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Interview with property owner in Portugal
1. First of all congratulations to your house purchase! How have you chosen the location of your future flat? Why Lisbon? Isn’t it a very expensive location to buy property?
Thanks! Well deciding the location was a natural exercise. I am a Portuguese living abroad (in Switzerland) since 2011. I left when the crisis started but I always kept an eye on the city to check out its economic development. I lived my whole life in Lisbon and buying an apartment there was something that seemed natural but it is true that when I decided to buy, I took more of a strategic / investment decision.
2. Would be interesting to understand what criteria you had before making a purchase decision.
I was hearing that Baixa-Chiado area (Editor notice: Baixa-Chiado is a neighborhood of Lisbon located in historic center) was getting crowded and the prices were really going up.
I knew that Ajuda/Belém area are also touristic and wonderful villages by the riverside (Editor notice: middle-class people are living here).
The government was speaking about making some improvements in Ajuda neighborhood and in fact the most well-known street “Calçada da Ajuda” was already being completely modified.
I knew that at my age and living abroad with better salary conditions I would easily get a bank loan and a cheaper insurance.
I felt I had a really tight time to take the decision because I had a feeling that it would be a matter of months to have other investors seeking to buy a cheaper house in Ajuda. The prices would start to go up as soon as that happened.
I had all the information, but I still needed to figure out the right time to buy a house for the cheapest value possible before prices would start to go up. Choosing the right time when it comes to buying a house is always tricky, because prices go up and down, and you can gain or lose money very quickly. In the end my final decision was made 1-2 months before buying the apartment. I started searching online for an apartment, set up some visits, and took my vacation time in Lisbon to visit the apartments. I visited 7 apartments during one week and I have to confess that the first apartment I visited was the one I ended up buying. In the same week we signed “promessa compra e venda” (it’s a contract where you state you really want to buy the property and you pay a first value to secure it before you sign the final contract).
3. You are familiar with Lisbon lifestyle, can you advise from a citizen point of view – what are the advantages of living exactly here?
Ajuda/Belém neighourhoods are amazing. You have lots of connections to the city center, you can still find some places to park your car, you have several universities nearby and you are really close to famous monuments like “Padrão dos Descobrimentos”, “Torre de Belém”; “Mosteiro dos Jerónimos”, close to the famous “Pastéis de Belém”, and you have a better life quality (you can run every day by Tagus riverside with an outstanding view to “25 de Abril” bridge or in Monsanto natural park).
In Ajuda you still feel the Portuguese culture, you are living in a traditional neighborhood, and you have all the perks of being in a European capital (great restaurants, bars, shopping mall as it is only 10 minutes away from Colombo shopping center, theaters, etc).
4. Which neighborhoods were you considering for your future house (beside Ajuda)?
For the lowest budget, and considering Lisbon prices, I would consider Benfica where we can still find great properties with a lower price. But closer to Benfica I would have to advise that we should avoid “Bairro Padre Cruz” in “Carnide”. Then for a medium budget, I would consider “Campo de Ourique”, “Alcântara”. Last with a higher buget I would consider “Alvalade”, “Avenidas Novas” or “Parque das Nações”.
5. What about real prices in city – was it difficult to find a gem you did?
Well I signed my “Promessa e compra” contract in August 2016, I made the formal contract in December 2016 and today I can tell you that by the price I bought my apartment it’s harder to find an apartment at the same value in Lisbon, in Ajuda as well.
By the time I bought the apartment we had lots of properties available around those prices and even cheaper actually. However, I ended up choosing an apartment that was all new and not renewed. I would say it was easy to find that “gem” and I am really happy to see I bought it in the right time. Still nowadays it is true that it’s harder to get such a “gem”, but it’s still possible.
6. Have you purchased your house with help of agency or directly from the owner? Have you used any legal advise from professionals (like lawyers etc)?
I bought the house from the real estate agent and I used their expertise and also bank advisor’s expertise to help me through the process.
For taxes, I also contacted the administration to get some insights on what would happen and what taxes I needed to pay.
7. Was it new development or resale property? Why?
First I thought about buying a resale property but I ended up finding a new property for a bit more money. The reason why I preferred paying a bit more was because I would get 10 years guarantee from the construction company if something happened to the apartment structure, and 5 years guarantee for all the machines (laundry, woven, etc). On the other hand, all the electricity and water/sewage systems were new, so I was buying an apartment with a lower probability of giving me problems.
8. So the prices for new development properties are higher than resale, right?
Exactly, new dev properties are a little bit more expensive, but of course it depends on the area and situation, you might find a better deal with resale properties.
9. You purchased your flat with your companion through mortgage. Did you apply as non-residents? Was it difficult to get approval for a mortgage?
When we applied we were officially residents in Portugal. We were living in Switzerland after 2011. We bought the apartment as residents and getting a loan was pretty easy. Obviously as we were living abroad the amount they were willing to give us was less (the best we could find was a loan of 80% of the selling price).
Getting loans as non residents is also possible, even though with lower values. Banks will be asking you for more paperwork to really know what are the risks they are facing, but it is not a blocking issue at all.
10. What documents were required by bank for you as a borrower?
The first thing they required me was to open a bank account. Then to make an evaluation of the loan process they requested a copy of:
To do the contract:
11. How much from property value does your mortgage cover? Is it common for non-residents or in general?
The best we could find was a loan of 80% of the selling price. With the crisis this amount was pretty much normal for both residents and non-residents. However as resident sometimes you can find loans covering 100% of property value.
12. Did you try several banks? Was it a Portuguese bank by the way (which if I can ask?)?
Yes. I used a website called deco.pt to check out which could be the banks with the best offers and then I went to those Portuguese banks to get their conditions. In the end I made the decision based on the rates (spread of 1,8% and TAEG was also low) and the total amount I would be paying to the bank in the end of the loan. I ended up choosing EuroBic.
13. What is the length of your mortgage? Is it fixed or variable rate?
It’s variable rate and the length is 25 years.
14. Is it economically more advantageous to buy house in Portugal through mortgage?
It is quite common to buy a house in Portugal through a loan and for me it was easy to take the decision. The rate was considered to be low at the time and I prefer paying the loan rates and fees and leave the money available for other investments. I remind you that I’ve been letting my apartment for rent. It was more interesting to get a loan and save some money for other investments. The life insurance I am also paying is low… so I had no reason to put all the eggs in one basket. If the variable rates change… I can recalculate and take a decision of paying the full loan in advance. Who knows?
15. Did you have your money for the first payment in Portuguese bank or did you keep it overseas? Was it difficult to transfer money to Portugal? Did you have any issues with exchange rate, as most of international buyers are concerned about it.
As we were obliged to open a bank account in Portugal with certain conditions (2 direct and automatic payments to be done on the account – we decided to include the expenses on the renting price so we could have direct bank withdrawals from the water company and electricity) and a minimum of EUR 1000 going into the account which is the rent we charge plus some euros we always turn between this account and another bank account we have in Portugal), the money was already there. We often transfer money to Portugal and benefit from higher conversion rates. Each time the conversion rates are high we try to transfer. For management purposes we still maintain bank accounts in different countries.
16. On which step of property buying process have you applied for mortgage? E.g. in France they include conditional clauses into the contract that allow them not to buy a house if they haven’t received any mortgage. Is it the case with purchase contract in Portugal
We applied to the mortgage when we signed the initial contract that states our will to buy the property. In Portugal you can have other mortgages and apply for a new one. It always depends on your risks, your income and expenses. So, they analyze case by case.
17. Do you make any money with this property?
Yes. It’s rented to Portuguese locals. The reason I choose this option rather than AirBnb is connected to the fact that I am not living there and because it was a familiar building. Rather than having new people every day getting in and out making noise etc, I rented it to a Portuguese couple for a long-term rental. This way I avoid problems with the neighbors because in Portugal they were already speaking about changing the law to have the neighbors vote to let you rent your apartment to short rental. Even though I would be gaining more with AirBnb, because I could “open” a small company to collect the perks (which would significantly lower the taxes to pay on income when compared to the amount we are now paying), because I could also use the apartment when I am there, and obviously because the price per month is lower than per night, but we wanted to start with an option that won’t give us headaches.
18. What are the taxes and other expenses paid by you in order to let the flat for rent?
I pay a yearly 28% on the rent income. For example if you charge 800 EUR/Rent per month in the end of the year you will pay 2 688 EUR tax. However you can use some expenses to lower that amount. For instance if you made some construction/maintenance work that will be deductible. On the other hand, in Portugal we are obliged to register the renting contract. After registering you pay a fee of 10% on the rent. For example: you charge 800 euros/month then you will have to pay a unique/one-time fee of 80 EUR. This fee is payed once the contract begins and you will only pay again if you need to register a new contract.
19. Have you used any specific service to advertise your flat for rent?
At the time we used olx.pt to advertise it and in 3 days we rented the apartment.
20. Do you have any issues with your tenant? Are there any legal requirements for you as a landlord?
No. The apartment had lots of people interested so we got to choose whoever we wanted. We are really happy with the tenants and in more than 1-year relationship we never had complaints nor problems.
As landlord we are obliged to pay the taxes, insurances, and building maintenance expenses.
21. Are you going to sell your flat in future? Is it investment purchase or what’s the plan?
We thought about that and it is not yet a closed situation because we could earn a lot if we sell the apartment right now. We more than doubled the value in one year and a half. However if we want to buy another apartment in Lisbon we will also have to invest way more, and we won’t be renting it for way more than we already do. So our return of investment will be lower. If we only use part of the gains to buy a new apartment in the other side of the river, for example, we will have to pay taxes on the gains (28% for non-residents) plus the fact that we won’t be able to apply the same rent. So what should we do? We are still trying to read the market and take a decision.
22. What advice would be helpful for you prior to purchase? Would you share some advice to future property buyers?
Knowing the market is clearly an advantage. If you know already someone there, why not asking for their advice? Especially when it comes to choosing the best neighborhoods. I consider that I did not get enough taxes information by the time I decided to buy. Still the fact that I knew the market was a huge help. For those who are not that lucky, you absolutely need a real estate professional to help you out. On the other hand, there are several guides on how to buy properties abroad that can do a magic for you. If you are buying a property for your retirement or vacation, make sure you feel at home when you visit the place. If it is investment, please do not get emotionally involved. This will stop you from gaining money.