An Investors check list for overseas property investment.
Jane, was a recent contributor to a social network site, runs a property furnishing company. She related her experience of dealing with those who invest in properties abroad.
“In many cases, we have furnished properties where the investor has not only not seen the property but not even been to Turkey – the buyers had no idea, what they were walking into.”
I wasn’t surprised by the comments from Jane, as I have previous experience of investing overseas myself and of working in overseas property investment. I therefore feel it is worthwhile to share information about some of the most important things you have to take into consideration before even contemplating overseas property investment.
Probably the most overlooked aspect of overseas property investment is the currency risk.
It not only affects the cost of your property but also your running expenses such as mortgage payments.
Let’s say you were buying a property for €100,000 and your mortgage payment and costs every month were going to be €700 if the exchange rate today is approximately €1.14 to the £1 that would been that your property would cost you £87,719 and your costs would be £614 per month.
How would your investment be affected if the exchange rate moved back to around €1.35 to the £1? If you decided to sell your property at €100,000 the price you bought it for you would only get back £74,074. That would mean you have lost £13,645 because of the currency movement. Your monthly running costs however have reduced to £519 per month.
If you want to buy a property abroad then you have to be prepared to take the currency gamble. If you feel like it’s a risk that would keep you awake at night then stay away.
Unknown Legal systems
The UK legal system is one of the best in the world when it comes to purchasing property. We have one of the oldest land registry systems and you are offered very robust protection. Do not automatically expect the same level of protection when you invest overseas. You may have seen the well publicised losses incurred by some British families who have invested in property in Spain, where the local authorities have deemed that their properties have been built illegally and have instructed them to bulldoze their homes.
In Northern Cyprus there have also been legal disputes over land ownership due to the civil war and land grab that followed. Even though the war finished decades ago many cases of land sovereignty are still dispute today.
So, when looking to purchase overseas make sure you take independent legal advice preferably from a legal firm in the UK who has knowledge of the market you are considering.
Make sure you are aware of the different taxation rules when investing in overseas property. Some countries have very appealing taxation rules and others are dreadful. I had a client that was considering investing overseas in the Caribbean; he had read the glossy brochure and spoken at length with the smooth talking salesman. He asked for my opinion and after some basic checks I discovered his transaction costs, due to taxation, would have been over 20% of the property price! Needless to say the brochure and the salesman neglected to highlight this to him.
If you are told that an overseas property investment is a hotspot, run a mile. Some previous hotspots over the last few years have included Dubai (prices crashed and have yet to recover) Bulgaria (see previous) and Cape Verde (starting to happen). If you are told that a country is a hotspot you have already missed the boat, the smart money has already been and gone. The only thing left pushing prices up is fear and greed, led by investors thinking they had better buy quickly before they miss out and by agents who are blinded by huge commissions.
Current hotspots in my opinion are India and certain Caribbean resorts being pushed by jester like agents.
In Conclusion – Overseas Property Investment
The lesson you should take away from this guide is not so much location, location, location but research, research, research.
Personally I no longer invest overseas and I don’t intend to in the near future, as I believe the UK offers a much more reliable and safer prospect right now. If you are still keen, make sure you consider the above as a starting point and take some advice, but not just from the person trying to sell you the property.
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