completion, the buyer must pay the balance of the purchase price, all professional fees, transfer (IMT) tax and notary fees.

10. Registration of title
Once the title deeds have been signed, they must be registered with the local land registry. This can be done either by the buyer or through a lawyer on the buyer's behalf. A copy of the escritura certified by the notary must be sent to the local office of the land registry (conservatorio do registro predial) along with the property tax certificate. A land registry form must then be completed and a small registry fee paid. The registration process takes several months to complete, after which your lawyer will be notified. When the deeds are ready your lawyer will arrange for them to be forwarded to you. This finalises your ownership at the Land Registry office and the tax office - you are now officially the owner of your Portuguese property!

Special situations and exceptions:
In some instances, a buyer is justified in not closing on a contrato de promessa de compra e venda . For example, if a seller cannot provide to the buyer a title free and clear, the buyer then does have the right to walk away from the contract and will not forfeit his or her deposit.

 

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