Madeira is a small island with a lot to offer – beautiful scenery, great weather and a laid-back lifestyle.
In fact, it’s the perfect place to live, especially if you’re aiming for eventual EU citizenship.
But there are also a few pitfalls of buying property in Madeira that potential buyers should be aware of before making a purchase.
Many people have lost money by not doing their research properly or by falling for scams.
I’m currently in the process of buying an apartment in Madeira, so I’ve been doing a lot of research. I’ve spoken to a number of local real estate agents, plus surveyors and lawyers.
In this article, I’ll outline what I’ve learned about five of the most common pitfalls of buying property in Madeira, plus how to avoid them.
Read on if you want to make sure your Madeira property purchase goes as smoothly as possible!
5 Pitfalls of Buying Property in Madeira
- Structural Quality
- Legal Issues
- Tax Liabilities
One of the major pitfalls of buying property in Madeira is the island’s microclimates.
Madeira has a number of microclimates, which can cause problems for buyers who are not familiar with them.
Although Madeira is famous for its year-round summer, that’s not always the case in the island’s higher altitudes.
The island of Madeira is the emergent top of a massive shield volcano, rising about 6km from the bed of the Atlantic Ocean.
As a result, properties above a certain altitude are more likely to experience problems with damp and mould.
In fact, it’s not uncommon to see snow on the peaks during winter, even when temperatures in the sea level areas are a pleasant 20 degrees C (68 F).
What’s more, some parts of Madeira – mainly located on the east coast – are prone to high winds, especially during winter, which can damage properties not built to withstand them.
The widely-held wisdom among Madeiran locals is to only buy below the ‘banana line’ – not more than 200-300 meters above sea level.
If you want the full benefit of Madeira’s year-round summer, then your safest bet is to stick to the south coast and buy below the banana line.
Popular locations include Calheta, Ponta do Sol, Câmara da Lobos, Praia Formosa, and the capital, Funchal.
Another pitfall of buying property in Madeira is the hilly and steep terrain.
This can be a problem if you’re not used to living in such an environment and can make it difficult to get around.
In some areas, it’s impossible to go out of your front door and take a walk, because the hills are so steep.
You’d have to drive every time you wanted to go anywhere, which can quickly feel restrictive. Nothing beats going for a pleasant morning stroll to your local cafe or market.
What’s more, if you don’t drive, you may struggle to rely on public transport, which is quite sparse anywhere outside of Funchal.
If walkability is important to you, then it’s best to stick close to the sea. That still leaves plenty of choice for property buying, including the whole perimeter of the island.
Areas with good walkability are downtown Funchal, the Lido area, Praia Formosa, Câmara do Lobos, Canico and Ponta do Sol.
On the north coast you could check out Seixal or Porto Moniz, while in the east there’s Machico and Santa Cruz.
#3. Structural quality
Another of the potential pitfalls of buying property in Madeira is the structural quality of buildings.
Up until the 1980s, many substandard properties were built on the island, often using inferior materials. Even newer buildings can sometimes have serious faults.
What’s more, properties over five years old aren’t covered by a warranty for any defects to the structure.
But if you’re buying a brand-new property, then this shouldn’t be an issue, as the warranty will cover you for problems like these.
Nevertheless, we highly recommend checking which company built the property you’re interested in and asking around locally about their reputation.
Major companies need to maintain their good reputations, so they’re unlikely to take shortcuts.
If you’re buying a new apartment, you can be confident that a unit from either of these top firms will be of high quality.
If you’re buying a detached property, such as a quinta (a large villa usually in the country or on the outskirts of a town) or a farmhouse, then it’s highly recommended to conduct a structural survey before purchase.
Common problems include leaking or rusty pipes, humidity issues, poor quality wiring, and cracked walls.
#4. Legal issues
Another of the major pitfalls of buying property in Madeira is the legal side of things.
Several tricky legal challenges exist that can trip up buyers new to the island. Here’s a rundown of the most common ones.
Please note: this information is for reference purposes only and does not constitute legal advice. You should consult a lawyer for advice on your individual situation.
This is mainly an issue for older and rural properties, which are found all over Madeira.
Basically, you must make sure the property’s title deeds correctly reflect what you’ve actually purchased.
Properties, especially rural ones, sometimes consist of several smaller areas, which could have been subdivided even further in the past. Hence, it can be difficult to find out exactly what you’re buying.
And don’t expect much help from your real estate agent – this is a task for a lawyer with plenty of local knowledge.
What’s more, you might find your dream rural property doesn’t have an administrative record, which can lead to problems later down the line.
You’ll need to ask your lawyer to check the deeds and legalize any existing parts of the property that don’t already have planning permission.
Next up is Portugal’s subrogation law. This law means that any debts are attached to the property instead of to the original borrower as an individual.
Unfortunately, if you’re not careful, you might end up liable for large amounts of unpaid debts, including property taxes, utility bills, or other personal debts that the previous owner secured against the property.
The best way to avoid this is by hiring a reliable local lawyer to check the registered title (Certidão de Teor) to make sure the property is free of any outstanding debts before you sign the deed.
Dispersion of ownership
Finally, another potential legal pitfall, (not just in Madeira, but also in Portugal as a whole) is the law governing dispersion of ownership.
Under Portuguese law, all family members have a stake in any inherited property.
So any distant cousins living on the other side of the world may own a portion of the property. They have the right to stop the sale, which can cause huge delays.
You should work with a lawyer who can check the ownership records and let you know about any potential difficulties.
Don’t be put off by these potential legal pitfalls of buying property in Madeira. A good local lawyer will be able to guide you through them.
#5. Tax liabilities
Finally, another of the pitfalls of buying property in Madeira is the potential tax liabilities.
It’s important to understand these fully before signing the deed on your dream property.
I recommend arranging a consultation with a local tax advisor to get a clear picture of your tax liabilities.
If you decide to live full-time in Madeira, you’ll also become tax resident in Portugal.
That means you’ll be liable for Portuguese taxation on your worldwide income. You’ll need to make an annual tax declaration to the Portuguese tax authority.
But, if you’ve never lived in Portugal before, you can apply for NHR (‘non-habitual resident’) tax status, which gives you preferential tax treatment on certain kinds of income (mainly from abroad) for a period of 10 years.
How Portugal taxes your overseas income also depends on the double taxation treaty between Portugal and the country where those funds originate.
This information is not tax advice. You should a consult a qualified tax advisor for specific advice on your personal situation.
You may decide to buy in Madeira for investment, but continue living outside Portugal.
In that case, you should also clarify your tax situation in terms of capital gains tax when you finally sell in future, along with tax on any rental income that you earn from the property.
Lastly, you’ll also need to keep in mind the Portuguese property taxes on your purchase, including IMT (transfer tax), IMI (annual municipality tax), and stamp duty.
Living in Madeira is a dream for many, and with good reason.
The islands offer an idyllic lifestyle, stunning natural beauty, fabulous beaches, and a warm climate all year round.
We want to make sure you’ve got all the information to make an informed decision about buying property in Madeira
Before taking the plunge, it’s important to be aware of the potential pitfalls of buying property in Madeira, such as microclimates, walkability, structural quality of buildings, potential legal issues, and tax obligations.
Fortunately, you can overcome all of these issues with careful planning, local knowledge and expert guidance.
Looking for property elsewhere in Portugal? Then check out our guide to Portugal real estate.