Market focus on Portugal
Friday November 17, 2006Saundra Satterlee
The Phoenicians, Romans, Visigoths and Moors ? along with the Celts and the English ? are among the many marauders who have at one time or other laid claim to parts of Portugal. Nowadays a new invasion is underway, this time peaceful, and dominated by northern Europeans on a quest for Portuguese holiday and investment property.
Portugal is a different kind of international property market compared to neighbouring Spain. ?It is a quieter and more gentle place, much like Canada in relation to the US,? says Paul Rogers, spokesman for Hamptons International.
Country and economyTwentieth century Portugal endured over six decades of repressive governments, from the overthrow of the monarchy in 1910 until 1974, when a leftwing military coup spearheaded broad democratic reform. Accession to the European Community in 1986 ushered in a new era of economic reform.
Portugal prospered until 2001, at which time the economy took a downturn. Joining the monetary union in 1999, the euro became the official currency in 2002. By 2005 the economy had slowed. ?Convergence to EU average living standards stalled,? states the OECD in its April 2006 survey of Portugal.
Despite this ?frailty of economic growth?, the Economist Intelligence Unit forecasts that GDP will expand from 1.2% in 2006 to 1.4% in 2007, and by 2008 will reach 2%. As for property, according to Nick Sadler, Algarve associate for Knight Frank: ?The market in 2005 witnessed a slump related to northern European markets and the local economy, but throughout 2006 we have seen an upturn in sales.? Nowhere is this more apparent than in the Algarve.
Property marketThe Algarve is a golf paradise. At the pinnacle of its dozens of Atlantic seaboard courses is Quinto do Lago, set in undulating pine woodlands where a plot of land can easily cost ?2m. At Val da Lobo, with its dramatic oceanfront cliffs, there are plenty of re-sale houses and new apartments for sale.
On the forested landscape adjacent to the golf course at Vila Sol, a new tranche of apartments, townhouses and penthouses is available from Palmyra, priced from ?446,400. Away from the more well established courses of central Algarve, Parque da Floresta in the west has two-bedroom townhouses with fairway views from around ?400,000.
Unsurprisingly, and as a rule of near universal thumb, the greater the distance from the coast, the better the value for money. ?From our experience,? notes Sadler, ?inland Algarve properties generally cost 50% less than on the coast.?
Cascais ? 15 miles west of Lisbon ? is called the Cannes of Portugal. As part of the larger resort development of Scala Cascais, Hamptons International has just launched the Marina with 29 high-tech one and two bedroom apartments priced from ?415,000.
Costa Prata (Silver Coast) ? where properties can cost less than in the Lisbon area ? sweeps north of the capital to Avèiro just below Porto and unfolds inland to the historic university town of Coimbra and points further east. A motorway linking Lisbon to Porto means easier access to what is an upcoming and increasingly popular region.
Campo Real golf resort covers nearly 80 hectares and was formerly the Portuguese royal family?s hunting ground. Just launched is the final phase of three to four bedroom townhouses from ?345,000, and villas at ?485,000 and above. ?Prices are half those of similar Algarve properties,? says Paul MacSherry at Premier Resorts.
Also on the Costa Prata and close to the Medieval town of Obidos, Savills affiliate Select Resorts have for sale at Praia D?El Rey Golf and Beach Resort a selection of apartments from ?240,000 and villas starting at ?640,000.
?Bit by bit, areas away from the prime coastal spots are opening up, often as places to live rather than as investments or holiday destinations,? states Rogers. Plenty of older properties ? from farm and manor houses to cottages and tumbledown ruins ? are dotted around Portugal?s hinterlands.
In the northernmost province of Minho, is Douro, well known as the home of port wine. Less known, according to Tracey Carter, sales and marketing director at Manor Park, is that lots of very affordable properties are for sale, especially older farm houses on large mature plots of several thousand square metres with vines and fruit trees. She says: ?Those in need of renovation cost anywhere from ?50,000 to ?100,000, while fully modernised properties are typically around ?250,000.?
Elsewhere is Alentejo. Known as the country?s ?bread basket?, Portugal?s largest but sparsely populated province boasts castles, cork forests, olive groves and undulating plains. It sweeps from the Spanish border in the east to a swathe of often rugged and ?undiscovered? Atlantic beaches stretching from just south of Lisbon to the Algarve. Monica Ali shows great familiarity and sympathy with its contours and people in her recent novel ?Alentejo Blue?.
In the port town of Vila Nova de Milfontes you can pick up a two bedroom apartment for as little as ?80,000, says Manor Park?s Diana Monteriro. Inland there are lots of inexpensive tumbledown farmhouses and cottages ripe for renovation for as little as ?150,000 on massive plots of land. ?An area for the future,? observes Michael Clarke, Manor Park MD, ?is south-east of Evora where we are launching a new lakeside development at Barragem de Alqueva.?
Pitfalls and practicalities?When buying abroad, local tax regimes can be a minefield,? warns Deloitte?s Patricia Mock, private client services director. ?Portugal is no exception.? Watch out for municipal taxes, both IMT and IMI. Income tax on rent is a flat 25% and be warned that non-residents are liable for 25% capital gain at the point of sale. Double taxation agreements may provide some tax breaks.
Obtaining the correct documentation is paramount. Not only is a clear title essential, but also ensure that your property has the ?liceça de habitabilidade?. Legislation from 1999 states that without this licence a property cannot be sold because the licence is necessary to obtain the completion document, the ?escritura?.
Typically the total purchase costs, as a percentage of the purchase price, is 8% to 10%. Select Resorts director Pauline Bonnami says: ?This includes the property tax (sliding scale), notary and legal fees and land registry.?
The common Portuguese practice of under-declaring a property?s value is illegal. If the authorities suspect that the purchase price has been under-declared, warns Sadler, they have the option to compulsory purchase at that price.
Deal only with a government-licensed estate agent (Mediador Autorizado) who will have a license number issued by IMOPPI (Instituto dos Mercados de Obras Públicas e Particulares e do Imobiliáro). ?This ensures,? notes Suzanne Clay, Barclays? head of European Business Development, ?that they?ll have professional indemnity and an enforceable code of conduct.?
If you change your mind after you have paid your deposit of between 10% and 30%, depending on the type of property and terms of the preliminary contract, you lose your deposit and you could be sued for compensation. If the seller withdraws, you will be entitled to compensation.
Finally, beware the purchase of Portuguese property through an offshore company. Legislation in 2004, the Reforma do Patrimonio, adds an annual charge of 1/15th of the rateable value and 5% a year of the property?s value if the company is registered in certain countries. Although set to be revised next year, this once favoured method of buying property by foreign nationals has for the time being lost some of its fiscal lustre.
Although there are plenty of websites packed with good information related to purchase procedures ? such as Barclays, Portugal.org, Richard Neurbersch and Sadlers Property ? there is absolutely no substitute for professional legal and tax advice.
Parque da Floresta
Select Resorts (Savills)
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