Check
before buying
homes,
villas or apartments overseas
Buying
homes overseas involves a higher degree
of risk than buying in the UK, especially
if the buyer does not undertake proper
research. Many buyers of overseas houses,
villas and apartments have made spectacular
gains, but some have come off worse because
they did not know the law and customs
of the country in which they were investing,
or later discovered some other unwelcome
surprises.
Below is a checklist suggesting
some items worth looking into before
buying homes overseas, it is likely that none of these factors will
be decisive in the investment decision, but
all should be factored into the appraisal.
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Climate
Many overseas investors make their decisions on where to
look for a property based on their experiences gained
in holiday times when climatic conditions are likely
to be at their most appealing. But few places in the
world have constant temperatures, humidity and rainfall
all the year round. Investors should be aware of the
extremes at both ends of the scale, the severity of winters
and other climate related phenomena such as the likelihood
of hurricanes and tornados, whether there is an insect
problem at particular times of the year, or whether pollen
can be a problem to hay fever sufferers (as it can be
in and around the pine forests of south west France,
for example).
For buyers of houses and villas overseas who wish to let
their properties, the length of summer and winter holiday
seasons will be crucial in calculating possible returns.
Condition of property
It is not common in all countries for buyers of previously
owned properties to commission surveys of properties
before committing themselves to purchase. This may be
because laws protect the buyer by making it a requirement
that sellers disclose concealed defects about which they
know (as in most US states). But this is not always
the case and buyers should consider the need for a survey
even if local custom dictates otherwise. Bear in mind
that repairs and renovations can be expensive and difficult
to arrange and manage from another country.
Crime
Some seemingly idyllic locations can have high local crime
rates. Buyers of homes overseas,
all of whom may seem rich by local standards and many
of whom are likely to leave their properties empty for
at least part of the year, can be particular targets
for would-be burglars. Before investing it is wise to
check the degree to which crime is a problem.
Currency risk
Longer term currency movements will have a significant
bearing on whether an overseas property investment is
profitable or not. Financially speaking, it is no good
having a property in a country where property prices
have shot up 75 per cent but the value of the local currency
vis-à-vis the pound has halved. Such a currency
effect will have been felt by some investors buying in
the USA in recent years.
In the shorter term investors who do not already hold
sufficient of the appropriate foreign currency will be
in a vulnerable position should the value of that currency
rise between the time they commit themselves to a particular
price for a property and when they pay over the money.
In such circumstances an answer could be to buy currency
in advance.
Economic outlook
The economic outlook is important even for those buyers
of homes overseas who do not intend to work
or do business in the country in which they choose to
buy property. It will have a bearing on property prices,
on inflation and the local cost of living, exchange rates,
and also possibly the attitude of locals to outsiders
buying up property.
Recently
new members of the EU, such as Hungary,
and EU succession candidate countries, such as Croatia,
have found that their economic prospects have been dramatically
improved and usually their property prices
have climbed accordingly.
Estate agents
Currently there is no requirement in the UK for estate
agents to be professionally qualified, although there
are an increasing number of bonding and other schemes
requiring particular standards and offering safeguards
to property investors. But even these protections are
not available in every country and only in some do estate
agents need to be registered. Investors should take care
which firms they deal with, seeking recommendations were
possible.
Estate agents can act for buyers as well as sellers, and
in some countries operate for both, with fees being paid
accordingly by buyers and sellers.
Exchange laws
Although most countries will welcome inward investment,
not all are so keen on overseas investors taking their
money home with them. Buyers of houses and villas overseas
should check out the exchange laws before purchasing
property and make sure that appropriate documentation
is retained where proof of purchase is required before
money can be repatriated after a sale (as in Cyprus,
for example).
Inheritance laws
Inheritance laws and inheritance tax vary considerably
between countries and both should be checked. In France,
for example, property owners are not free to dispose
of property as they wish but must bequeath set proportions
of property to their children.
Property insurance
Insurance is a necessity for piece of mind and in some
cases (Turkey, for
example), cover for such dangers as earthquakes is a
requirement. Cover is usually available
locally and from UK specialist firms.
Land registry
Many countries operate land registry systems where ownership
of property is recorded in an official register. As in
the UK, and France, for
example, land registry generally gives investors some
protection and makes it easier to
check on the authenticity of claimed ownership. But not
all land registry systems are as effective as others
and in Hungary, for
example, there is a backlog of registrations. In many
countries not all encumbrances
will be recorded at the land registry and unpaid property
taxes, which in Spain, for example, attach to the
property, will not be obvious without further checks
being made.
Legal system
Legal systems vary from country to country but in most
they require a notary to be involved in the transfer
of title. Be clear, a notary is not the same as a solicitor
commissioned by the property buyer to look after his
or her interests. More often notaries effectively act
for the state, making sure paperwork is in order and
the correct tax is paid, and will probably not check
on matters such as planning permission.
Whatever the local custom, it will often be advisable
for buyers of houses and villas overseas to appoint their
own lawyers to guard their wider interests.
Letting laws
As in the UK, many countries has have strict requirements
about letting and associated standards, including anti-discrimination
laws, tenant rights of tenure, and taxation of income.
Again as in the UK, the rules concerning holiday lets
tend to be less demanding, but even so, investors intending
to let out their properties should not purchase until
they have checked out local letting laws.
Local taxation
Local property taxes are charged nearly everywhere, although
the burden varies considerably. In some places (Italy,
and parts of Spain, for
example) lower rates are levied on the homes of residents
than on the second
homes of part time residents. Investors who intend to
live in their country of choice should therefore make
sure official records (and taxes) reflect the fact.
Location
As in all property matters, location is paramount. Buyers
of homes overseas who wish to let their properties
will want to be assured that international transport
links are adequate and not overly expensive or prone
to dramatic reduction or overbooking at particular times
of the year, and that, for example, the local airport
is served by more than one airline.
Natural hazards
Few places have as few natural hazards to contend with
as the UK. Damage and injury from natural hazards such
as earthquake, hurricane, landslips, and flood can be
insured against, but investors should make sure they
are aware of all the risks against which they should
arrange financial protection.
Notaries and lawyers
See Legal systems.
Planning laws
Some countries have planning laws that are not always observed
to the letter – and this can apply to local governments
as much as to individual builders and home owners.
In such cases the outcome can be disastrous in the event
of a dispute (in Marbella,
for example, properties owned by overseas investors are
in danger of demolition
because of a planning dispute between the town and the
regional authority). It is important to check out that
any property bought has valid planning permission and
is within a zone designated for residential property
and not, as could be the case in Turkey,
within a security zone where special permission may be
required.
Political risk
Countries within the EU are relatively stable, but parts
of eastern Europe, for example, are not without the risk
of possible political turmoil and ethnic unrest. Even
in the UK, government attitude towards property ownership
and the private rented sector changes from time to time,
with an inevitable impact on investment returns. Wise
buyers of houses and villas abroad will check out the
political climate before buying villas and apartments.
Repatriation of property
In countries which have suffered occupation following invasion
or war, there is the potential for previous owners to
claim back property that has been taken away from them
as a result. If a previous owner turns up, any investor
who has bought such property is likely to loose out.
European
courts have generally supported claims from former owners,
which has encouraged Cyprus (now
a member of the EU), for example, to issue a warning
to investors
who might be considering buying homes in the Turkish
controlled north of the island.
Service charges
As in the UK, properties that come in the form of apartment
or condominiums are likely to be subject to service charges.
Apart from the commitment involved, unduly high or uncontrolled
services charges are likely to have a bearing on then
future worth and saleability of any property.
Taxation
Tax systems vary from country to country and have different
emphasis according to tradition and current needs. While
some countries have in the past be lax towards taxation,
this is increasingly less the case, so the investors
should make sure they are aware of their possible exposure
to income tax, capital and inheritance taxes, and to
VAT or its equivalent which in some countries is levied
on new builds.
Tenure
Besides their equivalents of freehold and leasehold tenures,
some countries (Italy, for example) have other types
of tenure also. Buyers of houses and villas abroad should
be aware of what they are buying.
Title
Clean title to a property is essential. In countries
with land registration systems this may be easier to
achieve
than in some other places – but not always (Hungary,
for example). Even so, investors should be wary when
buying homes overseas. The general advice is to sign nothing,
and certainly pay nothing, until adequate research
has
been undertaken and appropriate legal and financial
advice obtained.
Visas
Being allowed to buy property in a country does not necessarily
mean this brings with it any rights to live there,
or even to stay there for any extended length of time.
While
UK citizens may live in other EU countries, in the USA,
for example, and some other non-EU countries a visa
will be required and/or the length of any stay may
be limited.
© Weblishers Limited 2010
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improvements to our checklist please click here.
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