The problems associated with buying property abroad have been highlighted in the last decade or so, during which the property market in many countries has gone from boom to bust and (almost) back again.
From a legal viewpoint, Portugal isn’t always one of the safest places in which to buy a home, although buyers have a high degree of protection under Portuguese law. However, although the pitfalls must never be ignored, buying property in Portugal is usually safe.
There are tens of thousands of foreign property owners in Portugal and several million Portuguese owners, the vast majority of whom are happy with their purchases and who encountered few or no problems when buying their homes. This should be borne in mind when you hear or read horror stories concerning foreign buyers in Portugal.
The possible dangers haven’t been emphasised to discourage you, but simply to ensure that you go into a purchase with your eyes open and to help you avoid problems (forewarned is forearmed). It cannot be emphasised too strongly that anyone planning to buy property in Portugal must take expert, independent legal advice.
Never sign anything, or pay any money, until you’ve sought legal advice in a language in which you’re fluent, from an independent lawyer who’s experienced in Portuguese property law. If you aren’t prepared to do this, you shouldn’t even think about buying property in Portugal!
The vast majority of buyers in Portugal (and most other countries) don’t obtain independent legal advice. Most people who experience problems take no precautions whatsoever when purchasing property and of those that do take legal advice, many do so only after having already paid a deposit and signed a contract (or when they hit problems).
You will find that the relatively small price (in comparison to the cost of a home) of obtaining legal advice to be excellent value for money, if only for the peace of mind it affords. Trying to cut corners to save on legal costs is foolhardy in the extreme when tens of thousands (or hundreds of thousands) of euros are at stake. However, be careful whom you engage, as some lawyers are part of the problem rather than the solution (overcharging is also common)! Don’t pick a lawyer at random, but engage one who has been recommended by someone you can trust.
There are professionals speaking English and other foreign languages in many areas of Portugal, and a number of expatriate professionals (e.g. architects, builders and surveyors) also practise there. However, don’t assume that because you’re dealing with a fellow countryman that he will offer you a better deal or do a better job than a Portuguese (the contrary is often true).
It’s wise to check the credentials of all professionals you employ, whatever their nationality. It’s never wise to rely solely on advice proffered by those with a financial interest in selling you a property, such as a developer or estate agent, although their advice may be excellent and totally unbiased. You should also avoid ‘cowboy’ agents and anyone who does property deals on the side (such as someone you meet in a bar or restaurant), as dealing with them often leads to heartache.
Among the problems that can be experienced by buyers in Portugal are properties purchased without a legal title; properties built or enlarged illegally without planning permission; properties with missing infrastructure; builders or developers going bust or absconding with their clients’ money; undischarged mortgages from the previous owner; properties sold with outstanding bills for utilities or rates; intermediaries disappearing with the seller’s proceeds (possibly after having been given power of attorney); overcharging by vendors (particularly when selling to foreigners); and properties sold to more than one buyer.
Note that in the not too distant past, many properties in Portugal were built without planning permission, weren’t constructed according to the approved plans or were built on land that wasn’t zoned for building in the first place.
Among the mistakes made by buyers in Portugal are buying in the wrong area (rent first!); buying a home that’s unsaleable; buying a property for renovation and grossly underestimating the restoration costs; not having a survey done on an old property; not taking legal advice; not including the necessary conditional clauses in the contract; buying a property for business, e.g. to convert to self-catering accommodation, and being too optimistic about the income; and taking on too large a mortgage.
It’s possible when buying a property directly from the vendor that he may suggest you pay part of the price with an ‘under the table’ cash payment, thus lowering the price declared to the tax authorities and reducing the vendor’s capital gains tax liability. You will also save money on taxes and fees, but will have a higher capital gains tax bill when you sell. Bear in mind that if you’re selling a property and the buyer refuses to make the ‘illicit’ payment after the contract has been signed, you will have no legal redress! You should steer well clear of this practice, which is naturally strictly illegal.
Checks must be carried out both before signing a promissory contract ( contrato de promessa de compra e venda) and before signing the deed of sale ( escritura). If you get into a dispute over a property deal it can take years to have it resolved in the Portuguese courts and even then there’s no guarantee that you will receive satisfaction.
One of the Portuguese laws that property buyers should be aware of is the law of subrogation, whereby property debts, including mortgages, local taxes and community charges, remain with a property and are inherited by the buyer. This is an open invitation to dishonest sellers to ‘cut and run’. It is, of course, possible to check whether there are any outstanding debts on a property and this should be done by your legal advisor on the day of completion, although the system isn’t failsafe.
When buying property in Portugal you should deal only with a government-registered estate agent ( mediador autorizado) and employ an English-speaking lawyer to protect your interests and carry out the necessary searches. It’s necessary to ensure that a property is free of debts and liens via a certificate ( certidão de registro) from the local land registry. The deeds ( escritura) must be registered as soon as possible after completion.
Many problems can arise when buying off-plan, i.e. unbuilt properties, or a property on an unfinished development (urbanisation). Because of the problems associated with buying off-plan, such as the difficulty in ensuring that you actually get what is stated in the contract and that the developer doesn’t go broke, some people advise against buying an unfinished property.
A ‘finished’ property is a property where the building is complete in every detail (as confirmed by your own architect), all communal services have been completed, and all infrastructure is in place such as roads, parking areas, external lighting, landscaping, water, sewerage, electricity and telephone services. A builder is supposed to provide buyers who purchase off-plan with an insurance policy or banker’s ‘termination’ guarantee, which protects buyers against the builder going broke before construction is completed.
Many people have had their fingers burnt by rushing into property deals without taking proper care and consideration. It’s all too easy to fall in love with the attractions of a home in the sun and to sign a contract without giving it sufficient thought. If you aren’t absolutely certain, don’t allow yourself to be rushed into making a hasty decision, e.g. by fears of an imminent price or exchange rate rise or of losing the property to another buyer who has ‘made an offer’.
Although many people dream of buying a holiday or retirement home in Portugal, it’s vital to do your homework thoroughly and avoid the ‘dream sellers’ (often fellow countrymen) who will happily prey on your ignorance and tell you anything in order to sell you a home.