The potential pitfalls of buying property in Portugal
The key to a successful property purchase lies in the understanding of the potential pitfalls of buying property in Portugal, and steering round them.
The process of buying a property in Portugal is, for the most part, relatively straightforward. However, through conversations with hundreds of buyers we’ve identified a few potential pitfalls that could catch you off guard. Being aware of these risks, especially the financial, legal and fiscal risks, will help you avoid them.
With the right guidance, the potential pitfalls often associated with buying a property in Portugal can be avoided.
Choosing the right location in Portugal
A potential pitfall is simply buying in the wrong place for your lifestyle. Portugal and its islands span 92,230km² and with several distinct and different stretches of coast. Choosing the right location for you and the life you want is crucial.
Look at the bigger picture. Consider the climate, whether you want an area with lots of tourists or fewer, lots of other expats or none, when you will be there, whether you really will learn to speak Portuguese.
If you plan to let out your property out, do you know the local regulations regarding short-term lets? There are limitations in place in certain touristy areas, like Lisbon and the Algarve that make it difficult to get a proper letting license.
The simple answer to avoiding these potential pitfalls when buying a property in Portugal is to talk through your requirements in detail with your estate agent or buying agent. They are local experts, so will be of great use in suggesting areas, neighbourhoods and towns that best match what you’re looking for. If you’re unsure, ask questions to narrow your search.
Buying costs
You do not want to get to the notary’s office for completion and find you can’t pay the tax and other costs. The property will not become yours. You should budget for an additional 10% on top of your property price to cover all associated fees.
The main buying costs include:
- Transfer tax (IMT) (between 5% and 6.5% for a resale property)
- VAT (IVA) (23% if buying a brand-new property, but should be included in the price).
- Stamp duty (0.4% to 0.8%)
- Notary & land registry fees (1.5% to 2%)
- Legal fees (1-3% property value)
Additional costs could also include a property survey, mortgage fees, insurances and utility connections.
Financial risks – foreign exchange
If you’re buying a property in Portugal, the price will be in euros. If you need to change currency a significant potential pitfall is the financial risks of exchange rate fluctuations.
When buying a Portuguese home, the time between signing the initial contract and getting the keys can often take up to three months. During that time, exchange rates will continue to move, meaning the price you’ve agreed to pay in euros continues to fluctuate. For example, a 3% drop in the value of your local currency against the euro would mean a €250,000 property in Portugal would now cost €7,500 more, which you may not have budgeted for.
To manage this risk, we recommend you consult with Smart Currency Exchange, a property specialist, before you view properties or sign your initial contract. They will be able to help you understand your budget in euros and help you prepare for potential fluctuations in the exchange rate.
For those who aren’t gamblers, you can secure the rate with a ‘forward contract’. This tool allows you to secure an exchange rate for up to 12 months, protecting you from a falling exchange rate for the duration of your property purchase.
Learn more about our trusted currency partner, Smart Currency Exchange today
Legal landmines
It’s especially important when buying a property in Portugal from overseas to employ the services of an independent lawyer. Other services may recommend their own in-house legal team, but it’s important that your lawyer is focused on your interests alone.
When selecting a lawyer to work with, choose a firm that specialises in property law (and relocation if you require visa & residency assistance).
You can also avoid a potential pitfall when buying in Portugal by speaking to a lawyer early in the process. They can advise you about your viewing trip plans, potential rental pitfalls, planning and renovation requirements and other legal pitfalls. By talking it through with an English-speaking lawyer, you’ll be able to avoid being caught off guard later down the line, it could even save you from making an expensive-to-fix mistake.
Property surveys in Portugal
Getting a structural survey when buying a property in Portugal isn’t as popular as it is in the US or UK. It’s not a legal requirement, but that doesn’t mean you can’t get one.
While the notary will check that the property is within the lines of the law (regarding the sale and past planning permissions), a surveyor will be able to identify structural defects (if any), which may not be visible to the naked or untrained eye.
Should you wish to hire a surveyor, speak to your lawyer as you may wish to add a subordinate clause to your initial contract, should they find anything untoward.
You can find a list of regulated surveyor firms for Portugal on the Royal Institution of Chartered Surveyors’ (RICS) website.
Off-plan pitfalls to avoid
When buying an off-plan property in Portugal, there are a few potential pitfalls to consider before signing on the dotted line. Buying off-plan means the property isn’t yet built. You will agree to purchase a part of what is usually a larger development, with shared amenities and communal areas. Most off-plan properties in Portugal take between 12-18 months to complete.
Potential off-plan pitfalls include:
- Early buyers may find that their property is one of the first to be completed, therefore can move in early. However, the rest of the development could still be a building site, therefore your paid-for property may be on an unfinished resort for some time.
- Construction delays may occur due to unforeseen circumstances. They could include material shortages, labour issues or weather conditions. Off-plan buyers should be prepared for potential delays.
- During the construction period, it’s possible that the developers may drop the price if interest isn’t as high as expected. That could leave a buyer in negative equity (“underwater” as Americans say).
- It’s possible that the property may not meet your expectations. Consider viewing other properties the developer has completed and ensure you complete the snagging process to address any early defects.
- Buyers typically pay a deposit of 10-30% of the property price upfront, followed by payment in increments as the building progresses. Buyers should be aware that they’ll part with a lot of money before they can enjoy the property.
Under Portuguese law, you may be able to claim damages and hold developers or builders responsible. It’s advisable to consult with your lawyer and estate agent early in the process to avoid potential pitfalls when buying off-plan property.