Everything you need to know is included in our Portugal Property Pack
Portugal's real estate market is on the radar of foreigners, drawn by its beautiful coastline and potential for investment and tourism.
However, keep in mind that the local real estate market can be tricky for non-residents.
Our group of property buyers and local partners have shared various problems with us. We've listed them all in our Portugal Property Pack.
This article provides a brief overview of potential pitfalls that may arise during the property buying process in this country.
Is it safe or risky to invest in real estate in Portugal?
Portugal has gained popularity among international property investors.
However, while the Portuguese real estate market is predominantly safe, there have been specific instances, for instance, in areas like the Algarve, where individuals have encountered land scams. There, some plots, primarily in the countryside, were sold without the proper planning permissions or with uncertain land titles.
It’s essential to understand Portugal's unique 'terreno rustico' and 'terreno urbano' distinction - the former being agricultural land and the latter urban. Mistakenly building on 'terreno rustico' can lead to legal complications and potential demolition.
The allure of the Golden Visa program, which offers residency to significant foreign investors, has seen many non-EU nationals flock to Portugal. However, some investors have reported feeling rushed into transactions, especially in prime locations like Lisbon, due to the high demand.
While the buying process is comparatively transparent, nuances such as 'beneficial ownership' where properties are held in the name of a company for tax purposes, can be unfamiliar to many international buyers.
One prime example of the robustness of Portuguese property laws is the mandatory use of a notary during transactions. This impartial legal professional ensures all paperwork is legitimate.
However, the legal system can sometimes be slow. In the coastal town of Cascais, for instance, there have been reports of prolonged property disputes due to unclear inheritance rights, sometimes taking years to resolve.
In places like Sintra, a UNESCO World Heritage site, foreign buyers have been caught off-guard by stringent property modification regulations due to the area's historic significance.
Here, even minor renovations require extensive permissions. It underlines the importance of understanding local property rules, which can vary widely even within small geographic areas.
The Portuguese government's approach to real estate, particularly with tax incentives for retirees and the aforementioned Golden Visa program, has generally been positive. However, these policies have also led to increased property prices in areas like Porto and Lisbon, pushing some locals out of the central areas, a phenomenon often termed 'gentrification'.
Beyond the typical challenges, some foreign buyers have found the 'IMT' (Municipal Property Transfer Tax) calculation confusing.
This tax is progressive and varies depending on the property type and its intended use (primary residence vs. secondary).
For instance, a luxury apartment in Lisbon intended as a secondary home could attract higher IMT rates than a primary residence in Faro.
Buying real estate in Portugal can be risky
An increasing number of foreign investors are showing interest in Portugal. However, 90% of them will make mistakes. Avoid the pitfalls with our comprehensive guide.
Potential real estate buying mistakes in Portugal
The risk with the "Caderneta Predial" document
One specific pitfall you should be aware of when buying residential property in Portugal is overlooking the implications of the "Caderneta Predial" document.
This document, unique to Portugal, details the fiscal situation of the property. It's crucial for you to understand that the Caderneta Predial may often not reflect recent renovations or modifications made to the property. This discrepancy can lead to legal and financial issues post-purchase.
In Portugal, property modifications often occur without the necessary updates being made to this document.
If you buy a property whose Caderneta Predial does not accurately reflect its current state, you might find yourself responsible for legalizing these changes.
This process can be costly and time-consuming.
To avoid this, you should ensure that the Caderneta Predial matches the property's actual condition before proceeding with the purchase. This issue is not uncommon in Portugal, especially in properties that have been owned for a long time or have undergone renovations by previous owners.
It's a mistake easily overlooked by foreigners who might not be familiar with the importance of this document in the Portuguese property market.
Always verify this aspect with your real estate agent or lawyer to avoid potential complications.
The potential issue with "Usufruct" rights in Portugal
Another unique pitfall in Portugal that you, as a knowledgeable buyer, might not be aware of is the potential issue with "Usufruct" rights, known as "Usufruto" in Portuguese.
This is a legal right that allows someone other than the property owner to use and enjoy the property, typically for their lifetime. It is a common practice in Portugal for parents to pass on the ownership of their property to their children but retain the usufruct rights.
When you purchase a property, it's essential to check if there are any usufruct rights attached to it.
If such rights exist, the usufructuary (the person holding the usufruct rights) has the legal right to use the property or even live in it, even though they are not the owner. This can come as a surprise to you if you're not familiar with this concept.
The presence of usufruct rights can significantly impact your use of the property and its resale value. It's not a rare occurrence in Portugal, especially in properties that have been in families for generations.
To avoid this pitfall, you should always ask your real estate agent or lawyer to verify if there are any existing usufruct rights on the property you intend to purchase.
Understanding the full legal standing of the property, including any usufruct arrangements, is crucial before finalizing the deal.
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The concept of "Licença de Utilização"
A unique and often overlooked pitfall when buying residential property in Portugal, especially by foreigners, is the complexity surrounding the "Licença de Utilização".
This is a license that certifies the property's intended use and confirms that it complies with local planning and construction laws. In Portugal, each property must have an up-to-date Licença de Utilização that matches its current use.
The mistake often made is assuming that this license is always in order or not realizing the implications of a mismatch.
For example, if you purchase a property that has been converted from commercial to residential use, or vice versa, without updating the Licença de Utilização, you could face significant legal issues. This could include fines or even an order to revert the property back to its original state.
It's not uncommon in Portugal for properties, particularly older ones or those in rural areas, to have outdated or missing Licença de Utilização.
Therefore, you should always verify that this document is current and accurately reflects the property's status.
Ensure that any modifications or changes in the property's use have been legally recognized and documented.
The risks related to "Terreno Rustico"
Another specific pitfall in Portugal that you should be aware of is the issue related to "Terreno Rustico" and "Terreno Urbano" classifications.
In Portugal, land is classified either as rustic (Terreno Rustico) or urban (Terreno Urbano). This classification has significant implications for the use of the land and what can be built on it.
A common mistake, especially for foreigners, is purchasing a property without fully understanding these classifications. You might find a property with an attractive price located in a seemingly ideal location, but if it's classified as Terreno Rustico, there are strict limitations on what can be built or modified on that land.
For example, constructing a new building or significantly modifying an existing structure on rustic land can be very challenging or even impossible due to zoning laws.
The issue often arises when a property has been marketed without clear indication of its classification, or the implications of this classification have not been fully explained.
This situation is not rare in rural or semi-rural areas of Portugal, where boundaries between urban and rustic land can be less distinct.
Before proceeding with a purchase, you should ensure that you fully understand the classification of the land and its implications.
Check the official land registry (Conservatória do Registo Predial) and consult with your lawyer or a local expert to ensure that your intended use of the property is feasible under its current classification.
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Issue with "Alojamento Local" or local lodging
An additional unique pitfall in Portugal, particularly relevant to foreign buyers, is the potential issue surrounding "Alojamento Local" (Local Lodging) licensing for properties used as holiday rentals.
This is especially pertinent if you're considering buying a property in Portugal with the intent to rent it out on a short-term basis.
Alojamento Local refers to the legal framework regulating short-term holiday rentals in Portugal. It requires property owners to obtain a specific license to legally rent out their properties for short periods. However, the mistake often made by foreign buyers is not verifying whether a property has this license if they plan to use it for holiday rentals.
The rules and requirements for obtaining an Alojamento Local license can be stringent and vary depending on the location.
For instance, in certain urban areas or tourist zones, there may be restrictions or additional requirements to obtain this license.
Failing to comply with these regulations can lead to substantial fines and legal issues.
It's not uncommon for properties in tourist areas to be advertised without clear information regarding their Alojamento Local status.
Therefore, if your intention is to purchase a property for short-term rental purposes, you must verify whether the property has an existing Alojamento Local license or if you can obtain one.
Consult with a local real estate expert or legal advisor to navigate these regulations effectively.
Complexities with "Direito de Preferência"
A particularly nuanced pitfall in Portugal for property buyers, especially those from abroad, is the complexity surrounding the "Direito de Preferência" (Right of First Refusal).
This legal concept is deeply embedded in Portuguese property law and can catch many foreign buyers off guard.
Direito de Preferência gives certain entities or individuals, like tenants, neighboring landowners, or even the local government, the first right to purchase a property before it can be sold to someone else. This right is most commonly applicable in cases where agricultural land is being sold, or if a property is leased and the tenant has occupancy rights.
The mistake often made by foreign buyers is not inquiring or being unaware of existing Direito de Preferência claims on the property.
If you proceed with the purchase without addressing these rights, the sale can be challenged. For instance, if you buy a property and later a tenant or neighbor exercises their Direito de Preferência, you could be legally compelled to sell it to them at the same price you paid.
This situation is not rare, especially in rural areas or in properties that have long-standing tenants.
Therefore, it's essential for you to verify through your lawyer or real estate agent if any Direito de Preferência claims exist on the property you're interested in.
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"Herança Indivisa" or undivided inheritance
Another unique and often overlooked issue in the Portuguese property market, especially for foreign buyers, is related to "Herança Indivisa" (Undivided Inheritance).
This situation occurs when a property is inherited by multiple heirs who have not formally divided or agreed upon the distribution of the property.
In Portugal, it's not uncommon for property to be passed down through generations without a clear or legally formalized division among the heirs. This can lead to a scenario where a property is co-owned by several individuals, each holding a share. The complication arises when you attempt to purchase such a property without realizing that not all co-owners have agreed to the sale or that some heirs might even be unknown or unreachable.
The mistake here lies in assuming that the person you're negotiating with has the full authority to sell the entire property.
If you purchase a property that is part of an "Herança Indivisa", you might find yourself in a legal tangle with other co-owners later on, potentially leading to disputes or even lawsuits.
This issue is particularly prevalent in older properties or estates that have been in families for generations. To avoid this pitfall, ensure thorough legal due diligence is conducted.
This includes verifying the property's ownership history and ensuring that all co-owners have agreed to the sale.
It’s advisable to work with a lawyer experienced in Portuguese property law to navigate these complexities and ensure a clear and undisputed transfer of ownership.
The risks related to "Regime de Propriedade Horizontal"
Yet another unique challenge in the Portuguese real estate market, particularly for foreign buyers, is understanding and navigating the complexities of the "Regime de Propriedade Horizontal" (Horizontal Property Regime).
This legal framework is relevant when purchasing apartments or units in multi-unit buildings, such as condominiums.
In Portugal, the Regime de Propriedade Horizontal outlines the ownership structure for properties with multiple units.
It defines individual ownership of units and communal ownership of shared spaces, like gardens, roofs, or hallways. The mistake often made by foreigners is not fully understanding their rights and obligations within this regime, especially regarding condominium fees, maintenance responsibilities, and decision-making processes for communal areas.
Foreign buyers sometimes overlook the importance of reviewing the condominium's regulations ("Regulamento do Condomínio") and the minutes from past condominium meetings.
These documents provide crucial insights into the management of the building, potential issues, ongoing disputes, or future plans that might affect your ownership.
Neglecting to understand the dynamics and financial health of the condominium association can lead to unexpected costs or legal disputes.
This scenario is not uncommon, especially in urban areas with a high density of multi-unit buildings.
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"Zonas de Conservação" or conservation areas
A specific and somewhat lesser-known pitfall for foreign buyers in the Portuguese property market is the issue surrounding "Zonas de Conservação" (Conservation Areas).
This refers to areas that are subject to special environmental or heritage conservation regulations, which can significantly restrict property development or alterations.
In Portugal, many attractive properties, especially those in historic centers or near the coastline, fall within these designated Conservation Areas. The common mistake made by foreign buyers is not realizing the extent of restrictions imposed on properties in these zones.
You might find a property that seems perfect, but later discover that you are severely limited in making renovations, extensions, or even changes to the exterior aesthetics due to conservation laws.
These restrictions are particularly stringent in UNESCO World Heritage sites and areas of natural beauty, where the aim is to preserve the historical or environmental integrity of the locale.
Neglecting to account for these regulations can lead to costly and time-consuming legal battles, and in some cases, you might even be required to revert any unauthorized changes at your own expense.
This issue is not rare in Portugal's more historic or scenic regions. Before making a purchase, you should thoroughly research whether the property is in a Conservation Area and understand the specific restrictions that apply. Consulting with a local real estate expert or lawyer who has experience dealing with properties in these zones is crucial.
They can provide you with detailed information on what is and isn't permissible, helping you avoid unexpected surprises after your purchase.
"Servidões" or easements
An additional and quite specific pitfall in Portugal's property market, particularly for foreign buyers, is the complexity of dealing with "Servidões" (Easements).
An easement is a legal right to use another's land for a specific limited purpose. In Portugal, this can often involve rights of way, water access, or utility lines, and these rights can significantly impact your use and enjoyment of a property.
One common mistake is not thoroughly investigating existing easements before purchasing a property.
For example, you might buy a beautiful rural property, not realizing that a neighbor has the right to cross your land to access their own, or that a portion of your property is required for local utility infrastructure.
This could lead to unexpected disturbances or restrictions on how you can use your property.
Easements are particularly prevalent in rural areas of Portugal, where informal agreements have often been historically made and maintained over generations. These might not be immediately apparent or formally documented, which can lead to surprises for new owners who were not aware of these longstanding local arrangements.
To avoid this pitfall, it's essential to conduct a detailed investigation into any existing easements on a property. This should be a key part of your due diligence process.
Your lawyer or real estate agent should thoroughly review the property's records and local land registry to identify any such legal obligations.
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