Real Estate Market - How to Invest in Land in Portugal
Are you looking for a good investment in the real estate market in Portugal? Find out about the benefits of investing in land and start your journey to a profitable investment or building your dream home.
Photo by Benjamin Davies – Unsplash
Any investment requires a sound knowledge of the subject. Be it firstly in the financial field and secondly, to emphasise the title of this article, in the real estate market. When we hear about real estate investment, we usually quickly think of buying a house. The potential of a property is evaluated based on the number of rooms, where it is located, or even the quality of the materials used to furnish it. These are some of the common principles to understand whether buying a particular property is a good investment or not. But is the process the same for those who want to invest in land? Investing in land still falls under the same heading as a housing investment. In other words, we are talking about real estate investing, but the circumstances are slightly different. The questions you should ask yourself before investing are different. For this reason, we have written a short article to help you with investing in land.
The good news is that investing in any area of the Portuguese real estate market is generally a profitable investment without having to take any major risks. To put your investment into practice, you need to take into account the amount of money you have available and you should be prepared for the time period until you get the return.
4 positive points about buying land
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Versatile purchase:
When you buy land, you have access to a variety of choices. You can build a house on it to live in, rent out or even sell. Another option is to not build and wait for the land itself to increase in value. Depending on the size of the land, you can also divide it into plots of land and make a good profit on your initial investment.
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Let your imagination run wild:
If you want to build a house, you have the advantage of being able to design it to your liking. When you buy a ready house, it can be a disadvantage because you can't change its structure. When planning your house project on your land, always think about future adjustments. You may want to expand the area of your property if the number of your household increases.
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Savings on maintenance:
As long as you own land, you know that its upkeep is cheaper than that of a home. You can wait for the land to increase in value without incurring major costs.
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Guaranteed quality:
Another positive point is the guarantee of quality that a plot of land can offer you. When compared to the purchase of an already built house, only after living in this property will you be able to notice certain deficiencies in its construction and finishing. When you buy land and design a house, you can follow the building works and eventually choose all the materials that guarantee durability and quality.
What should you consider before buying land in Portugal?
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Before you buy a plot of land, it is important to know the characteristics of the surrounding area.
- When land is located in a growth area, its value usually increases more than villas or apartments. Therefore, always analyse the place where you are thinking of investing. Check if houses are being completed in the area, if there are good infrastructures, services and facilities (schools, business premises and hospitals). Find out about new projects in the area, such as factories or landfills, because these can change a lot in the future and devalue your investment.
- Before buying land, make sure it is in an area that has basic sanitation, electricity, water, internet, sidewalks and walkways. If the land is in a community, all of the above probably applies.
- Another point to consider is solar exposure. If you want to build a house in the future, the view mustn't be obstructed. Taller buildings tend to cast unwanted shadows, which will harm solar gain and, as a result, affect the thermal sensation in your future home.
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It is important to be well prepared and understand all the steps to be followed at a tax and bureaucratic level when buying a property land.
- If you want to build on the land, you should first make sure that the land has a building permit. You can request the Municipal Master Plan (PDM) document from the municipality where the property is located. In the document PDM (Plano Diretor Municipal), you will find the following information:
- The utility, conversions, and soil rules that affect the land.
- The land-use plan shows the spatial organization model of the municipality.
- The restriction plan shows all existing limitations on the land.
- Always ask for the updated Land Registry Certificate and the Property Tax Document of the landowner.
- After buying the land, you will need to submit a permitted project to the municipality if you decide to build a house. Then you will have to apply for the building permit and later the habitability permit. These bureaucratic procedures always involve costs, so you should ask the municipality about these values so as not to be surprised.
- Do you know what the taxes will be after you buy the land?
- The real estate transfer tax (IMT), this tax is paid at the time of purchase.
- Municipal Property Tax (IMI) is paid annually and varies from municipality to municipality.
- Addition to property tax (AIMI) is paid annually only if the property value exceeds 600 thousand euros.
- In addition to the taxes described above, municipal taxes and a municipal equalization fee are also levied.
Photo by Bhupesh Talwar – Unsplash
Land classification
- Rural land: Land located in a rural area, i.e., outside the urban area, for which development is generally prohibited, with limited exceptions when the structures are used to support or store agricultural activities.
Rustic land between Porto Mós and Praia da Luz, in Lagos.
- Urban land: an area set aside for urbanisation and the construction of housing. It may be subdivided into urban plots, which are subsequently sold separately for the construction of vertical or horizontal condominiums, detached villas, semi-detached houses or other buildings.
Urban building land in Boavista Golf, in Lagos.
- Mixed land: a land combining rural land and urban land. Part of this land is set aside for agriculture and part for building. The land designated for development may be used for residential purposes or as a storage area to support business operations.
Mixed land in Almádena, in Lagos.
Note: Beginning December 31st, 2022, urbanized lands, i.e., land that is classified as urban land, but whose owners have not yet submitted an urban operating plan, must do so by that date. If the urban operating plan is not submitted, the land will immediately be classified as rural land. This will result in a significant devaluation of your investment.
What are the types of building land?
The type of building land you choose will determine the future of your investment. The topography of any land will determine the characteristics of the construction, and therefore directly affect the cost of the future property. There are three types of land:
- Flat land: it is the same height at the front and back of the property. With this type of land, you do not need to level the ground, so the value of building your property will always be cheaper. The construction work on flat land is completed faster.
- Sloping land: the ground of this type of land is higher than the street level. The property built on a sloping plot gains prominence, more sunlight and better views. It also benefits from water drainage, which is facilitated by the natural slope of the land. The cost of such a plot is higher as compared to flat land.
- Declivity land: unlike sloping land, the declivity lands has the bottom below street level. A well-executed building on this type of land provides privacy to the owners and can also increase the property value. Construction on this type of land is one of the most expensive as retaining walls, earthmoving and other procedures are required to ensure safety.
Note: The type of flooring also determines the design of your home. Before buying land, make sure the morphology of the soil is easy to build on. Soils with rocky, sandy, or clay subsoils, as well as groundwater levels (the depth at which the water table lies), are factors that make it more expensive to build a home.
These lands with more difficult characteristics usually tend to have more accessible values, so this can be compensated for when building the house.