10 Tips to help you protect yourself and your assets as a foreigner in Madeira.
Madeira is often referred to as Paradise and we all would like to keep it that way.
Unfortunately, for some foreigners the sweet dream of moving to the paradise island was turned into a nightmare, which caused them financial losses as well as many months of struggle and frustration.
One of the recent cases that we dealt with was a couple that were a year from their retirement who purchased an old house in a village in Madeira. The house clearly needed remodeling and updates in order to become a suitable retirement home for the couple.
Being foreigners and not knowing anyone in Madeira, the couple asked if the realtor could help them to find a building company to carry out the work. To their delight, the friendly realtor claimed that he himself ran and supervised building projects and that his friend was a contractor who could renovate and remodel the property.
After visiting the house, the contractor offered a quote which the owners accepted. The realtor added a significant sum to it for his own services and later requested that the full amount be paid in advance. Unfortunately, the couple made a big mistake to transfer the whole sum before any work was done!
About sixteen months later when the couple reached out to our organization for help, only a fraction of the renovation was done and the work had stopped. Needless to mention the anxiety, anger, and frustration that the couple experienced having to go through this ordeal, which lead to their decision to sell the house at its current situation and forget about moving to Madeira. When they communicated this to the realtor, he immediately offered to send them an exclusive contract as the sale’s agent!
Unfortunately this is not a fiction but a true story. In most Western countries we have learned to trust the real estate agents with their work ethics, and additionally because of the legal accountability that is connected to this profession.
In Madeira, there are many real estate agents that are very professional, helpful, and honest. They will help their clients to find the right properties, negotiate the price, and help them later on with registering the utilities and finding construction workers if necessary. However, since there is no real process of checks and balance to enforce accountability, there are also many real estate agents, either working individually or under the umbrella of a larger agency, who are only focused on making a quick sale and cashing in the commission and then having no obligation to the buyer.
When you come to a new country with a different culture, language, work ethics, laws and regulations, it is hard for you to know which one of these two groups you are dealing with. As a foreigner you must protect yourself and your assets by preventing such situations and becoming a victim of fraud and misuse. Here is a list of 10 measures you can take to secure investment.
Tip #1 - Do not buy remotely
Do not buy a property by seeing it only virtually. There are many aspects of the property that you cannot see in a picture or video. What if there is a broken public sewage next to the building (this was a real case that we dealt with), Or there is no good access, or there is a land in front of it that could eventually be built and would block your view? If you absolutely must buy remotely as some of our clients have, you will have to authorize someone to purchase the property on your behalf. We highly recommend that you meet this person, check their references with previous clients, and make sure that you can trust in the person’s competence, reliability, and honesty. The person that you mandate with purchasing the property on your behalf, cannot be a real estate agent or have any incentive or conflict of interest in making this purchase.
Tip #2 - Inspect The property
Technical inspection is not a requirement in Madeira. You will have to hire an engineer and pay for this service if you wish to have your property inspected. If you are looking at a relatively older property, it is worth spending the money to hire an engineer.
Tip #3 - Survey The Land
If you are buying in an older area where the borders of your property are not clear, you can hire a land surveyor to draw the current map of the property. The Surveyors charge between 250-550 depending on their price policy and the size and location of the property.
Tip #4 - Check All Documents
These documents are required by the notary for completing the sales deed:
- Tax-Registration of the house (Caderneta Predial)
- Land Registry (Registo Predial : Certidão Permanente)
- Energy Certificate (Certificado Energético)
- Blueprint of the property (some old houses may not have this, but the owner can make an application to the City Hall and ask for a copy. )
- License of use (Licença de Habitação if it is a house and other licenses if it is for commercial use, etc.)
If you are financing the purchase with a bank mortgage, the bank may request further documents.
Tip #5- Check The Last License
It is important to see the most recent “Licença de habitação” which is a document that proves that a given property is habitable because it meets all the legal conditions required to do so. This license is issued by the municipal council, so it is impossible to obtain it without inspection by this Council. If it is an old license, you must verify that no remodeling was made since its date of issue. This can happen if the previous owners made changes to the house but did not apply for a new license. They could sell the house to you with the original license (and the notary or the attorney would not reject this because they wont check for the alternative situation), but the house was not legalized. This means that if for any reason the City Hall checks on your property (for example if you apply for a renovation permit) they would ask you to legalize the house first. This is a very lengthy process (can take up to 2 years) and in some cases they may not even let you live in the house until it is legalized. In worst case scenarios, the City Hall may demand that certain parts of the property be demolished because they were not built according to the building standards and codes.
Tip #6- Buying Land?
If you are buying a land, it is important to find out if the land is categorized as building-land or not. Some lands are permitted to be used only for cultivation. Some are meant for mixed usage in which case you must find out what percentage of the land can be built. It is best not to rely on oral confirmation but verify this information by examining the official documents.
Tip #7- Do You Need A Permit?
Find out if you need a reconstruction permit from the City Hall for the changes that you plan to make on the property. This is very important and you cannot rely on the oral statement of the realtor! You must know that for many changes including enlarging windows, building a swimming pool, and adding extra spaces such as balconies or parkings you will need the permission of the City Hall. Getting this permission can be costly and time consuming.
Tip #8 - Prepare For Contractors
If you are preparing for a renovation or remodeling project, it is a good idea to ask for recommendations for construction workers. It is best to get at least two different quotes in writing from two different groups. You should make sure that the quotes includes material, work, and importantly has a timeline of start and delivery. Quotes are usually valid for 30 days.
Some contractors request a payment of 50% ahead of time. We do not recommend paying that amount before they have done any work for you. It is best to agree on payment of a 10% in advance, preferably after they have Brought their tools and machines to the property and issued a partial invoice. you should agree to pay incrementally as the work progresses. You can prepare a project schedule and break it down into milestones of time or tasks and pay portions after reaching each milestone. It is also recommended that at least 10% of the payment be made 7-14 days after the final delivery, to make sure that the work is completed as expected.
Tip #9 - Request Invoices
You must always request an invoice before you make a payment, even for the advance payment. The invoice must indicate your full name, NIF, as well as the address where the service was provided. Not receiving a correct invoice has two major issues. First, transactions without an invoice are conducive to tax evasion. Further, if you do not have the correct invoices, you will not be able to claim the expenses you make on your property when you are paying taxes.
Tip #10- Never Pay In Cash
Make all payments via bank transfer. A bank transfer will give you undeniable proof of payment and will protect you in case you will encounter problems along the way with the service provider.
Madeira is truly a paradise island; by following a few simple safety precautions you can make it your future home and enjoy the beauty and peace of this pearl of the Atlantic. Feel free to browse our blogs posts to find out more information and tips about the various aspects of living in Madeira.
... And by the way, we were able to help the couple in the story to reclaim their investment!