Property in Portugal: should I rent or purchase?
Teresa Arriaga e Cunha | Lawyer
If you are planning to move to Portugal or invest in this amazing country, then searching for a new home will likely be one of the main priorities on your list. Fortunately, Portugal offers numerous options. From contemporary city apartments to stunning beachside homes and secluded countryside estates, there is something to match all tastes. However, there is also an important decision to make: should you buy or rent property in Portugal?
There are several factors that may influence your decision, such as getting a loan to purchase a property. When you first arrive and/or want to invest in a new country, you may be hesitant about getting a mortgage debt and may consider a long-term rental, in spite of the risks.
1. Purchase
Investing in real estate is an excellent and safe choice for those who want to increase their wealth and diversify their investments.
You don’t have to be a resident to buy a property in Portugal, as it is always a good investment for those who want to build equity. However, you will need to apply for a Tax Identification Number (“NIF”) to purchase a property.
Once you find your ideal property and the owner accepts your offer, you should sign a promissory contract. You will also need to make an initial deposit of around 10% to 20% of the purchase price. However, it is important to note that, should you change your mind after the initial deposit, you will lose that money. But if the owner decides not to sell, they must pay double the amount of your deposit. Assuming everything is in order, you can sign the final deed (escritura pública) at a local registry office. The expected timeline for the whole process is between one to three months.
Below you will find some of the costs you can expect to pay when buying a property in Portugal:
- Transfer Tax (“IMT”): between 0% and 7.5% depending on the type of property: primary or secondary accommodation property, plot of land for construction, commercial property, and rustic land.
- Stamp duty (“IS”): 0.8% of the property value is levied on the agreed acquisition price or in the real estate’s tax value assessed by the Tax Authority (“VPT”) if the agreed acquisition price is lower than the VPT.
- Government fees: from €500 to €1000 for the Notary’s fees (entity that prepares and registers the public deed) and for the cost of registering the property purchase at the Land Registry Office.
There is also the possibility of requesting a loan from the bank (you can do this either you are a resident or a non-resident), therefore, getting a mortgage debt is also a possibility for those who do not want to use their working capital or savings to entirely fund the purchase of the property.
Furthermore, if a real estate agency is intermediating the transaction, the seller is due a commission of typically 5%.
2. Renting
Renting is the best option for those who do not want to be tied to a certain place and do not want to afford all the costs related to the acquisition of a property.
Also, you do not need to be a resident to rent a long-term property in Portugal when renting, but in case you wish to do so, there are some precautions that will have to be undertaken as not to attire tax residency.
Like in the purchase, you will need to apply for a NIF to be able to rent a property.
If you are planning to go with renting, it is crucial to be aware of your rights and responsibilities as a tenant. If the renting agreement does not have a deadline, it will be automatically renewed unless one of the parties terminates it, according to what is stated in the contract and respecting the mandatory rules under Portuguese law, as follows:
1- The tenant can prevent the automatic renewal of the contract by notifying the landlord at least:
- 120 days in advance, if the initial term of the contract or its renewal is six years or more.
- 90 days in advance, if the initial term of the contract or its renewal is one year or more, but less than six years.
- 60 days in advance, if the initial term of the contract or its renewal is six months or more, but less than one year.
- One third of the initial term of the contract or of its renewal, in the case of a period of less than six months.
As a tenant, you can expect to pay rent in advance which can cover the amount due up to three months. The landlord may also require a security deposit. The amount due is agreed upon between both parties before signing the contract and corresponds usually to one month.
It is also worth noting that even though you enter into a long-term rental agreement, under Portuguese law, after one third of the initial term of the contract or its renewal has elapsed, you may terminate it at any time, by notifying the landlord at least:
- 120 days from the intended term of the contract if the term is one year or more.
- 60 days from the intended term of the contract if the term is less than one year.
Furthermore, whether a real estate agency is intermediating the renting, the landlord is due a commission of typically 1.5 x amount for the rent.
3. General Expenses After Completion
Either you chose purchasing or renting, it is highly recommended to have the property official documents duly analysed as well as the owner/landlord identification, to assure that the process runs smoothly and that you manage a successful registration of the acquisition of the property before the competent authorities, as well as the successful registration of the lease agreement before the Tax Authority. As they say, the devil is in the details, so professional assistance is a must have in these cases.
If you have further questions regarding this matter, get in touch with us and we will be delighted to assist you.
