Property Investment Case Study: Cape Verde (TPI-CV-001)
Introduction:
Situated in the Atlantic Ocean - 1,000 kilometres due south of the Canary Islands and approximately 400 kilometres west of Dakar, Senegal in West Africa - the Cape Verde archipelago is currently causing quite a stir in the overseas property investment market. A major reason for this is that the Cape Verde government, through a concerted tourism drive, is actively encouraging and seeking private overseas investment in the territory to create jobs and improve tax revenues. Cape Verde’s progressive government wishes to see their country respectfully viewed as a hub for tourism and property investment - as an exciting alternative to well-travelled, mainstream destinations in respect of both means of boosting Cape Verde’s economy. International experts predict that these hopes are looking pretty certain to come to fruition.
There has indeed been a massive level of interest in Cape Verde in recent times, amplified hugely in the UK after Cape Verde property investment opportunities were featured on Channel 4’s influential ‘A Place In The Sun’ programme. As a result of presenter Amanda Lamb highlighting the many very good reasons to invest in property in Cape Verde – particularly the extraordinarily cheap prices - the islands have suddenly been thrust further into the spotlight – both as a prime new location in which to buy overseas property, and as the wonderful tropical holiday destination that the Cape Verde government continues to so vigorously promote.
Cape Verde now finds itself on the early pages of a brand new chapter in its history, with extensive development in its future taking place as you read. Ongoing investment in Cape Verde’s infrastructure is attracting European property developers in numbers, and so the future suddenly looks extremely bright for the islands. New tourist facilities and amenities are in construction all over the archipelago, but - making now the ideal time to invest - high quality residential property developments are opening up apace. The islands of Boa Vista, Sal and Santiago in particular are leading the charge, but it seems that the interest generated in investors thus far will ensure that investment in Cape Verde property on other islands will soon also be possible. The only properties available for sale at the present time are off-plan but, already, demand is beginning to outweigh supply as investors line up to place deposits on properties that may not be completed for at least 12 months.
So, what are the main reasons to invest in Cape Verde property?
As all Cape Verde property for sale is currently off-plan, prices are extremely cheap in comparison with established European markets. This is the beginning of what will be a considerable boom in Cape Verde property, so prices should increase sharply in the next 2-3 years.
The ‘Lei de Investimento Externo’ (External Investment Law) introduced by the Cape Verde government in 1993 to stimulate overseas investment includes an initial 5-year tax exemption for foreign purchasers, and a subsequent 50% corporation tax reduction (currently 30%) for the following 10 years.
It is expected that Cape Verde property will increase in value by over 70% in the next two years.
The anticipation of Cape Verde joining Europe’s holiday destination elite seems certain to guarantee consistent rental revenue, indicating good ROI: The tourism growth potential of Cape Verde is enormous.
Cape Verde offers a very low cost of living.
Cape Verde now has two international airports: Amilcar Cabril International Airport at Santa Maria on the island of Sal, and Francisco Mendes Airport at Praia (Cape Verde’s capital) on Santiago. Direct flights from the UK to Cape Verde will commence in March 2006, with a 5.5 hour journey time. Cape Verde can currently be easily reached from the UK via Lisbon.
The Cape Verde climate is tropical, but beautifully temperate all year round.
The Cape Verde archipelago represents the closest tropical islands to the UK
And another pretty key reason, of course, is that the Cape Verde islands are absolutely beautiful, offering magnificent, varied landscapes from imposing mountains to lush green valleys; white sand beaches to volcanic rock formations. Cape Verdeans are friendly and warm, happy to welcome you into their homes - be it in a quaint mountainside village or one of the many vibrant towns – and proud that you have chosen their inexplicably long-neglected homeland in which to invest in your future - and so in effect, in theirs, also.
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Economy:
In 1975, after more than 500 years of union, the Cape Verdean people were given their independence from Portugal. Today, Cape Verde is a socially and politically stable country where all political parties are keen to attract foreign private investment, particularly in tourism.
About 96% of Cape Verdeans are Catholic. Crime is very low. Approximately 440,000 Cape Verdeans live on the islands, with 220,000 living on Santiago.
The exchange rate of the Cape Verdean Escudo is fixed to the Euro. Over the last 5 years, average annual inflation has been contained to 1.4%, while GDP has grown by more than 6%. The USA, through the Millennium Challenge Corporation, is donating over $110,000 over the next 5 years. Cape Verde is working on receiving a ‘special status ‘ within the EEC, after being sponsored by Italy, Spain and Portugal.
Property Market:
Cape Verde uses Portuguese property purchasing laws in general, and any lawyer who is qualified in Portuguese property law can practice in Cape Verde.
The legal side of buying a property falls into two parts, the preliminary "promissory buying and selling" contract (Contrato de Promessa de Compra e Venda) and the completion contract (escritura).The "promissory" contract legally secures the purchase, and is subject to satisfactory searches having been returned. The law protects both parties involved. The important documents to check out before signing a ‘promissory contract’ are the Property Registration Certificate and the Licence of Use.
The signing of the "escritura" or completion contract can be carried out on your behalf by appointing your Power of Attorney to someone you trust, possible a lawyer. At this stage the purchaser must pay the remaining balance of the purchase price , transfer tax (Imposto de Sisa) plus notarial fees to the notary advogado. The total tax comes to just under 6% of the value stated on the notary document.
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Buying and Selling Costs:
The process of purchasing property in Cape Verde generally involves the following steps:
1. Carry out Land Charges Searches at the local Municipal Authority and Land Registry Offices.
These will reveal whether there are charges registered upon the property or any restrictions on title. The existence of a valid habitation permit is a precondition for a valid conveyance of built property to take place in Cape Verde and the existence of such permit presumes that a valid building licence was issued previously.
The documents which should be obtained are the "Certidao do Registo Predial" (land registry certificate), "Planta de Localizacao" (official map with the property's exact location) and the "Certidao Matricial" (tax information certificate).
If the property is not registered, it is necessary to obtain a "Certidao pela negativa" (a certificate confirming that the property in not registered in anyone's name) and a "Certidao matricial para o efeito" (a tax certificate confirming this). With these two documents, it will be possible to register the property.
2. Check the payment of tax regarding the property, and bills for electricity and other services by asking the vendor to produce evidence of payment of such invoices.
3. We will also need to obtain a power of attorney from you to represent you in the promissory contract and deed, and also to request the necessary tax cards on your behalf. We will draft the power of attorney in Portuguese and attach a translation to English for your perusal.
This document will have to be signed before a Notary and duly legalised by the Cape Verde Honorary Consul in Liverpool before it is returned to us. Please note that we may deal with the legalisation of this document on request.
4. Obtain a tax card on the purchaser’s behalf.
5. Sign the Promissory Contract of Purchase and Sale ("Contrato Promessa de Compra e Venda").
At this stage the purchaser will normally be expected to pay a deposit, which is negotiable (10% or lately 30% is common practice).
In Cape Verde, the parties are contractually bound on signature of this Promissory Contract of Purchase and Sale, which sets out the terms of the transaction (property details, price, method of payment, completion date, warranties, penalties, etc.).
This contract should be signed before a Notary Public in Cape Verde. Until such contract is exchanged the vendor is not committed and can change his mind.
Payment of the property tax called "IUP" tax, respecting the transfer.
6. Sign the final Deed of Conveyance called the "Escritura" which has to be done before a Notary Public in Cape Verde. This is the document that gives the purchaser proper title to the Property. The Deed must be scheduled with a minimum of 30 days' notice.
7. Register the purchase at the local Land Registry and local Municipal Authority so that title is enforceable against third parties. In Cape Verde, subsequently to the signature of the Deed, the Notary will prepare and send a report to the local Municipal Authority regarding the transaction. The Municipality will then update its records accordingly and register the new ownership of the property.
Notarial and registration fees and stamp duty can be expected to be approximately 2.5% of the property's attributed value. They are payable on signature of the Deed of Conveyance.
8. Services A contract needs to be signed with the providers of services, such as water, gas and electricity. We do not normally arrange this for clients, but can assist on request. Clients are advised to arrange for final meter readings to take placed prior to completion.
9. The Taxes regarding Property can be listed as the following:
Transfer Tax – flat rate of 3% on the attributed value to be paid before the Deed of purchase and sale.
Holding property/ Annual Rates – flat rate of 3% on 25% of the attributed value to be paid annually in April (or in two instalments in April and September of each year)
Capital Gains Tax – (i) Capital gains regarding plots for construction are taxable if their sale value exceeds a 100% increase of the value at which they were initially purchased.
(ii) Capital gains regarding any other property are taxable if their sale value exceeds a 30% increase of the value at which they were initially purchased.
In both (i) and (ii), the capital gain is taxed at a flat rate of 3% and should be paid within 30 days of the Deed, together with the submission of a "Declaracao de mais valias" (Capital Gains statement).
Inheritance/Gift Tax – Any property transmitted by inheritance or by gift is taxed at a flat rate of 3% on the attributed value.
Capeverdian Will
Once you have acquired the property, it is advisable that you execute a Capeverdian will to deal with your property in Cape Verde. Although an English will is valid, obtaining probate in Cape Verde is easier if there is a Capeverdian will.
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Report Compiled By:
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Report ref: TPI-CV-001
Date created: 24-03-2006