The Property Banks Top 10 Purchase Factors of Overseas Property
Are you
one of a growing number of people considering buying overseas
property, an idyllic home from home abroad or a lucrative investment
property overseas? If so you’re not alone! Statistics show that
globally we’re all on the move with a recent survey by YouGov
revealing that 55% of adult Britons were “seriously considering
settling in another country” and the British Centre for Future
Studies predicting that by 2020 one tenth of the current British
population will be living or working abroad!
Add to this the fact that there was a 250% increase between 2000 and
2004 in the number of Britons buying property abroad solely for
investment purposes, that over one and a quarter million Brits own
second homes in Spain and France already and that the Office for
National Statistics in the UK recently revealed that 200,000 Britons
go overseas yearly with the intention of remaining for at least
twelve months, and you can see that the passion for buying that
dream home abroad is universal.
Ten top points worthy of your consideration.
1) The British national obsession with property prices, equity and
re-mortgaging is as foreign a concept in many other countries as
mushy peas or vinegar on your chips so don’t just assume that your
second home will rise in value and don’t assume that it’ll be easy
to sell. Do your homework to see whether the property market you’re
interested in can support and sustain your particular hopes and
ambitions for it. In countries such as Northern Cyprus and Bulgaria
the real estate market has been suppressed for so long that property
prices remain highly competitive and many can see the room for
substantial growth in the market. In other countries such as Spain,
France and Portugal where the property market has been soaring for
years can you expect the same levels of growth to continue? Know
that every country’s property market is different. If you decide to
compare overseas markets to the UK housing market some may not
appear as buoyant, however consider examining the longer term
trends. Speak to established estate agencies in your country of
choice to find out whether the market is stable or stale. If it’s
stable then you’re more likely to enjoy a steady, realistic increase
in your 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 you need to consider the economy of the country and whether
it’s due a positive correction any time soon.
2) Factor in regular travel costs needed for visiting your second
home when you establish your budget. Keep in mind any extra visits
you might have to make occasionally to organise repairs and
renovation for example. This sounds so obvious but sadly many people
are caught out and find that they cannot holiday in their new home
as often as they like: or worse still - once they move abroad they
find they can’t get ‘home’ for visits to the family etc. Budget
wisely and don’t get caught out!
3) If you intend to rent out your second home you must declare this
income to the tax man in your country of residence I’m afraid!
Furthermore it may be necessary to declare it in the country in
which the new house is located depending on the double taxation
agreements in place between the two countries. Make sure you seek
solid tax advice before making any concrete buying decisions.
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4) If you’re intending to let out your property make sure you know
how much it’s going to cost to have an agent manage both the
day-to-day running of your property together with organising the
rental side of things for you. You’ll need a good agent to make sure
your best interests are always protected especially if you’re not
going to remain resident in the country the property is located in.
Factor these extra costs into your budget or reduce them from your
projected rental income to get a realistic idea of the income
potential of your property. Remember you’ll still need to pay a
management agent during any weeks and months the property remains
unoccupied.
5) Consider the local tax implications of buying, owning and selling
your property as property and land tax in some countries can make UK
stamp duty and council tax pale into insignificance. In Northern
Cyprus for example tax rates are not currently excessive but they
are subject to change, therefore always get up-to-date tax and fee
facts and figures from your estate agent – furthermore, make sure
you check the figures with a local lawyer or accountant.
6) Make a will to cover local inheritance tax laws and make sure
your overseas property is also detailed in a will held in your
country of residence. Specialist legal advice should always be
sought when you hold property in more than one country as
inheritance laws not only differ greatly depending on the country,
but certain local inheritance laws can completely contradict and
invalidate your main will.
7) Factor the legal bills that you will incur when buying, renting
or selling your property into your overall budget. You can be
charged all sorts of extras like notary fees, valuation fees,
translation fees etc., and if you factor them in you shouldn't’ get
any nasty surprises.
8) Be aware of the legalities of any contract you enter into. Find a
reputable lawyer, get key documents translated, and know that
ignorance is never a valid excuse! Not understanding the language in
which your key legal contracts are written is a problem, don’t
ignore the problem! Don’t blindly sign on the dotted line; it’s your
responsibility to get informed.
9) Buying through an offshore company to avoid certain taxes,
expenses and laws is sometimes an option open to an individual
interested in purchasing abroad. Whether this route is actually the
best route is massively debateable! Firstly it depends on the
country in which you’re buying. Secondly, local agents may be
incorrectly advising foreigners by basing their advice on the local
situation. This method of approach can be beneficial but it could
land you in a whole lot more taxation mess both abroad and at home!
There are specialist companies out there who can advise you based on
your individual situation and as it’s not a case of one method
suiting all, be careful and get informed. Find out the following, if
you do buy through an offshore company and wish to take the property
out of that company in the future how easy will that be to do, will
you incur an expense, will there be further tax liabilities if you
decide to sell your company owned property, and what happens if you
try to take the profit from the sale, will you be taxed? Also
consider the taxation situation from the UK point of view and the
local situation in your country of choice.
10) What option would you like to take when it comes to financing
your purchase? Are you considering equity release or a second
mortgage, cash or a mortgage in the local currency? Know the pros
and cons of each option. Cash may seem like the easiest and best way
to go but do you want to have all that money tied up in a relatively
slow to liquidise overseas asset? So what about a mortgage in the
local currency? You need to consider the stability of the currency
and fluctuating exchange rates. When moving money overseas either in
a lump sum or to meet regular monthly financial commitments there
are options available to you to reduce currency fluctuation risks –
consider spot or forward transactions, speak to a financial adviser
or foreign exchange risk expert to find out the options available.
If you’re considering equity release or a second mortgage this might
be a cheap option at the moment – but remember you’d risk losing one
or both homes if you fell behind on payments!
When it comes to the considerations you need to make when exploring
the idea of purchasing a second home abroad these ten top tips are
not exhaustive but should provide some food for thought. Going
forward from here you should remain informed; don’t enter into an
idea abroad that you wouldn't entertain ‘back home’ and seek
professional legal, financial and taxation advice at every step of
the way.