Real estate market in Funchal: the legal perspective that secures your investment

Funchal, with its unique beauty and renowned quality of life, is currently experiencing remarkable real estate dynamism. Whether for personal housing, long-term rentals, or tourism investment, the real estate market in Madeira’s capital attracts significant national and international interest.

However, in this landscape of growing opportunities, certain precautions are necessary to ensure you invest safely. The legal dimension is fundamental to guaranteeing the solidity and regulatory compliance of your real estate investments.

As a lawyer practicing in this field, my duty is precisely to ensure that our clients carry out their investments in Madeira with due security and in full compliance with the legal procedures that validate property acquisition and sale operations.

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Real Estate Due Diligence

The first step for anyone looking to buy property in Funchal is to conduct real estate due diligence.

This consists of a thorough investigation into the legal, tax, environmental, and financial aspects surrounding the property, as well as its owners, ensuring the investor is fully aware of all potential risks.

This is not a mere formality; it is a fundamental process for protecting investors in Funchal real estate projects.

• Essential Documentation: It is not enough to check the Caderneta Predial (Tax Service Record) and the Certidão de Registo Predial (Land Registry Certificate) — which must confirm legal ownership (title) and the absence of liens or encumbrances, such as mortgages. It is crucial to analyze the Utilization License (or Construction License) to ensure the property has legally approved use (residential, commercial, etc.) and the Housing Technical File (Ficha Técnica de Habitação) for properties built or renovated after 2004.

  
  

• Promissory Purchase and Sale Agreement (CPCV): This is the legally binding contract between the parties prior to the Public Deed (Escritura). This document must precisely outline the terms, conditions, deadlines, and consequences of breach (such as the loss of the deposit or the obligation to pay double). A poorly drafted CPCV is an open door to future litigation.

  
  

• Taxes and Fees: You must ensure the correct calculation and payment of IMT (Municipal Property Transfer Tax) and Stamp Duty at the time of the deed. Any error can lead to significant tax liabilities.

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The Local Lodging (AL) Regime and Its Restrictions

For investors focused on short-term rentals (Alojamento Local - AL), recent legislative changes have introduced new challenges. While Madeira has occasionally benefited from more favorable regimes than the metropolitan areas of Lisbon or Porto, it is crucial to stay informed about the current regional and municipal regulations.

• Municipal Competencies: Municipalities like Funchal now have greater power to define containment zones, where the issuance of new AL licenses may be suspended or limited. It is imperative to verify the exact status of the parish (freguesia) and zone where you intend to invest before closing the deal.

  
  

• Condominiums: In buildings under horizontal property ownership, it is vital to know if the constitutive title or the assembly of co-owners imposes any restrictions on AL activities.

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Residential Leasing in Funchal

In the long-term rental sector, both landlords and tenants must understand their rights and obligations under the New Urban Lease Regime (NRAU), as well as local housing support initiatives, such as the municipal program "Habitar Funchal", which establishes specific criteria for rent caps and contract duration. Rules regarding contract duration, rent updates, and, crucially, eviction procedures, require deep legal knowledge to avoid litigation.

Your Legal Partner in Funchal

The Funchal real estate market is dynamic and full of potential, but it requires specialized care to ensure your investment does not become a liability, particularly regarding the legal aspects.

Our team is based in the city of Funchal and is deeply familiar with the legal and tax specificities of the Autonomous Region of Madeira. If you are considering buying, selling, leasing, or investing, contact us. Legal advisory in the real estate sector is not an expense; it is a fundamental investment in the security of your assets.

Filipe Ferreira Correia, Lawyer