Buying Property in Portugal as a Non-Resident

From taxes to average prices and down payments., here’s what you need to know

Recently, the sun has been shining brightly on Portugal’s property market. Since prices started to recover in 2014 from the housing market collapse, the country has experienced a slow but steady rise.

Prices rose by almost 5% year over year to November 2017, with an average price of $1,373 per square meter, according to the Global Property Guide. In the country’s capital city of Lisbon, prices were also up around 5%, to an average of $1,664 per square meter.

“The market is growing mainly because of economic growth and consumer confidence,” said Miguel Poisson, managing director, Portugal Sotheby’s International Realty. “Real estate is a safe and high return sector,” he added.

The country’s homes are popular with buyers from all over the world, according to Mr. Poisson. The reason, many say, is a combination of residency permits being given to non-European buyers, tax friendliness and limited stock—Portugal never built as much during the boom—that helped create the current conditions. And this is fueled by a tourism boom, with people all over the world flocking to Portugal on vacation.

The many conditions that lure tourists are in fact the same ones that make buying in Portugal appealing to foreigners.

The country enjoys “perfect weather, amazing culture, art, fado [music native to the country, usually played by guitar], football, theater, charming places and centuries of history,” said Hugo Correia, of Luximos, a branch of Christie’s International Real Estate.

For foodies, there’s “quality and variety of wine” and fine gastronomy. Not to mention ideal conditions for relaxing: Mr. Correia mentioned 850 kilometers of coastline, and some of the best golf in the world.

And despite the growing market, it is still affordable to buy property there. “Compared to the rest of Europe, Portugal remains an excellent country to invest and live,” Mr. Correia said. “Prices are very competitive, compared to the rest of Europe, even for a country in constant growth.”

Golden Visa and Tax Breaks Help Buyers Along

One of the benefits of buying property in Portugal is obtaining the Golden Visa, according to Mr. Correia. It allows foreign investors from non-E.U. countries to obtain a fully valid residency permit in Portugal with a purchase of a property above €500,000.

With this visa, a homeowner does not need a separate visa to enter Portugal or travel in Europe and may live and work in Portugal, even if their residency is with another country.

Residency is extended to family members. Permanent residency is granted after five years and citizenship after six.

Non-native residents may also find the taxes favorable. For 10 years, personal income tax is capped at a fixed rate of 20%, with no double taxation for pension incomes or for employment income abroad.

The Nitty Gritty

When the buyer has decided whether they want to live by a beach or in a town, they should plan on a visit. Mr. Correia said buyers usually plan that house-finding trip over a month in advance.

“If we know exactly what a buyer wants, we can organize views over a weekend and start the process,” he said. “If we reach a decision, the customer will only need to be here again to sign the deed. But usually customers prefer to stay longer than a weekend.”

The process from finding a place to closing can be as quick as a few weeks, according to Mr. Correia.

To buy in Portugal, the first thing you need is a Personal Fiscal number, which can be obtained at a local tax office with a €10 (US$12) fee. Then, the buyer needs to be prepared for a series of costs.

The largest buying cost is the property transfer tax, called the IMT, which ranges from 1% to 8% of the purchase price. Stamp Duty (Imposto de Selo) is charged at .8% of the purchase price. Then there’s notary and land registry fees, which come out to about 1% to 2%. In terms of cash on hand, to go into contract, it is standard to have 10% to 20% ready. Mr. Correia said.

In terms of getting the mortgage, “It is not a very difficult task to get a loan from a Portuguese bank.” Mr. Correia said. There is “some bureaucracy,” and documents are needed to prove income,” he said, but generally it’s a clear-cut process. Brokerages are also available to help with mortgages.

Unlike in the U.S. and other countries, Mr. Correia said, there are not separate buyers’ brokers and sellers’ brokers, but brokers work with both parties, instead.

Mr. Correia added that many clients, especially foreign buyers, will use a lawyer to handle the entire purchase for them, but attorneys are not required.

Once purchased, Mr. Correia said that it is very common for foreign buyers to rent out their houses for a part of the year as another source of income. (However, taxes must be paid on the rental income.)

Separately, there’s also a new .3% wealth tax on properties over €600,000.