Authored by the expert who managed and guided the team behind the Portugal Property Pack
Everything you need to know before buying real estate is included in our Portugal Property Pack
Buying off-plan property in Portugal can offer attractive prices and customization options, but it comes with significant deposit risks that require careful protection strategies.
Developer defaults, construction delays, and project cancellations can leave buyers facing substantial financial losses if proper safeguards aren't in place. Portuguese law provides certain protections, but buyers must actively ensure these mechanisms are properly implemented in their contracts.
If you want to go deeper, you can check our pack of documents related to the real estate market in Portugal, based on reliable facts and data, not opinions or rumors.
Off-plan property purchases in Portugal typically require a 20% deposit, which must be protected through bank guarantees or escrow accounts as mandated by Portuguese law.
Buyers should verify developer licensing through IMPIC, ensure independent legal review, and confirm that stage payments are tied to verified construction milestones with clear penalty clauses for delays or cancellations.
| Protection Mechanism | Legal Requirement | Buyer Action Required |
|---|---|---|
| Bank Guarantee (Garantia Bancária) | Mandatory for deposits over €5,000 | Verify guarantee exists and covers full deposit amount |
| Developer Licensing | IMPIC registration required | Check license status and project authorizations |
| Escrow Account | Deposits must be segregated from operating funds | Confirm Portuguese bank and account details |
| Independent Legal Review | Recommended by Portuguese authorities | Hire Portuguese lawyer not affiliated with developer |
| Stage Payment Verification | Payments tied to construction milestones | Ensure independent confirmation of milestone completion |
| Contract Timeline Clauses | Clear delivery dates and penalty terms | Negotiate specific penalties for delays and cancellation rights |
| VAT and IMT Tax Planning | VAT (6-23%) and IMT due at completion | Budget for taxes and confirm payment timeline |
Fact-checked and reviewed by our local expert
João Morais 🇵🇹
Founder | Real Estate Advisor, at Wilderness Investments
Is the developer fully licensed and does it have a proven track record in Portugal?
All developers in Portugal must hold valid licenses from the Institute for Public and Private Construction and Real Estate (IMPIC, IP) before beginning any construction project.
The licensing system requires developers to demonstrate financial capacity, technical competence, and professional qualifications. Municipal authorities must also approve each specific project before construction can commence. As of September 2025, licensing reforms have streamlined the approval process, but this places greater responsibility on buyers to verify compliance.
You should request the developer's IMPIC license number and verify it directly with the institute. Additionally, research the developer's completed projects in Portugal over the past five years, including any delays, quality issues, or legal disputes. Check if the developer has defaulted on previous projects or faced insolvency proceedings.
A proven track record includes on-time delivery, quality construction standards, and satisfied previous buyers. Request references from recent buyers and visit completed developments if possible.
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What guarantees protect your deposit if the project fails or is delayed?
Portuguese law requires developers to provide a bank guarantee (garantia bancária) or equivalent insurance coverage for all deposits exceeding €5,000.
This guarantee must cover the full deposit amount and remain valid until project completion and property handover. The bank guarantee should be issued by a Portuguese bank and be unconditional, meaning you can claim the funds directly from the bank if the developer defaults. Some developers may offer alternative protections like insurance policies, but these must provide equivalent coverage.
Your purchase contract should explicitly state the guarantee details, including the issuing bank, guarantee number, and coverage amount. If the project is delayed beyond the contractual completion date, the guarantee should remain active until actual delivery. For project cancellation, the guarantee should provide immediate access to your full deposit plus any accrued interest.
Request written confirmation of the guarantee from the issuing bank, not just from the developer. Verify that the guarantee covers delays, cancellations, and developer insolvency scenarios.
Does the developer's bank provide the legally required guarantee or insurance?
Portuguese banking regulations mandate that developers establish proper deposit protection mechanisms through licensed financial institutions.
The guarantee (garantia bancária) must be issued by a Portuguese bank that is supervised by the Bank of Portugal. This guarantee should be autonomous and independent of the underlying construction contract, meaning the bank pays out based on your demand without requiring the developer's consent. International banks may provide guarantees, but they must be recognized and enforceable under Portuguese law.
Insurance alternatives must provide equivalent protection through policies that cover developer default, construction abandonment, and insolvency. The insurance company must be licensed to operate in Portugal and the policy should name you as the beneficiary.
Request the original guarantee or insurance documents and have your Portuguese lawyer verify their validity. The guarantee should remain in effect until you receive the property keys and all contractual obligations are fulfilled.
How much deposit is typically required and what percentage are you paying?
Standard deposit requirements for off-plan properties in Portugal range from 15% to 25% of the total purchase price, with 20% being the most common.
| Deposit Percentage | Market Segment | Typical Timing |
|---|---|---|
| 10-15% | High-end luxury developments | Upon reservation |
| 20% | Standard residential projects | Contract signing |
| 25-30% | Smaller developers or high-risk projects | Upfront payment |
| 5-10% | Established developers with strong track records | Initial reservation |
| 15% | Government-backed affordable housing | Upon contract execution |
| 20-25% | Tourist areas (Algarve, Lisbon coast) | Progressive payments |
| 30%+ | Warning: Potentially excessive | Avoid without strong guarantees |
Be cautious if developers request deposits exceeding 25%, as this may indicate financial difficulties or poor cash flow management. Lower deposits of 10-15% are preferable but may only be available from well-established developers with strong financial backing.
Does your purchase agreement include clear timelines, penalties, and refund conditions?
A comprehensive purchase agreement should specify exact completion dates, construction milestone schedules, and penalty clauses for delays exceeding agreed timeframes.
The contract should include specific completion deadlines (not vague estimates), penalty payments for delays (typically 0.01% to 0.05% of the property value per day of delay), and clear conditions under which you can cancel and recover your full deposit. Portuguese law allows buyers to cancel contracts for delays exceeding six months beyond the agreed completion date.
Refund conditions should cover various scenarios: project cancellation, significant delays, failure to obtain necessary permits, or material changes to the project specifications. The contract should specify that refunds include the full deposit plus accrued interest calculated at the legal rate.
Ensure the agreement defines what constitutes project completion (keys handover, habitability certificate, or final construction approval). Your lawyer should negotiate reasonable penalty clauses that provide adequate compensation for delays while protecting your right to exit the contract if delays become excessive.
Are stage payments linked to verified construction milestones?
Stage payments should be strictly tied to independently verified construction milestones rather than arbitrary calendar dates.
Typical milestone structure includes foundation completion (10-15%), structural work completion (25-30%), roof and exterior completion (40-45%), interior finishing (70-80%), and final completion with keys handover (100%). Each payment should only be released after an independent architect or engineer confirms milestone completion.
The verification process should involve a qualified professional who is not employed by the developer. This could be your appointed surveyor, an independent architect, or a certified building inspector. The verifier should provide written confirmation that the milestone has been completed according to approved plans and building standards.
Avoid contracts that tie payments to simple calendar dates or unverified developer claims. If milestones are delayed, subsequent payments should be postponed until completion is verified. This payment structure protects you from paying for incomplete work and provides leverage if construction problems arise.
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Have you verified the land title, planning permissions, and building licenses?
Before signing any off-plan contract, you must verify that the developer owns the land with clear title and has obtained all necessary planning permissions and building licenses.
The land registry (Conservatória do Registo Predial) should show clear ownership without encumbrances, liens, or legal disputes. Planning permission (licença de construção) must be approved by the municipal council for the specific project design and specifications. Building licenses should authorize the exact development you're purchasing.
Municipal authorities must issue these permits before construction begins legally. Check that environmental impact assessments, infrastructure connections, and accessibility requirements have been approved. Verify that the project complies with local zoning regulations and building height restrictions.
Your lawyer should obtain certified copies of all permits and verify their validity with the relevant authorities. Ensure that the approved plans match the property specifications in your purchase contract. Any discrepancies could indicate legal problems or future compliance issues that could delay or prevent project completion.
Is your deposit held in a separate escrow account at a Portuguese bank?
Portuguese law requires that all buyer deposits be held in escrow accounts that are completely separate from the developer's operating funds.
The escrow account should be established at a Portuguese bank that is regulated by the Bank of Portugal. This account should be specifically designated for buyer deposits and cannot be used for the developer's operational expenses, loan payments, or other business activities. The bank should provide written confirmation of the escrow arrangement and your deposit amount.
Request the specific bank name, branch location, and account details for the escrow account. The account should be clearly labeled as a client account or trust account. Your deposit should be immediately transferred to this escrow account upon contract signing, not held in the developer's general accounts.
The escrow agent (typically the bank) should only release funds according to the milestones specified in your purchase contract or upon your written authorization. If the developer becomes insolvent, the escrow funds should be protected from creditor claims and available for refund to buyers.
What due diligence reveals about the developer's and contractor's financial health?
Comprehensive financial due diligence on both the developer and main contractor can reveal insolvency risks that could jeopardize your deposit and project completion.
| Financial Indicator | Red Flags to Avoid | Healthy Signs |
|---|---|---|
| Annual Revenue | Declining revenue over 3 years | Stable or growing revenue |
| Debt-to-Equity Ratio | Ratio above 70% | Ratio below 50% |
| Current Projects | Multiple simultaneous large projects | Manageable project portfolio |
| Payment History | Late payments to suppliers/contractors | Prompt payment record |
| Bank Relationships | Frequent bank changes or credit issues | Stable banking partnerships |
| Legal Issues | Ongoing litigation or disputes | Clean legal record |
| Insurance Coverage | Inadequate or lapsed coverage | Comprehensive professional insurance |
Request the developer's annual financial statements for the past three years and have an accountant review them for signs of financial stress. Check the Portuguese Commercial Registry for any insolvency proceedings, legal disputes, or changes in company structure that might indicate problems.
Have you hired an independent Portuguese lawyer for contract review?
Appointing an independent Portuguese lawyer is essential for protecting your interests and ensuring compliance with local real estate laws.
Your lawyer should be licensed to practice in Portugal, experienced in real estate transactions, and completely independent from the developer. Avoid lawyers recommended by the developer, as they may have conflicts of interest. The lawyer should review all contract terms, verify legal protections, and ensure that Portuguese consumer protection laws are properly applied.
Portuguese property law includes specific protections for buyers, including mandatory cooling-off periods, disclosure requirements, and cancellation rights. Your lawyer should explain these rights and ensure they're properly reflected in your contract. They should also verify that the contract complies with Portuguese language requirements and legal formalities.
The lawyer should conduct independent due diligence on the developer, verify all permits and licenses, and ensure that the bank guarantee or escrow arrangements provide adequate protection. They should also explain the tax implications and help you understand your obligations under Portuguese law.
It's something we develop in our Portugal property pack.
We did some research and made this infographic to help you quickly compare rental yields of the major cities in Portugal versus those in neighboring countries. It provides a clear view of how this country positions itself as a real estate investment destination, which might interest you if you're planning to invest there.
How do off-plan VAT and property transfer taxes apply to your purchase?
Off-plan property purchases in Portugal are subject to VAT (IVA) at rates of 6% for residential properties or 23% for commercial properties, plus Municipal Property Transfer Tax (IMT) calculated on a sliding scale.
VAT is typically due when the property is completed and delivered, not when you sign the initial contract. However, some developers may require VAT payments aligned with stage payment schedules. For residential properties, the 6% VAT rate applies to new constructions, while the 23% rate applies to commercial properties or luxury residences exceeding certain value thresholds.
IMT varies from 0% to 8% depending on the property value and your circumstances. First-time buyers may qualify for IMT exemptions on properties valued up to €316,772. The tax is calculated on the property's fiscal value or purchase price, whichever is higher, and is due when the property title is transferred.
Additional costs include notary fees (0.5-1% of property value), registration fees (approximately €250-500), and stamp duty (0.8% of property value). Budget an additional 8-12% of the property value for total taxes and fees. Confirm the exact payment schedule with your lawyer to avoid cash flow surprises during the construction period.
What are the conditions for exiting the contract and recovering your deposit?
Portuguese law provides specific conditions under which buyers can exit off-plan contracts and recover their deposits, but these must be clearly defined in your purchase agreement.
- Developer Delays: If completion is delayed more than six months beyond the agreed date, you can cancel and demand full deposit refund plus legal interest
- Material Changes: Significant alterations to property specifications, size, or location that weren't agreed in writing allow contract cancellation
- Planning Permission Issues: If the developer loses planning permission or cannot obtain necessary licenses, you can exit with full refund
- Developer Insolvency: If the developer enters bankruptcy or insolvency proceedings, your deposit should be protected through the bank guarantee
- Cooling-Off Period: Portuguese law provides a 14-day cooling-off period for certain property purchases, allowing cancellation without penalty
- Financing Contingency: If your mortgage application is rejected by Portuguese banks, you may be able to cancel depending on contract terms
- Breach of Contract: If the developer fails to meet contractual obligations or timeline commitments, you may have grounds for cancellation
Contract exit penalties for buyer-initiated cancellation typically range from 10% to 30% of the deposit amount, depending on the project stage and contract terms. Negotiate reasonable penalty clauses during contract negotiation, as Portuguese law allows significant flexibility in penalty arrangements.
Are you working with the right legal professionals in Portugal?
Selecting qualified and independent legal representation is crucial for protecting your interests in Portuguese off-plan property transactions.
Your lawyer should be a member of the Portuguese Bar Association (Ordem dos Advogados) with specific experience in real estate law and foreign buyer transactions. They should be fluent in both Portuguese and your language to ensure clear communication throughout the process. Avoid lawyers recommended by developers, real estate agents, or mortgage brokers, as they may have conflicting loyalties.
The lawyer should provide comprehensive services including contract review, due diligence verification, permit checking, tax planning, and representation during the completion process. They should also be available for the entire construction period to address any issues that arise and protect your interests if problems develop.
Fees for legal services typically range from €1,500 to €3,500 for off-plan purchases, depending on the property value and complexity. This investment is essential for avoiding much larger potential losses from inadequate legal protection. Request a detailed fee structure upfront and ensure the lawyer carries professional indemnity insurance.
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Conclusion
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.
Protecting your deposit in Portuguese off-plan property purchases requires careful attention to legal safeguards, developer verification, and professional guidance.
The key protections include bank guarantees, independent legal review, verified construction milestones, and clear contract terms that provide exit options if problems arise during the development process.
Sources
- DLA Piper Real World - Portugal Construction Licensing
- Ecovis Global - Portugal Real Estate Legal Support
- Quintas and Casas - Portugal Urban Licensing Reforms
- Portugal Resident - Bank Deposit Protection Schemes
- Bank of Portugal - Deposit Guarantee Scheme
- Portugal Property - Buying Off-Plan Guide
- Togofor Homes - Off-Plan Property Considerations
- Portugal Resident - Off-Plan Property Buying Guide