A Lay-Mans Guide To Buying Property On Madeira
There are numerous sources for finding property for sale, newspapers, websites, and estate agents being the most common. Those not advertised, but for sale, often display a sign "VENDE-SE".
Having found the house you want to buy, take the attitude that property prices are always negotiable, even if you don’t speak the same language as the seller. As the selling prices are usually over inflated, especially where a foreigner is involved, you ought to try and negotiate the price. You can also negotiate on other factors, such as furniture and fittings (commonly left by the sellers), repairs and improvements, but make sure everything is documented, including the exact specification of the properties boundaries, and the existence of all the necessary documents of legal ownership, registrations, and permits.
You may need a bilingual Lawyer, as all agreements are included in the initial contract (Promissory Contract) and must by law be translated if necessary to be readable by both parties, before signing. It is not a legal requirement to use a lawyer, as sometimes Madeirans do buy and sell properties without one. The lawyers are generally expensive, and base their fee on a percentage of the purchase price, plus other costs and expenses, regardless of the amount of work involved. Not all lawyers are honest, so ensure their charges are clearly documented and understood, and what you are getting in return. If you are asked to pay the full fees in advance, negotiate a ‘down payment’ and a final payment, or find another lawyer. The British Consulate can provide a list of English speaking lawyers.
Unless agreed otherwise, you should look to your lawyer as a minimum; to check that all the necessary documentation is correctly held by the seller, and that there are no ‘surprise’ liabilities transferred with the house to the buyer; creation / provision of all the necessary documents including certified copies for yourself; the complete management of funds between buyer and seller; the making of all necessary registrations to fulfil legal requirements and those of the local authorities; management of the transfer of the utilities from the seller to the buyer; ensuring the house seller has fulfilled all promises made to the seller as part of the initial promissory contract; and to liaise with Finanças regarding the payment of the necessary taxes and formalise the exemption process for council tax, if applicable.
If you are buying property on Madeira but don’t live on the island, it is almost essential that your lawyer has email, to allow the transaction to progress quickly and smoothly. The sale and transfer of properties can be done very quickly if all parties involved show willing.
Unfortunately, Madeira still has a culture of ‘back handers’ (bribes) embedded in its property industry. If you are asked to pay for a bribe and you do, you may be breaking the law. If you don’t pay, then ‘wheels might not turn’ and your dream house or apartment may remain just that, a dream.
It is normal for the seller to request a deposit, and that will also legally secure the house or apartment. That is negotiable, but 20% seems to be around about the normal rate. The deposit is non refundable unless the seller pulls out, in which case you would be entitled to compensation based on double the amount of the deposit paid. You should speak to your lawyer to ensure you understand how this works.
You should be aware that there may be two values associated with the purchase of a property, the actual price paid, and the ‘declared price’. The latter price is a price that suits the seller, and reduces their tax liability, and also reduces the amount of purchase tax the buyer would pay, which is based on a percentage. However, when you come to sell your house or apartment, unless you can do the same thing with the new buyer, your capital gains tax liability will be based on the difference between the ‘declared price’ that you paid and the selling price. This practice has been deemed to be the normal way of conducting business on Madeira for many years, but doubts can be heard about the legality, and it is just a matter of time before someone quite rightly completely puts a stop to it.
The documents you will be dealing with in the course of a property purchase, are as follows.
1. Registration Certificate (Certidão de Registo) – The ownership history, property description, and details of any liabilities or encumbrances. A public record obtainable from the local registration office of where the property is situated.
2. Tax Registration Certificate (Caderneta Predial) – Used by the Finance office (Finançias) in its calculations for council taxes. This will probably not be immediately available if the house or apartment is newly built, but can be applied for.
3. Permit for Use (Licenca de Utilizaçcão) – A licence that tells you that the house or apartment has been approved for use or habitation. This may not exist for older properties.
4. The Promissory Contract – The agreement between seller and buyer, detailing both parties and the property involved, deposits and payments, agreements on furniture & fittings, repairs and improvements, and critical dates.
5. The Title Deeds (Escritura) – The final document which completes everything, and destroys the Promissory Contract. This needs to be witnessed and endorsed by a Public Notary.
There will be other documents involved, such proof of identity, a tax payment certificate, or perhaps a ‘Power of Attorney’. You should check this with your lawyer and ensure you have what is needed, and where necessary are given an original document or a certified copy.
A Lay-Mans Guide To Selling Property On Madeira
Once you have decided to sell your property, think carefully about how to market it. Estate Agents can prove expensive, with charges of up to 5% of the selling price, plus IVA (VAT), usually on a no sale no fee basis. There are plenty of estate agents, mostly in Funchal, to choose from, as well as a number of websites, that will carry advertising for a set fee.
If you choose to use an estate agent to sell your house or apartment, they should be able to provide a rough valuation, and although professional valuers do exist, the whole property market valuation system is pretty much one of try it and see. The Finance Offices (Finanças) do have some guide valuations, but they are based pretty much on the overall area of the property and land, and their guide price per square meter applicable at that time, as used to calculate council tax. Be warned, that if you sell beneath the valuation of Finanças, they might think there is something untoward going on to avoid capital gains tax, and you may be asked to provide an explanation, or even worse pay more tax.
Capital gains tax is payable on any profit made from the sale of a properties. The amount payable depends on a number of factors, in particular on the amount of time you have lived there.
Broadly speaking, the capital gains liability is based on the difference between the declared purchase price (the ‘declared price’ is lower than the actual price paid, to benefit the sellers tax liability), and the sale price. Certain expenses are deductible, which include certain documented investments made to improve the property, and certain taxes and selling expenses, but this is a complex area, and ultimately it will be Finanças who calculate the overall tax liability.
You can achieve total exemption from capital gains tax if you purchase another property in Portugal within 2 years or an equivalent or higher value. This rule may change in 2008, as the European authorities have criticised Portugal in applying this restriction in a free European market, and it seems likely that soon you will be able to take your money and buy property elsewhere, or not buy at all.
The actual selling procedures and legal requirements can be gleaned from the buying procedures, looking from a sellers point of view of course.
A Lay-Mans Guide To Property Renting On Madeira
There are numerous properties to rent on the island, and numerous sources to find properties to rent, including websites, newspapers, and letting agents.
Letting falls loosely into several categories:
The short terms vacation market, the most expensive way to rent, with seasonal variations in charges. The medium term, perhaps for visitors who stay over winter, and for residents in between longer term accommodation plans, and long term, where individuals and families agree to a fixed term (usually renewable) to set up home on a permanent or semi-permanent basis. This latter method will normally be the cheapest method of renting.
Portuguese property rental laws require that all properties in existence for the purpose of renting have a licence to do so, and the penalties for not having this permit can be quite severe. Even casual letting can have complicated yet ambiguous requirements, and professional advice may need to be sought.
Many local people use a ‘residential’ to live, often in low occupancy hotels or purpose built buildings, where they can get the benefit of lower rental for long stays, and still have and a low level of commitment. The benefits can be as much as two thirds off the single night rate.
When renting a property, the parties involved should have written agreement showing the term of the rental, the deposit, costs, and payments arrangements agreed, what that covers, and what the landlord is obliged to do and provide. For example, in the short term rentals the landlord will almost certainly pay all the utility bills, and again this is more likely in the medium term lets, whereas long terms lets will need to transfer that responsibility to the tenant (who will need to show the rental agreement to the utilities companies in order to get the contracts changed). Likewise it will need to be clear who is responsible for maintenance, which might well differ depending on the terms of the let involved.
Longer terms lets are more likely to be unfurnished or semi-furnished, but if not an inventory of existence and condition of furniture, fixtures and fittings, may form part of the contract.
Rental prices vary immensely depending on the type of rental, whether there are seasonal rates, and the terms of commitment from both parties, and then of course with the type of property and the location. For illustrative purposes only, a one bedroom flat in Funchal might cost around €400 a month to rent on a medium term basis, with all bills included. You would probably find an equivalent flat elsewhere in a more remote location for between 30 and even 50% less. Longer term lets also confer certain rights upon the tenants, depending how long they have been in situ.
Profits from rental income are taxable within Portugal, regardless of where the owner lives or where payment was made.
COUNCIL TAX (IMI)
This is payable annually and is billed to the owner of the property at the end of the previous year. Payable every April (or 50% in April & 50% in September if over €250). If you are a permanent and personal resident in a property, you may be exempt from IMI tax in the initial years. This is determined by Finances, and is based on the valuation of the property. Exemptions: up to €157,500 – 6 years ; up to €236,500 – 3 years ; over €236,500 – 0 (2008).
The IMI taxation rates vary, and are based on Finanças valuation of a property: 0.2-0.5% or 0.4-0.8% for urban properties (the higher rate is for properties awaiting revaluation) & 0.8% for rural properties. A higher rate exists for those owners living in recognised tax havens.
News – June 2008 – New property legislation that came into effect on 31st December 2003 is causing some unwanted tax bills to drop through owners letterboxes. If you brought a property or had it altered after this date then you may be affected (A ‘modelo 1′ form should have been submitted to report any necessary valuation / re-evaluation). Once the valuation / re-evaluation is complete, a backdated payment may be demanded, back to the date of purchase or alteration (2004 onwards). This will also pick up any underpayment in property purchase tax, where the purchase went through at a understated value at the request of the seller (a common but probably illegal way of tax avoidance in the old days). For the larger bills, Finanças will allow the payment to be made in instalments.
A ROUGH GUIDE TO PROPERTY BUYING COSTS IN 2007
Public Notary Fees (Escritura) including VAT (IVA), depend on the property purchase price:
Below €25,000 €178
€25,000-€125,000 €195
€125,000-€200,000 €212
Above €200,000 €268
Stamp Duty 0.8% of purchase price
IMT Property Purchase Tax ranges from 0% to 6%, depending on the property value see table here IMT TAX
Lawyers Fees 1% of purchase price upwards (it pays to shop around!)
Property Registration Fee (in the Conservatória do Registro Predial in the district the property is located). €125 fixed fee
Additional Costs : Lawyers Expenses, mortgage set-up costs (including a Registration fee of €135 and an additional 0.6% Notary fee), Admin fees & Copying Costs, ‘smoothing’ payments to officials.
Solicitors / Lawyers on Madeira & Making a Complaint
Most property transactions do not legally require the use of a lawyer to conduct a property transaction, but if you don’t know the ropes and speak the language, then you will definitely need to appoint a lawyer. If you can appoint a reputable English speaking lawyer, and ensure all the requirements are agreed and documented, you shouldn’t have any problems, ie. exact fees payable, any extra costs, dates, and exact instructions about what is to be achieved.
However, things do go wrong, lawyers can be arrogant and heavy handed, and in some cases even corrupt. If you do have a complaint then there is an overseeing body that deals with these matters:
Ordem dos Advogados
Concelho Distrital da Madeira
R. Marquês do Funchal – Palácio da
Justiça, 2.º Dt.º
9000-083
FUNCHAL
Madeira
Tel: 00351 291 227281
Fax: 00351 291236174
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NO RESPONSIBILITY CAN BE ACCEPTED FOR THE ACCURACY OF INFORMATION SHOWN HERE, AND YOU SHOULD SEEK INDEPENDENT VERIFICATION OR PROFESSIONAL GUIDANCE. THIS PAGE WAS LAST UPDATED IN 2008.
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