Buying property in the Algarve. How do you do that?
Buying property in the Algarve. A complete guide
Owning a place under the sun is a lifelong dream for many people. And more and more people choose the Algarve to realise this dream. If you are also thinking about buying a house or apartment in the Algarve, then first read our tips on how to best approach this and what you should pay attention to.
House or apartment? Which type of real estate is best to buy?
The first thing to think about is what type of property you want to go for. A house, a villa with a swimming pool or a nice apartment? We cannot simply give the answer to this question. Everything depends on what you intend to do with your property. If you want to stay there for a few months in the winter, and you are not there often, then it is better to choose an apartment or a house in a residential community with communal gardens. There, you don't really need to worry about maintenance during your absence. If you want to live there permanently or spend your retirement, a larger house or villa may be more appropriate.
Apartments in the Algarve
An apartment is often the cheapest and, above all, the easiest way to buy property in the Algarve. Available apartments are often new construction, but of course there are also existing apartments available. These can be located in the residential areas of the larger cities such as Tavira, Faro, Albufeira, Portimão and Lagos, or in tourist areas. Almost all apartment buildings there have a communal garden and swimming pool. Also, almost all apartments have a balcony or terrace. With an apartment you never really live in remoteness and always close to shops and restaurants. If you want to rent out your apartment to holidaymakers during your absence, we recommend that you buy an apartment in a tourist area, and within walking distance of the beach. If the apartment building also has a communal swimming pool, you will easily find tenants during the summer months.
Houses in the Algarve
Houses on the Algarve come in all shapes and sizes. These can be detached houses or terraced houses and are located in the residential areas of the various towns on the Algarve. Houses or terraced houses in the tourist districts are usually located in a closed residential community. There is almost always a communal swimming pool there. The more luxurious residential communities even have houses with a private pool. Some residential communities have their own golf course. Especially if you are not present in your property in the Algarve all year round, we recommend a closed residential community for houses. Then you do not have to worry about maintenance, and your home can also be rented out to holidaymakers more easily if you wish.
Villas with swimming pool in the Algarve
Buying a villa with pool in the Algarve is usually the most expensive solution to buy property in the Algarve. However, the prices can be better than expected, especially if you choose a villa that is a little further from the coast, cities and tourist areas. Keep in mind that a villa (and the pool) requires maintenance. So if you are not present in the Algarve all year round, you will have to hire a company for this, which immediately increases the maintenance costs. By renting out the villa to holidaymakers during the hot summer months, these expenses are easily earned back, and you even make a decent return on top of that.
Investment properties and resort properties in the Algarve
Actually, every property purchase in the Algarve can also be seen as an investment. Prices in the Algarve are still on an upward trend and if your Algarve property is in a good location, you can also easily rent it out to holidaymakers during the summer months. However, there are also real estate offers that are specifically designed for investors. These are usually part of hotel or resort developments. The hotelier offers the investors a guaranteed minimum return that is usually between 3% and 5% per year. Much better than your savings account back home. In addition, investors also get the opportunity to stay in their overseas property investment themselves. A perfect combination of assured returns and enjoyment of life.
Where to buy property in the Algarve?
We cannot give an unequivocal answer about this either. It all depends on what you personally want and what you intend to do with your property. If purchasing a property in the Algarve is partly or entirely an investment for you, and you want to earn an extra return on your property investment through holiday rentals, we recommend that you buy property close to the beach and amenities such as shops and restaurants.
If you want to spend the winter in the Algarve yourself, it may also be advisable to be close to a larger city. In cities such as Faro, Albufeira, Portimão and Lagos, facilities remain open during the winter months. This is often not the case in smaller coastal towns.
If you want to stay permanently in the Algarve, the choice is entirely up to you. In the countryside, in the beautiful green hills of the Algarve from where you often still have views of the sea, or closer to the coast and the cosmopolitan cities of the Algarve. The coastal areas in the Eastern Algarve are often more typical and less touristy. The Western Algarve, on the other hand, has the beautiful rock formations known for the Algarve and thanks to tourism, summer and winter, all the amenities you could wish for. In terms of temperature, summers in the east are hotter. There is always more wind in the west.
Calculating your budget for the purchase of property in the Algarve
Like everywhere in the world, you end up paying more for the purchase of real estate than the actual asking price. The brokerage fees are paid in full by the seller, but you yourself have to deal with transaction taxes, notary fees and a possible lawyer.
Transaction taxes (IMT) for Algarve property
For every purchase of real estate in Portugal, you pay stamp duties of 0.8% on the purchase price, as well as a transaction tax. The amount of the transaction tax depends on two factors. The amount of the purchase price is decisive for the tax rate. Whether you buy the house as your first residential address or as a second residence is decisive for the discount you receive on the tax percentage. A complete overview of how you can calculate the transaction tax yourself can be found here.
To be quite honest, the notary does not do too much in Portugal. The notary actually only registers the final deed of sale. The costs for this are therefore minimal and are almost always below 1,000 euros.
You are not obliged to hire a lawyer for the purchase of real estate in Portugal. But especially if you buy a property from a private owner, this is recommended. In Portugal, the lawyer actually does everything that the notary does in many other countries: he or she verifies whether there are no more debts on the property to be purchased, whether everything is legally registered with the municipality, and whether the purchase agreement and the final deed of sale have been drawn up legally. In general, we recommend a lawyer and can also help you find the right lawyer. A lawyer generally asks 1% of the purchase price of the property. Usually there is a maximum amount, so if the 1% is higher than, for example, €4,500, you pay a maximum of €4,500.
Mortgage in Portugal
Foreign property buyers can quite easily get a mortgage in Portugal. However, you must be able to prove that you have sufficient income in Portugal or your home country, and you must also be able to demonstrate which debts you have at the time of the mortgage application in your home country. You can borrow approximately 60% of the appraisal value carried out by the bank. You will have to pay a governmental tax on your mortgage of 0.8%.
How to find the best property in the Algarve
Most people make it too difficult to search for properties in the Algarve. This is because the real estate market and brokerage procedure in Portugal looks different from the one in many other countries.
Property portals on the internet
Many people start looking for properties on the internet. Doing this, they often end up on real estate portals such as Idealista, Imatico or CasaSapo. While at first glance, these sites provide a good overview of the real estate market in Portugal, there are also disadvantages to these portals. Because real estate agents in Portugal usually do not have exclusivity on their real estate offer, it often happens that you come across the same property over and over again on these portals. Sometimes the different photos make sure that you often do not realise immediately that it is the same house or apartment. Also, not all real estate agencies keep good records of their publications on these sites. Many properties on Idealista, Imatico or CasaSapo have already been sold, or the price is no longer correct.
Conclusion: by using these portals, you can quickly get a good overview of the market, but you also lose a lot of time doing unnecessary enquiries.
Brokers and real estate agents in the Algarve
In your search on the internet, you will not only come across the above-mentioned portals, but also the various sites of real estate agencies. There are hundreds of real estate agents active in the Algarve. And because there is no exclusivity, you will find all available properties at various real estate agencies. You therefore make it unnecessarily difficult to work with 20 brokers, while a single independent broker can arrange everything for you. Belalgarve Consultants, for example, is an independent real estate broker and consutlant. As a result, Belalgarve Consultants' estate agents not only have access to their own real estate offer, but also all other available properties in the Algarve and throughout Portugal.
Your search will be much more organized, clearer and less stressful by only working with one broker than with 10 or 20 who ultimately all have the same thing to offer. In all cases, make sure that brokers are licensed. Illegal brokers are unfortunately still a serious problem in Portugal. If you work with an illegal broker, you will not have a leg to stand on if something goes wrong during the buying process. You can recognize a legal broker with a licence by the AMI number, which must be stated on all publications of the broker. For example, Belalgarve Consultant's AMI number is 18883.
The buying process for real estate in the Algarve
When you have finally found your dream house or dream apartment on the Algarve, the actual buying process begins.
Make an offer
The first step is to make an offer. The broker usually already knows whether something can be done with the asking price or not. It's a myth that this is always possible anyway. This is because during the 2008 financial crisis, property prices in the Algarve collapsed and continued to drop until 2014. Owners wanted or had to get rid of their properties at all costs and agreed to almost every offer. But since 2015, property prices in the Algarve have continued to rise. If you buy from a private owner, you can occasionally reduce the price. With new construction, you buy the property from a property developer. It is almost never possible to negotiate here. In fact, with every apartment sold, the prices of the remaining apartments rise. Being quick is definitely recommended!
The purchase agreement or promissory contract
When the offer is accepted, one can proceed to the purchase agreement or promissory contract. In this agreement, the amount of the down payment and the time of the final deed of sale are determined. You will also receive an inventory with the purchase agreement, which states exactly what is included, such as furniture, air conditioning, kitchen, etc.
The time span between the purchase agreement and the final deed of sale can be negotiated. Usually this is between one month and a maximum of 3 months. The amount of the down payment can usually also be negotiated. This is normally between 10% and 30% of the agreed purchase price.
The final deed of sale
The last step of the purchase process takes place at the notary or a lawyer licensed for this purpose. During the signing of the deed of sale, the remaining amount of the purchase price will be transferred to the owner, and you will receive the keys as the new owner. At this point, you also pay the notary fees and all transaction taxes and stamp duties.
Owning a property in the Algarve
The buying process is now complete, and you are the proud owner of your own piece of paradise under the Algarve sun. Naturally, owning property in the Algarve brings some obligations and also opportunities.
Municipality taxes (IMI)
All property owners on the Algarve have to deal with the municipal tax. This is calculated, among other things, on the tax value of your house (which is usually much lower than the market value). In almost all cases, your estate agent can state in advance the municipal tax to be paid for properties in which you are interested.
If your property is located in a residential community or apartment building, you will also have to deal with community costs on top of the IMI. These are all expenses for the maintenance of the public spaces within the residential community or building divided by the number of owners. The amount depends a lot on whether your condo in the Algarve has a communal pool, lift or large gardens, as well as the number of owners. In almost all cases, these costs can also be given to you in advance.
Holiday rentals and property management in the Algarve
Many foreign property owners in the Algarve do not stay there all year round. Especially houses and villas need to be maintained. Real estate agencies specialized in foreign property purchases and investments, such as Belalgarve Consultants, therefore also offer property management services after the sale. They can ensure that your real estate purchase yields an extra return through holiday rentals. In this way, your property in the Algarve will not only become a piece of paradise to enjoy, but also a smart investment with annual returns that can exceed 5%. Something no bank can do.
Do you have questions or doubts about the purchase of real estate in the Algarve? Please contact our professional advisors without any obligation. We are happy to help you without obligation and completely free of charge to make your dream a reality.