Thinking of buying renting or selling a property on Madeira Island? Newspapers, real estate websites, and real estate agents are just a few of the many places you might go to locate property for sale. A “VENDE-SE” sign is commonly seen on the window of unlisted items that are for sale.
If you’ve located the perfect home but are worried about not being able to communicate with the seller because of a language barrier, remember that property prices are always up for negotiation. The costs are frequently exaggerated, especially when a foreigner is involved, so it’s in your best interest to try to negotiate a lower price. Make sure everything is documented, including the precise specification of the property’s boundaries and the existence of all necessary documents of legal ownership, registrations, and permits, as well as the presence of furniture and fittings (usually left by the sellers), repairs, and improvements.
The original contract (Promissory Contract) contains all agreements and must be translated if necessary to ensure that all parties understand it. Madeirans sometimes buy and sell property without the assistance of an attorney, as this is not required under local law. Lawyers are notoriously pricey, charging clients a flat rate or a percentage of the purchase price, plus extra fees and expenses. Because not all attorneys are trustworthy, you should carefully document and comprehend all fees and the services rendered. If your lawyer demands that you pay their entire cost up front, you should either try to negotiate a “down payment” and a final payment or go elsewhere. If you need a referral to a lawyer who speaks English, the British Consulate can help.
Unless otherwise agreed upon, you should rely on your attorney to handle the following tasks on your behalf: verifying the accuracy of the seller’s possession of all required documentation and ensuring that no “surprise” liabilities will be transferred to you as the buyer; drafting and delivering all required documents, including certified copies for you; handling the entire transfer of funds from the seller to the buyer; and registering all documents required to satisfy both legal and the seller’s or buyer’s needs.
It is highly recommended that your lawyer has email if you are purchasing property in Madeira but do not already reside on the island. If all parties are cooperative, a property sale and transfer can be completed in a short amount of time.
The real estate market in Madeira, however, is still permeated by a culture of ‘back handers’ (bribes). There is a possibility of legal repercussions if you pay a bribe after being solicited for one. Your ideal home or apartment may remain out of reach if you don’t make your payments on time.
A deposit is typically requested by the seller, and it serves as a legal deposit on the property. That’s up for discussion, but 20% is roughly the going rate these days. In the event of a seller’s withdrawal, the buyer would be entitled to reimbursement equal to twice the value of the deposit. If you want to be sure of the legal implications of this, you should consult with an attorney.
Know that there may be two values linked with the acquisition of a property: the ‘declared price’ and the ‘real price paid. The latter pricing is preferable from the seller’s perspective since it lowers their taxable income and the percentage-based purchase tax the customer would owe. The difference between the ‘declared price’ you paid and the selling price will determine your capital gains tax burden when you sell your home or apartment, unless you can negotiate the same terms with the buyer. For a long time, this has been accepted as the standard while doing business on Madeira. However, questions have been raised concerning its legality, and eventually, someone will put a full and proper end to it.
The following is a list of the paperwork you may expect to encounter during the journey of buying a home:
- The Certificate of Registration (Certificado de Registo) – Who has owned the property in the past, what it is, and what liens or encumbrances have been placed on it. A public document that may be obtained from the local land records office.
- The Finance office (Finançias) will use your Tax Registration Certificate (Caderneta Predial) to determine your annual council tax obligation. If the home or apartment is brand new, this may not be readily available, but it is certainly something that may be requested.
- License to Operate (Licenca de Utilizaçccc) – A permit indicating that the dwelling is fit for human occupancy. For older homes, this feature may be nonexistent.
- The Promissory Contract, which is the agreement between the seller and the buyer, outlining the parties’ roles, the property at issue, deposits and payments, agreements on furnishings and fittings, repairs and renovations, and important dates.
- Finally, the Title Deeds (Escritura) are the last document that ties up any loose ends and nullifies the Promissory Contract. A Public Notary’s signature and witness are required for this.
Other paperwork, such as an ID, a receipt for taxes paid, or a “Power of Attorney,” may also be required. Talk to your lawyer to find out what paperwork you’ll need, and make sure you get an original or a certified duplicate of everything that has to be signed.
How to Sell Your Home on Madeira: A No-Guide Novice’s
Once you’ve made the decision to sell, you’ll need to figure out the best way to get the word out. Estate agents may be costly, with fees often ranging from 2% to 5% of the selling price, plus IVA (Value Added Tax). Several websites provide advertising space for a price, and there is no shortage of real estate brokers, especially in Funchal.
The estate agent you choose to sell your home or apartment should be able to give you a ballpark estimate of the property’s value, and while there are expert valuers out there, the method for determining the worth of real estate is mostly based on trial and error. The Finance Offices (Finanças) have certain guide values, however they are mostly based on the total area of the property and land, as well as the reference price per square metre that is in effect at the time the council tax is being calculated. Don’t undervalue your assets when selling them; if Finanças suspects something fishy is going on, you may have to explain yourself or pay extra in capital gains tax.
Any gain from the sale of a property is subject to capital gains tax. Many factors, including length of residency, affect the amount owed.
The difference between the purchase price and the sale price is the basis for the seller’s capital gains obligation. The declared purchase price is typically lower than the actual amount paid to reduce the seller’s tax bill. Deductible costs include some taxes and selling charges, as well as certain recorded improvements made to develop the property.
If you sell a property in Portugal and buy another one there of equal or greater value within two years, you can defer paying any capital gains tax on the profit. Since European authorities have criticised Portugal for implementing this limitation in a free European market, it’s possible that this law may be changed in 2008, allowing you to take your money and buy property elsewhere, or not buy at all.
When seen from the seller’s perspective, the purchase process might provide light on the real selling procedures and legal requirements.
Rental Property in Madeira: A Layman’s Guide
Numerous websites, periodicals, and letting companies are available for locating available rental houses on the island.
There are a few broad types of letting:
The seasonal price fluctuations of the most expensive rental market, short-term holiday rentals. There are two types of long-term leases: the fixed-term (typically renewable) kind where individuals and families agree to set up home permanently or semi permanently, and the medium-term kind, where stays are shorter than a year but longer than a month and include visitors who stay over winter and residents in between longer-term accommodation plans. This latter option often offers the lowest monthly rental rate.
All rental properties in Portugal must have a valid permission in order to operate, and failure to do so can result in steep fines. Expert assistance may be needed even for seemingly simple matters like casual leasing.
Many individuals in the area call their home a “residential,” which refers to a hotel or apartment complex with a low occupancy rate, where they may enjoy long-term discounts on rent without having to commit to a long-term stay. Advantages include savings of up to 2/3 off the cost of a standard room for a single night.
All of the terms of the lease, including the length of time for which it is in effect, the amount of the security deposit, any other fees or payments due, and the services that the landlord is required to provide, should be laid out in writing and signed by both the tenant and the landlord. For instance, in short-term rentals, the landlord nearly always foots the cost for all utilities, and the same is true for medium-term rentals, but in long-term rentals, the tenant takes on that burden (who will need to show the rental agreement to the utilities companies in order to get the contracts changed). Also, it must be specified who is liable for repairs, as this may vary based on the lease.
An inventory detailing the existence and condition of furniture, fixtures, and fittings may be included in the lease if the property is being rented for a longer period of time and is not being rented unfurnished or partially furnished.
The rent will differ greatly based on the length of the lease, whether or not there are seasonal rates, the commitment level of each party, the property’s condition, and the neighbourhood. To give you an idea of the range, let’s say that a furnished one-bedroom apartment in Funchal would cost €400 per month to rent on a 12-month lease. It’s likely that you might get a similar apartment in a less central location for 30-50% less money. Tenants have additional protections under longer-term leases that increase with length of occupancy.
No matter where the owner resides or where the rent is paid, any profits produced by renting out a property are subject to taxation in Portugal.
Tax imposed by the Council (IMI)
The owner receives a charge at the end of each year for this yearly expense. Due each April (or split by two payments of €125 each, due in April and September) for amounts exceeding €250. Permanent and personal residents may be excluded from IMI tax in the first several years if they occupy the property as their primary residence. This is based on the property’s valuation, which is decided by the Finances department. Limitations apply as follows: up to €157,500, 6 years; up to €236,500, 3 years; over €236,500, 0 years (2008).
Finanças’ property value determines the IMI tax rate, which ranges from 0.2% to 0.5% for urban properties (the higher rate applies to homes awaiting reassessment) and from 0.8% to 1.2% for rural properties. Owners who reside in countries that are considered tax havens are subject to a higher rate.
Article from June 2008 News Digest Unwanted tax invoices are being sent to property owners as a result of new law that took effect on December 31, 2003. A’modelo 1′ form should have been provided to reflect any necessary value / re-evaluation if the property was purchased or substantially altered after this date. After the valuation or revaluation is finished, you may be asked to pay for it all the way back to the day you bought it or made the changes (2004 onwards). Any property purchase tax that was not fully remitted because the seller insisted on a lower price would also be recovered in this way (a common but probably illegal way of tax avoidance in the old days). Finanças offers the option of spreading out payments for higher balances.
