Your ultimate guide to buying property in Madeira

Are you looking for a property on the idyllic island of Madeira? Or perhaps you'd like to have a house near Porto Santo beach. If so, this is the perfect article for you. In it, our experienced team has put together some tips you should know before buying a property in Madeira.

This article addresses some major points that must come across the minds of whoever has the intent of acquiring a real estate property in Madeira, regardless of its type, price, or even future use. We will address 5 of them, but there are many, many others that we will discuss in the future.

1. Define Your Objectives and Budget

Before diving into the property search, you should define your objectives. Are you looking for a primary residence, a holiday home, or an investment property? Establishing your purpose will help narrow down the location and type of property that best suits your needs.

Setting a realistic budget is equally important. Consider not just the purchase price but also additional costs such as taxes, notary fees, potential renovation expenses and ongoing costs such as the condominium and other charges. If financing is required, check with local banks to understand the mortgage options available to non-residents.

NEWCO can help with this first step. We are a boutique real estate service firm, working with a very limited pool of clients and properties. Our role consists of understanding your expectations and contacting several local real estate agents to conduct a personalized market study. This will narrow the scope of your search and ensure that you find the best property in a timely manner.

As certified real estate agents, we offer a boutique services, where proximity and complicity with the client are the main priorities.

2. Choose the Right Location

Portugal offers a diverse range of locations, each with its unique charm and benefits.

Madeira, in particular, has several interesting locations for each profile of investor:

• : lively, urban living with a vibrant social scene and great accessibility. It is also the best place in terms of investment/rental yield.
• Calheta and Ponta do Sol – the sunniest places in Madeira, with sandy beaches and stunning landscapes. Calheta also has a modern marina, while Ponta do Sol is well known for its picturesque city centre. Here we must highlight the well-known “Hawaii of the Atlantic”, not only for its landscape but also for its surf spots, such as the famous wave at the picturesque Jardim do Mar village.
• and Porto da Cruz – for those who appreciate the quieter, more traditional Madeiran experience with good local amenities. Similarly to the city centre, it is quite flat, making it easy to walk around. They are less touristy, at this moment, than Funchal but well developed and with everything to fulfil your basic needs. Both are also a hotspot for surferers. 

• Santana and São Jorge - The municipality of Santana is known for its typical Madeiran houses with thatched roofs, but it can be distinguished from other municipalities by having areas of the biosphere reserve, defined by UNESCO. In addition to its beautiful landscape, this municipality has supermarkets, a hospital and small shops for day-to-day life. As it is located on the northern side of the island of Madeira, winters are rainy, and summers are sunny. Even so, the average annual temperature is around 20ºC.
• Boaventura, Ponta Delgada, São Vicente and Porto Moniz - We can describe this northern part of the island as a dramatic landscape! It manages to combine some very high cliffs covered in green with the infinite sea. Any of these places have local shops and services, schools, banks and a health centre to help with day-to-day life. São Vicente is a paradise for surfers, but the surrounding mountains are a challenge for hikers and trail lovers. Porto Moniz is known for its natural pools with crystal-clear waters. It's a cooler area in winter and rainier, but in summer there are plenty of sunny and warm days. The number of properties in the market is limited, but they are typically of a high profile. In any case, it’s still a paradise to discover.

Apart from our native knowledge of the island, NEWCO also has thorough expertise in urban planning, calculation of investment yields, and estimated growth/value potential of each location.

3. Decide on the model of the acquisition

This point delves around a question that is simple for some, but extremely complex for others: buying the property as an individual or through a company (with additional variants such as the company being Portuguese or not, specifically incorporated for this purpose or not).

This is a tough call that does not have a one-size-fits-all answer, as it depends on ongoing costs you are willing to have, use of the property, immediate need for estate planning/succession, segregation of assets and liabilities or flexibility on the long-term (e.g. having the possibility of sale through a share deal).

NEWCO can help you navigate the intricacies of all the options on the table and then with the implementation of the chosen option.

4. Understand the Legal Process

The legal process for buying property involves several key steps:

• Due Diligence: Conducting thorough due diligence is crucial. This includes verifying the property's legal status, ensuring there are no outstanding debts or liens, and confirming that all licenses and permits are in place. Hiring a lawyer to handle this process is highly recommended;

• Promissory purchase and sale agreement: Once you find a property, the first legal step is signing a preliminary contract. This document outlines the terms of the sale, including the price, payment schedule, and completion date. A deposit, usually 10-30% of the purchase price, is required at this stage.

• Final Deed: The purchase is finalized by signing the final deed at a notary's office. The remaining balance is paid, and the property title is transferred to your name.

NEWCO can assist with all these steps. Our legal team will review the promissory purchase and sale agreement and do the due diligence on the property, ensuring that your best interests are covered. We will also cover side requirements such as obtaining a Portuguese Tax ID or a tax representative.

We will also be with you on the day of the final deed or, in case you are not able to attend, we will represent you based on a Power of Attorney.

5. Be aware of the tax implications

Buying property in Madeira (and Portugal, of course) comes with certain tax implications. Here are the main taxes you should be aware of:

• Property Transfer Tax (IMT): This tax is payable upon the purchase of the property and is calculated based on the property's value and type (residential, commercial, or land). Rates vary, with the highest rate for residential properties currently at 7.5%. There are some exemptions available for urban rehabilitation and for buyers up to 35 years of age.
• Stamp Duty (Imposto do Selo): A stamp duty of 0.8% of the purchase price is also due at the time of the property transfer.
• Municipal Property Tax (IMI): After purchase, you will be liable for the annual Municipal Property Tax (IMI). Rates range from 0.3% to 0.45% of the property's taxable value, depending on the municipality. Subject to a case-by-case analysis depending on the property’s taxable value, the Additional to the IMI might be due.
• PIT taxation in case of rental (short-term or long-term): Portugal makes a distinction between short-term and long-term rental. While the former is seen more like an entrepreneurial business activity, the latter typically has lower rates that are reduced throughout the contract whenever the property is residential. A dedicated business study is definitely advisable.
• Capital Gains Tax: If you decide to sell your property, you may be subject to capital gains tax. Only 50% of the gain is taxed, but the rates are progressive and go up to 48% (plus solidarity taxes). A rollover relief is available for specific cases.

Use high-end advice and mitigate risks when buying a property in Madeira

Purchasing property in Madeira can be a rewarding experience, offering the chance to enjoy a beautiful island with a modern lifestyle. By following this roadmap, you can make informed decisions and ensure a successful property purchase. Whether it’s for personal use or investment, a well-researched approach will help you secure the perfect property in Madeira.

In a nutshell, finding a trustworthy and knowledgeable buyer’s agent will ensure that you select the right properties and understand the local market, a real estate lawyer will safeguard your interests, and a tax lawyer and accountants will guide you on tax matters. At NEWCO we have a one-stop shop service boutique where you can find all of them.