Buying a property in Madeira: what is the process?
Buying a Property in Madeira: Preparation Phase
Before you consider buying a property in Madeira, you should start by preparing this project.
Are You Ready to Buy?
While you may feel ready to buy a home abroad, it’s worth assessing your personal level of interest in property ownership before you make what will likely be one of the largest purchases of your life. There are many hidden costs that come with home ownership: From property taxes to utilities, these costs can add up quickly, and if you’re not prepared, it can feel like you’re drowning in tiny details.
Make sure you’re financially prepared for not only the initial deposit and mortgage, but for these hidden costs as well. Aside from financial concerns, you should seriously consider the advantages and disadvantages of home ownership in Madeira from your personal standpoint.
What Kind of Investment?
The primary motives for buying a property in Madeira are to retire there, acquire the Portuguese Residency and Citizenship, invest in a home for rental purposes, or purchase a second home for vacations. Depending on your personal situation you won’t go for the same kind of property and location. As you intend to make a long-term investment outside of your home country, take a moment to define your project clearly.
Buying a Property in Madeira: Pros/Cons List
- Real estate in Madeira increases in value over time; your new home is a long-term investment
- Freedom to renovate at your leisure
- With a fixed-rate loan, you can lock in a monthly payment and plan around it accordingly
- Touristic island
- Direct flights from almost every big city in Europe
- Part of the EU
- Exotic location with great climate
- Attractive prices compared to other Europe’s hot spots
- Great infrastructure
- Initial cash investment for down payment
- Different language and mentality
- Slow administration
- Distance to home country
Buying a Property in Madeira: Research phase
After you’ve put some real time and effort into the preparation process, it’s time to begin the process of searching and Buying a property in Madeira
Find an Agent
Before you’re searching for a property, you should select an agent. No, it’s not mandatory—many people have looked for and bought homes without an agent’s assistance. However, the specialised real estate knowledge of an agent on the side will be crucial to your house search. Buying a property is one of the biggest investments you can make, so you should make sure you’ve got the help and tools you need to manage that investment from start to finish. A local agent can put you in touch with his local network, which can be very useful when you are in a new country and need different services.
Narrow Your Search
Before you begin with Buying a Property in Madeira, start off with a list of “wants” and “needs.” Try to be as realistic as possible: Depending on your budget, you’ll likely end up in a situation where you have to make compromises to find the home that works best for you.
Location, Location, Location
It’s easy to get caught up in what seems like the “perfect” house, but what happens if that perfect house is an hour from friends, dining, and entertainment? In Madeira, one of the first questions that comes to mind is: North vs South.
The North Coast
The wild North of Madeira is particularly appealing when you first discover the island because it is wilder, more scenic, and less populated. In the summer, it can be the most beautiful landscape and the ideal environment if you need to spend some time away from civilization in pure nature. After the first excitement, would you still consider staying there for months and years? In the winter, it is usually dark, much colder, rainy, and stormy. Whereas the sun makes the green nature shine in the summer, it barely makes it over the mountains in the winter. The sea is too stormy for swimming, and the rain clouds cool the region so much that you freeze in winter without heating. On the other hand, if you plan to purchase a property with the intention of renting it out, then it’s a different story.
The South Coast
The sunny South Coast is known to be the sunniest Coast in Madeira. Cities like Ribeira Brava, Ponta do Sol, Madalena do Mar, Calheta, Jardim do Mar and Paul do Mar have many advantages. They have many beautiful beaches and accessible hikes, and are also very well developed and well connected to Funchal with the Via Rapida. The South is not just sunnier but more vibrant and has a larger choice of restaurants and supermarkets. The weather is pleasant all year, and the infrastructure is well developed. The prices are higher also for these reasons, but there are still many plots of land and houses to find.
The East Coast
The windy East Coast of the island is where the majority of the population is located. The international airport of Madeira is on this part of the island, as is the principal port in Caniçal and the historical capital of Machico. All are within a short distance of Funchal.
The West Coast
The quiet West Coast is known as Madeira’s most peaceful coast. Far from the bigger cities, the west Coast of the island offers the quietest part of the island. Along the beautiful coastline, small farming villages make up the majority of the population in the west. The West Coast is probably the most remote region of the island. Hardly any tourists find their way here, and shopping and restaurants are unfortunately not easy to find.
Keep an Eye Out for the Unexpected
When you’re Buying a Property in Madeira, keep an eye out for any potential non-cosmetic issues. That puke-green wall (very common in Madeira) may be ugly, but it’s not nearly as significant as potential mold, water damage, or any defects to the structure. If your issues are just cosmetic, leave the home on your list. After all, carpets, paint, fixtures, and even your floor plan can all be changed with time and money, but larger structural issues are likely reasons for concern.
Buying a Property in Madeira: Choose the Right Support
Once you’ve narrowed down your requirements in terms of house and location, it’s time to connect with your personal agent. The island now has a significantly larger number of real estate agencies. Most real estate agents consider it to be part-time employment where they can make money. Only a select few have real estate training or the requisite professionalism to assist the buyer. In Portugal, the seller is the only party who must pay the agency and agent’s commission. Since the cost of the agency’s work is not a consideration in the search for the buyer, this initially seems very positive. Many agencies, though, typically work for the seller. Choosing the best agency and real estate agent is essential for the purchasing process.
The real estate market in Madeira operates largely under the “open market” model. The same properties are found in the portfolios of numerous agencies, and each agency has access to the properties of the other agencies. It is essential to clearly define the qualities that the agency should possess.
How to Find the Right Agency: List of Key factors
- Number of Spoken Languages
Check how many languages the agency or its agents speak. In the best-case scenario, the agent must speak your mother tongue; it will ease the whole process.
- Level of Education
Find out if your agent is qualified to work in real estate. For the sake of the success of your project, it is important to confirm that the agent knows the ins and outs of this business. Quality is key. Unfortunately, it is common to find agents without any education in the sector on the island.
- The Importance of Network
Verify whether your agent has a strong professional network. As a real estate professional, your agent should be tied into the local community. Working with a well-connected agent can save you time throughout the whole buying process.
- Experienced Real Estate Agent
Only work with a seasoned professional who knows how to react in the various stages and situations of the buying process. In a business with a large investment volume, an inexperienced agent can cost you time and money, and unfortunately, maybe even put you at risk of missing out on your dream house.
- Local Knowledge
Make sure that your real estate agent has solid market-trend expertise and can provide you with information that can’t be found by yourself online. You should be able to rely on his knowledge to answer the numerous questions that arise when buying a property abroad.
Of course, in addition to the above-mentioned key factors, there are others that are personal and very important to you in the buying process. Listing and categorising these will help you to find the right agency that meets your needs, which will then support you in your detailed search and throughout the rest of the process. Always keep in mind that when buying, it is not only the right object that counts, but above all the communication, transparency and professionalism in the entire buying process. Therefore, it is essential to choose one agency or one agent to support you throughout the purchase.
Buying a Property in Madeira: Viewing Phase
The choice of the right agency has been made. Now it is time for Buying a property in Madeira!
After you have contacted the agency to submit your purchase attributes for the real estate advertiser, the agency will start searching with you. Trust in the competencies of your supporter and let them put together a selection of suitable objects for you.
You saw a house on another agency’s website, on Idealista or while driving around the Island? Always forward your own search to the agency so that they can include your suggestions in the selection process.
After collecting all information and suitable objects, the agency will arrange a private viewing between the seller and you to see properties on a schedule that works best for you.
During these visits, the motto is “The buyer does not buy the house, but the house buys the buyer”.
Take a closer look at the property and ask as many questions as necessary to gather all the information that will affect your purchase. Also include the knowledge and experience of the agent in order to get the best possible picture of the property. The property viewings is also a time to enjoy the beauty of the island and to get an impression of the area around.
Buying a property in Madeira: Making an Offer
You’ve found the home of your dreams. Now, the only thing standing between you and that home is, well… a lot of paperwork. This process begins with assembling an offer (don’t worry: Your agent will guide you through this process).
Of course you can just write a number on a piece of paper, but a proper written offer should include a number of different sections:
- A legal address and sometimes the legal property description
- Details regarding the purchase price and terms
- Information about closing costs and fees
- The date and time of the offer’s expiration
- Your projected loan closing date
- Other state-required provisions or disclosures
…and more. Before making your initial offer, it’s important to work with your agent in order to determine the most financially sound offer. If you undercut the seller too heavily, it could potentially make them feel undervalued, but if your offer is too generous, there’s a chance you could lose out on thousands of dollars in savings. A written offer including the mentioned items can help you in case of a counteroffer from the seller. The more information it includes, the more information the seller receives to decide whether to accept the offer or not. Once the standard components of your offer are in place, there is still one more piece to the puzzle of paperwork.
The Financial Plan
The financial set-up is certainly, after the preliminary contract has been drawn up, the most crucial phase in the realisation of a home or investment.
How should the house be purchased? Which part should be financed by you, and which part should/must be financed by a mortgage? Here, it is important to get an exact overview of your own finances and the possibilities of outside financing.
These are a few questions you can ask yourself:
- How much can I contribute myself?
- What options are there with banks at home or locally?
- What are the requirements for external financing?
- What costs need to be taken into account?
- How does the financing process work in Madeira?
- What time frame do I have to plan for?
To answer these questions, it makes sense in most cases to take advice from your real estate agency. The agency can sort out your questions and provide them with the necessary information to best prepare you for this stage of the buying process.
In the best-case scenario, you can arrange the purchase with your own resources, but the majority of property buyers decide to obtain financing from external sources for a variety of reasons. Financing from the home country is usually associated with an enormous equity, which is why financing through a local bank is often the Most reasonable and cost-effective option. If you are applying for debt financing in the form of a mortgage through a Portuguese bank, your agency can request the support of a financial broker. As already mentioned, the agency’s network plays a key role here. Good agencies work with professional and serious local financial service providers in order to always be able to prepare their clients in the best possible way for external financing abroad.
The financial service provider guarantees you the best mortgage offer, customised to your requirements and attributes.
The Promissory Contract (CPCV)
Once both parties to the contract have agreed on the purchase price and the type of purchase, the next step is to secure the purchase of the property.
To do so, in Madeira, both parties have to set up and sign a so-called “promissory contract.” This promise of purchase is securing both parties’ commitment to stick to their agreement. The contract comes with responsibilities for the seller and the buyer and is structured like a normal purchase contract. It contains all the important elements for the purchase of the property and specifies the subject matter as well as the type and scope of the future property purchase.
The promissory contract must be drawn up by the supporting real estate agency in Portuguese. As the purchase/sale takes place in Portugal. The contract can additionally be written in English or in the mother tongue of the buyer, if requested! The contract is validated by the signatures of all contracting parties and acts as a promise and security for the future purchase. It also specifies the terms of payment and when the final purchase is to take place. It is based on the Portuguese standard, but all paragraphs are subject to negotiation and can be individually drafted. The promissory contract normally comes with a down payment of 10% of the total purchase amount, but can also be negotiated. Aside from the promissory contract, no additional agreements made outside the contract are valid.
Usually nothing can stand between you and the final deed once this contract is signed.
The Final Deed: escritura
The last step before the property changes ownership is the official notary appointment and final Deed in Portugal called escritura. All parties must be present in person or represented by a person with a notarised power of attorney. At the escritura, the official purchase contract is concluded. The notary will go through the contract of sale with all parties in Portuguese. After the deed, no more changes to the purchase contract are possible.
As a rule, the real estate agency takes on the role of mediator for both parties at this appointment and explains and/or translates what is said and written into the native language of the respective contracting party. Once the contract of sale has been signed, it is valid according to Portuguese law and the property officially changes ownership by complying with the terms of the contract and paying the balance of the purchase price.
The date of the escritura is either already specified in the promissory contract or is decided jointly by both contracting parties. The real estate agency or, in the case of bank financing, the responsible bank will arrange the date of the deed.
The documents are now renewed by the notary and delivered within a few working days and you have now reached your goal of Buying a property in Madeira.