Buying Property Abroad - Emerging Real Estate

Buying Property Abroad

One in eight people in the UK are considering buying property abroad in the next 5 years according to a recent UK survey.

This guide to buying property abroad should prove a useful resource for anyone considering buying overseas real estate.

The property buying process is different from country to country; in fact in some countries such as Canada and France the buying process can actually differ from region to region. As a result, research should be undertaken on a country by country basis before any decisions are made, however this guide will outline the main tax, legal and financial points to consider when buying property abroad. 

Property Markets

The British have an obsession about property prices, equity and re-mortgaging as the property market is constantly rising in the UK. When buying property abroad the overseas property market in question may not follow the same trend. If buying a second home abroad to make a quick profit, know that a home overseas will not necessarily rise in value, and may not be easy to sell! Research must be undertaken when buying property abroad to see whether the market you are interested in can support and sustain your hopes and ambitions for it.

Speak to specialists in the desired country when buying property abroad to find out what the market is doing – is it stable, is it on the way up or down? If it is stable then there should be a steady, realistic increase in the property’s value rather than the extreme peaks and troughs that the UK market tends towards. If on the other hand the market is stale then the economy of the country should be researched further to establish whether it is due a positive correction any time soon. 

Budgeting for Travel

When setting a budget for buying property abroad make sure regular travel costs are taken into account for visiting the overseas property. How often visits to the overseas property can be made should be taken into account when buying property abroad. Make sure visits to the overseas property for renovations, repairs or emergencies are budgeted for or if living in the property abroad, ensure trips home can be made to see family and friends. 

Tax Implications

When buying property abroad with the intention of renting out the property for parts of the year or even letting it on a long term basis, this income must be declared to the tax man in the country of residence. Furthermore it may be necessary to declare it in the country in which the new property is located. Make sure you seek solid tax advice before making any concrete buying decisions.

If buying a property abroad for renting purposes a good rental agent in the country will be required to take care of the property and tenants and to ensure your best interests are looked after. Do research costs for day to day maintenance of the property as well as the rental aspect.
Consider the local tax implications of buying, owning, renting and selling the property abroad. Property and land tax in some countries can make UK stamp duty and council tax pale into insignificance so it is important to find out how much taxes will be.

Capital gains taxation must also be considered. In most countries some form of gain taxation will be levied against the sale of a second and this should be factored in when budgeting and considering costs for buying property abroad.

The laws of inheritance differ greatly from country to country and a local will may be required. Specialist legal advice can always be sought before buying property abroad, and when it comes to the overall estate planning successful reduction or negation of the estate’s future liability can be achieved with careful financial planning. 

Legal fees & legalities

The legal bills that will be incurred when buying, renting or selling the property should be factored into your budget. A variety of extras like notary fees, valuation fees, translation fees etc. can be charged, and if taken into account shouldn’t present any problems later on down the line. In most countries it is advisable to add at least 10% to the purchase price to cover all extra fees. It is useful to budget a further 5% to fall back on just in case.

Be aware of the legalities of any contract entered into. Find a reputable lawyer, get key documents translated and know that ignorance is never a valid excuse! Seek specialist local advice from independent solicitors, architects and surveyors before considering buying property abroad.

When instructing a lawyer, make sure he investigates whether there are any debts on the property. It has been known for a developer to borrow money to build a development against the completed development, and the debt has then been allocated against each plot as additional security to the developer’s bank. 

Financial Considerations

When buying a property abroad there are several different options available to finance it - getting a second mortgage, buying it with cash, or raising a mortgage in the local currency.
It is important to understand the pros and cons of each finance option available.

Cash may seem the easiest and best option but it may not be advisable to have such a large amount of money tied up in an overseas asset which is relatively slow to liquidise.

A mortgage in the local currency will be affected by the fluctuating exchange rates, which will affect monthly payments. There are options available to you to reduce this risk - consider spot or forward transactions and speak to a financial adviser to find out what’s available.

A second mortgage can be a cheaper option at the moment - but remember both homes are at risk if you fall behind on payments. If you are using a mortgage to finance the property abroad, make sure that this is mentioned in any contract you sign and insist on the inclusion of an ‘opt-out clause’ in just in case the mortgage is refused - this will then allow any deposit paid to be refunded.

There are financial implications when buying a property abroad and to ensure your property is an asset always conduct thorough research on the local area, the economy and taxation laws before committing to a property.