Buying a Property in Cape Verde

Cape Verde: an introduction

Unlikely though it may seem, a chain of islands lying 650km off the coast of Senegal, West Africa, is rapidly became the latest international property hotspot when prices there soared by nearly 20 per cent during 2006. Since then, the introduction of direct flights from the UK, along with more development have seen the Cape Verde islands become established on the international property scene.

The former Portuguese colony of Cape Verde, independent since 1975, consists of 10 main islands and five islets. The climate is hot and dry, with periodic droughts. All the islands are volcanic, but the only active volcano is Mount Fogo, on the island of Fogo, which last erupted in 1995.

The pace of expansion has slowed significantly as the expected floods of tourists have yet to materialise, though this has also had the effect of preventing the property market from becoming overheated and fizzling out.

Why Cape Verde?

Cape Verde is socially and politically stable, with friendly people; year-round sunshine; white sand beaches; pristine seas; stunning scenery and an exotic mix of Portuguese and West African culture. Health services are good, and crime levels generally low.

Though Cape Verde is still not an established holiday destination, its government’s recent aggressive growth strategy for tourism, which includes tax breaks for foreign corporate investors and developers, is resulting in a plethora of new upmarket hotels, casinos and golf resorts. In turn, the consequent increase in visitor numbers is fuelling an emerging international property market. Water sports fans are the first attracted to these Atlantic islands, but there is a market developing for couples, families and even eco-tourism.

The recent introduction of direct flights from the UK to Cape Verde’s international airports has boosted British interest in the country.

The property market in Cape Verde

Because so much new development is taking place, most of the market is off plan. Whilst buy-to-lets are popular, many foreign purchasers are acquiring property primarily for their own use.

Prices vary according to area and development, as each island has its own distinct character and will appeal to different groups of people; there is no way to give blanket prices. However, the fact that infrastructure is still catching up with the pace of building, prices are less than you might expect for island living, making Cape Verde excellent value in comparison to the Canary Islands, 240km to the north.

As the rental market is in its infancy, it is difficult to predict yields, but local agents say a well-positioned studio in Santa Maria, Sal should give anything up to nine per cent returns. And it is worth bearing in mind that, unlike many locations, Cape Verde has the potential for year-round letting, thanks to its climate.

Popular locations in Cape Verde

The islands currently experiencing most interest from holidaymakers are Sal, Boa Vista and Santiago, so it is there that most new development is taking place and the international property market is flourishing.

Some fear the over-development of certain areas if the construction boom continues, though there are measures in place to promote low-density, environmentally friendly building, as well as restrictions on building too close to the beaches and coastline

A typical new development has, as a minimum, a communal swimming pool; some have private pools. The more upmarket offer gyms, spa facilities, tennis courts, water sports and will have easy access to golf courses.

Since almost all furniture has to be imported, most developers offer furnishing packages. Allow 10 per cent of the purchase price to equip your property to a high standard.

Sal

Home to one of Cape Verde’s international airports, this is the most developed of the islands as regards tourism. It is earmarked for future development, including a marina.

Sal measures approximately 30km by 12km and is largely flat, with some of Cape Verde’s finest beaches. Many visitors are attracted by the excellent water sports facilities.

The main resort is Santa Maria, which has 8km of beautiful beaches and no shortage of bars, restaurants and other amenities. For those wishing to explore further afield, ferry services operate to the neighbouring islands of Sao Vicente, Sao Nicolau, Boa Vista and Santiago.

Boa Vista

Boa Vista, Cape Verde’s easternmost island and one of its most beautiful, is an up-and-coming holiday destination, and a property boom is predicted there in the next few years. Significant infrastructure development has already taken place, and more is planned.

The island measures 31km by 29km. Like Sal, its main attractions are sandy beaches (more than 55km of them) and water sports. Colourful fiestas take place throughout the year, including the carnival, held annually in May to celebrate the liberation of the slaves. Cape Verde’s national music, the morna (a close relative of Portugal’s fado), originated on Boa Vista.

Santiago

Measuring 75km by 35km, Santiago (or Sao Tiago) is Cape Verde’s largest island and is usually considered to have its finest scenery, with sandy bays and a rugged, mountainous interior. It is home to more than half of Cape Verde’s population, its capital, Praia, and Francisco Mendes International Airport.

The historic port city of Cidade Velha, with its cobbled streets, stone buildings, and 15th-century fortress and cathedral, is worth exploring. It has attained UNESCO World Heritage Site status as the first European settlement in the Tropics. Praia’s marine archaeology museum records the many shipwrecks that have occurred in the area.

Buying a property in Cape Verde

The purchase process

In Cape Verde, all properties are sold freehold, under a conveyancing system similar to Portugal’s. Following a verbal agreement, the purchaser’s lawyer begins the legal searches. Once a fiscal number has been obtained from the tax office, a provisional contract is signed, and the purchaser pays a non-refundable deposit (usually 10–30 per cent of the purchase price). The contract is legally binding on both sides, subject to satisfactory searches.

Once the provisional contract’s conditions are fulfilled, both parties sign the final contract in the presence of a Notary Public and the balance of the purchase price is paid. 30 days after this, the new ownership can be registered with the local Land Registry and tax office.

Fees and costs

Transfer tax, at a flat rate of 3 per cent, is payable on property purchases. Notary and registration fees plus stamp duty normally amount to about 2.5 per cent of the purchase price, and costs usually total around 6 per cent.

When buying off plan, the typical payment schedule is five staged payments, which are made across the period of construction. The purchaser must fund these payments initially, but may be able to obtain a mortgage on the official value of the property following completion (see Financing your purchase).

Annual property tax is payable at a flat rate of 3 per cent on 25 per cent of a property’s value.

Financing your purchase

At present, the availability of UK mortgages on Cape Verde property is limited, and loans are only obtainable in Cape Verde on property that is already built – a problem when much of the market is off-plan and staged payments are required. Most UK purchasers therefore pay cash, either from savings or by remortgaging a UK property.

Although it may seem a disadvantage, the fact that mortgages are not widely available plays a major part in keeping prices low. As Cape Verde’s financial stability increases and mortgages become easier to obtain, prices will inevitably rise.

Local banks are poised to start offering euro mortgages to foreign buyers for purchasing off-plan and resale property, so that will help free up another section of the market, but may cause prices to rise on its own.

Taxation

There is no double taxation treaty between Cape Verde and the UK. However, if you are paying tax on, say, rental income earned in Cape Verde, you may reduce your UK tax on the income by the amount of tax paid in Cape Verde. The credit for the Cape Verde tax must not be more than the UK tax on the equivalent income. As ever, the advice of an independent international taxation expert will make sure your liability is covered.

Rental income earned on property in Cape Verde is charged at 20 per cent. Capital gains tax, at a flat rate of 3 per cent, is payable on the sale of a property if the sale price is more than 30 per cent higher than the original purchase price. Inheritance and gift tax on assets (including property) are also levied at 3 per cent.

Money matters

The local currency is the Cape Verdean Escudo (CVE), which is pegged to the euro. The current exchange rate is CVE125.93 = £1.00 sterling.

Banking hours are 8:00 am to 2:00 pm, Monday to Friday. ATMs are available on the main islands.

Foreign currency can be exchanged at airports and banks, but CVE can only be reconverted in Portugal.

Credit cards are rarely used, though a few large hotels take Visa. Travellers’ cheques are accepted in large towns and tourist areas.

The import/export of local currency is prohibited. Unlimited sums of foreign currency can be imported, provided they are declared. The export of foreign currency is limited to the equivalent of CVE1,000,000 or the amount declared on arrival, whichever is the larger.

Passports, visas and residency

Passports and visas

To enter Cape Verde, British citizens need a passport, valid for the intended period of stay, and a visa. Visas are granted for a maximum stay of 90 days.

Residency

Foreign nationals can usually obtain residency if they: work for a local business; employ a minimum number of Cape Verdean nationals; invest more than a certain sum in a new business; or if they can prove they have sufficient income from outside the country to provide for themselves and pay for private healthcare.

If Cape Verde gains EU membership – it is rumoured to be considering applying for candidate status – residency would, of course, become easier to obtain, but this would be some way into the future.

Cape Verde’s economy

Despite a lack of natural resources, Cape Verde has enjoyed steady, if unspectacular, development. Policies are in place to control public spending, reduce domestic debt and improve social services.

Traditionally, the economy was based on fishing and agriculture, the main crops being bananas, coffee, peanuts, sweet potatoes and sugar cane. However, services, in the form of shipping, transport and particularly tourism, which is growing at more than 20 per cent per annum, are now significant contributors. Fuel and textiles are the chief manufacturing industries.

Remittances from expatriate Cape Verdeans, forced by droughts, food shortages and lack of work to emigrate, still comprise a significant percentage of the economy.

Portugal is the largest trading partner, but Cape Verde also trades with other EU countries and the US. Cape Verde became a member of the World Trade Organisation in July 2008.

Communications

Telephone

Cape Verde’s telephone system was extensively modernised between 1996 and 2000, following partial privatisation, and is still improving. Cabo Verde Telecom (CVT) is the sole provider of fixed-line, mobile and internet services. Calls outside the archipelago are expensive.

CVT has roaming agreements with most UK and European mobile service providers, though costs tend to be high. Competitors are seeking to break into the market, which should result in lower charges.

Internet

Internet access is also expensive, and is currently available only on Sal, Santiago, San Vicente and Boa Vista. Several internet cafés have opened recently in major towns, particularly on Santiago and Sal. Larger hotels offer laptop connections.

Post

The postal is generally slow; services to Europe take over a week.

And finally …

As with any foreign property purchase, it is vital to retain an experienced, English-speaking lawyer who is familiar with the relevant conveyancing procedures. Since English is not widely spoken in Cape Verde, finding one may be a challenge, but if you are buying from a developer, they should be able to help.

Particularly in an emerging market, ‘caution’ should be your watchword. Do not buy a property just because you fall in love with it, or because it looks like a bargain. Take professional advice and guidance specific to your circumstances, especially in areas like the purchase process, currency exchange, potential rental returns, taxation and mortgages. Above all, never sign any document until you are satisfied that you understand what you are committing yourself to.

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