In this tough financial climate we continue to find ourselves, many are left with their assets floundering in the wind, so to speak! In a recent survey by the Royal Institution of Chartered Surveyors and Confidencial Imobiliário (Ci) of the Portuguese housing market, covering the sales and lettings sectors, shows a continued decline in property sales and a sharp rise in property lettings.
Interestingly, until September, existing home prices had been falling faster than new home prices. However, the last two months have shown developers becoming less resilient to the fall in house prices. December’s survey actually shows new house prices falling at a faster rate than existing homes.
In the lettings market, demand continued to rise, as did new landlord instructions. Lettings anticipations recorded a sharp rise and remains firmly in a positive stance. Rents remained negative, with a reading consistent with falling rental levels. Rental expectations, whilst still falling, did so at a much slower rate in December. Indeed, outside Lisbon rental expectations are broadly stable (in Porto and Algarve), indicating that it is a regional rather than a national trend. Lettings are also the highest in Porto and the Algarve. The fall of rent in some areas could be reflecting an excess of rental stock on the market but there is also evidence of a mismatch between the type of property offered, and that in demand.
The regional data tends to be more volatile than the national data, respondents in the Algarve saw the sharpest house price falls while those in Lisbon saw the sharpest falls in rents. Confidencial Imobiliário Spokesman, Ricardo Guimaraes commented: “According to the Memo signed with the Troika, December is the deadline for the Portuguese Government to change the lease law, which should improve the market confidence, especially regarding the default risk from tenants. This is moving agents’ expectations. At the same time, the most commented topic remains the financial wrangling between potential buyers and banks, as well as the amount of houses directly sold by financial institutions, which is having a negative effect on prices. ”
RICS Senior Economist, Josh Miller added: “Although sales volumes in the housing market continue to fall, volumes in the lettings market are rising as households who cannot access mortgage finance are opting for rented accommodation instead. Given the deteriorating macro economic backdrop – unemployment now stands at 12. 9% while economic sentiment has collapsed – and the tightening in credit conditions already underway, the lettings market is likely to continue experiencing high volumes of activity for the time being. ”
This sort of trend could be typical for many European countries, so if you are having trouble selling your property, perhaps you could look at the rental market for the next few years to keep your investment level. On the other hand, if you are looking for an investment, it seems it is a buyers’ market out there that could be part of your long term investment plan.
The good news is that once you’ve found the perfect property the buying process in Portugal is relatively simple and straightforward.
If you want to put your property on the rental market, make sure you use a reputable property management company that is local, speaks your language and that listens to your needs.
There are many ways you can use a management company, from just showing the property to a complete background check on potential tenants, rental collection, maintenance for house, pool, garden and so on.
For those considering purchasing property in Portugal, here are the main things to consider: We always recommend you buy through an AMI Licensed Agent and that the agent has a valid license. This license is granted by the governing body INCI (Instituto da Construção e do Imobiliário) formerly known as IMOPPI. This serves as a guarantee that the individual estate agent has complied with numerous regulations to exercise the profession of estate agent in Portugal.
Licensed estate agents also have insurance cover that may be claimed against if they don’t conform to the highest standards. Make sure that your agent not only has a license but that it’s actually valid. We recommend that you also seek expert legal advice and use an English speaking local lawyer.
Once you’ve found a suitable property the procedure is usually as follows:
A Contrato de Promessa de Compra e Venda (Promissory Contract similar to Exchange), will be drafted up by your lawyer whereby you promise to buy the property for a given sum and the vendor agrees to sell it. Your lawyer should at this stage ask the vendor to supply the following documentation:
1. Caderneta Predial (Tax Registration Document) from the Finanças (Tax Office) which shows the tax situation of the property including the property’s inscription for fiscal purposes, the current owner, the property’s fiscal number etc.
2. Certidão de Teor (Land Registry Document). This document shows who owns the property, who has rights to the property and if there are any charges, mortgages or incumbrances registered against the property. It basically provides you with the history and the general standing of the property.
3. Licença de Habitabilidade (Habitation License) for properties built after 1951 a habitation license is required. This document shows that the property has, at some time in the past, obtained a certificate deeming it fit for human habitation. The licence is obtained at the Council.
4. Ficha Técnica de Habitação (The Property’s Technical Report) This document is required for properties built or altered after 1st January 2004. It contains the builder’s details, materials used by the builder, who supplied them and other relevant technical information on the property and construction process. The builder should supply the report where necessary.
5. The Property’s Plans – these should also be supplied and ask your lawyer to check that everything is as it should be and that no significant modifications have been made which may affect your enjoyment of the property.
6. Identificação Fiscal (Fiscal Number) As a future home owner you will also be required to get one of these from the local Tax Office. Usually your lawyer will take care of this for you.
7. Survey- A structural survey is not a legal requirement under Portuguese law and banks don’t usually ask for it either on most properties, but you know the saying “If in doubt, check it out” particularly if you’re looking at older properties. Amongst other things your lawyer should also look into whether the property you’re buying is currently rented to a third party. If it is, the tenant can in certain circumstances exercise the right to purchase. If you’re buying an agricultural plot (rústico), the neighbours can have the right to purchase. So check these little details out and avoid unnecessary headaches. Once you and your lawyer are satisfied that everything is in order, you can then proceed to the signing of the Promissory Contract.
8. Energy Rating Certificate: As of 1 January 2009 before buying property in Portugal you must be shown a valid energy rating certificate which grades properties from A-G, A being the most environmentally friendly.
A 10% per cent deposit is usually required at this stage, although this can vary. The contract is legally binding and the law states that should you change your mind and decide not to proceed with the purchase, you forfeit your deposit. On the other hand should the vendor withdraw from the sale they will have to repay double the original deposit handed by the buyer. Escritura (Deed of Completion)
After the Promissory Contract and if everything is in order you can in the following weeks proceed to the Escritura (Completion). This is done in a Notary’s Office, Land Registry Office. The Escritura is the legal document which shows ownership of the property and you get a copy a few days after the completion.
The Notary is a neutral government legal representative who is there to ensure that all the documentation is in order, all taxes have been paid and serve as a witness to the property during Escritura and ensures that every legal aspect is adhered to. Once the Notary is satisfied that every legal aspect of the transaction has been adhered to they will read out the clauses in the Escritura; if a translator is needed your lawyer should be able to help with this.
The buyer, seller and the Notary will then sign the Escritura (Deed of Completion) and it is registered at the Land Registry and Finanças (Tax Office) this has to be done within 60 days. If you’re a tax resident in Portugal you may be eligible for IMI (Council Tax) exemption if your property’s rateable value is less than € 236. 250.
Prior to Escritura de Compra e Venda (Completion) you are required to pay IMT (a type of Stamp Duty for the local authority). This Stamp Duty goes up in platforms in accordance with the value of the property and also if it’s a main or second residence.
You’re purchasing a three bedroom villa in mainland Portugal for €450, 000 as a second home, your IMT calculation would be as follows:
€450, 000 x 8% =€36, 000 – €11, 035. 25= €24, 964. 50 ACTUAL amount of IMT payable because the Tax Office gives a deductible allowance on most of the platforms.
The IMT payment must be made Prior to the Escritura de Compra e Venda (Completion) which can take place at any Notary Office in the country. If you do not make this payment, the Notary will not allow Completion to take place.
There is also a 0. 8% Imposto de Selo (Stamp Duty) cost of the value of the property at the Notary’s Office on Completion. So for your villa you would pay €3. 600 to the Notary on Completion.
If you’re borrowing from a Portuguese bank there is a further 0. 6% Stamp Duty on the amount borrowed. So for instance if you borrowed €350. 000 from PPP Bank there is a €2. 100 stamp duty to pay.
Where borrowing is involved the procedure is slightly different in the sense that the bank does a provisional registration of their and your interest in the Land Registry prior to Completion to protect both your and its interest in the property. This should between €500 to €1000. After completion the provisional registrations are converted at the Land Registry by the bank or your lawyer.
Purchasing costs vary depending on the value of the property you buy but also of course which lawyer you use. Lawyers’ fees vary between 1% and 1. 5% of the purchase price.
Allow 6 -10% for all your purchasing costs (this varies because of the deductible allowances of the IMT platforms).
So if you are purchasing your dream four bedroom villa in sunny Algarve for €450. 000, add approximately 8% to the purchase price to cover all costs including taxes, stamp duties, registrations and legal fees.
Well, here we are in the first Quarter of 2012! The future has arrived and we see signs of it everywhere in our daily lives.
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