Buying A Property Abroad
Making the decision
Try before buy. It is always best to get as much knowledge as possible about where and what you plan to buy. Even if you have been on holiday regularly to where you plan to live you still need to understand the local market, which are the best residential areas and what living there full time will be like, including outside the holiday season.
An orientation trip can be useful and in Europe and many other places there are plenty of firms willing to arrange a viewing trip. You should be careful that these do not result in a hard sell approach encouraging you to make a decision before you have had time to think things through thoroughly. The best option will be to rent before you buy. This allows you to get into the life, talk to locals and other expats about the area and the market and ensure that you are making the right decision. You may also find that renting a property has advantages over buying.
Choosing the property
Once you are ready to proceed and have decided on the area, the type of property and facilities and amenities that you want it is time to begin looking at available properties. This the time to be calm and rational about your options. You need to be sure you have identified all of the costs associated with buying a property in that country, have understood any exchange rate risks that you face so that you can be sure that a major movement will not leave you unable to meet your payments without severely impacting the lifestyle you can afford.
If you are buying an investment property or plan to let the property for part of the year you will need to understand how realistic your expectations of the rate and frequency of rental income achievable and the implications of not achieving it. You also need to be sure you are taking into account in your assessment the cost of servicing, agent fees, taxes, running costs and other deductions.
The UK Government offer guidance on buying a property abroad as they are regularly approached by Brits who have made a bad purchase and look to the local consular officials for support and advice (which they cannot give).
Choosing an Agent
An agent when you are buying abroad plays an important role as they will generally pick you up at the airport, take you to see a wide range of areas and properties and will help you to understand what it is like to live in this unfamiliar country. You should always remember that in most markets they are paid by the seller and their primary objective is to sell the property on their books. It is often worth using more than one agent to ensure that you see a wide range of properties.
The Association of International Property Professionals (AIPP) offer a handy guide on buying abroad and also have a complaints procedure if you use one of their members as your agent. Many very reputable agents are not members of AIPP, but this can provide an extra level of comfort.
You can find agents by attending property exhibitions and this gives you the opportunity to meet them face to face, which always helps to assess them. If you rent before you buy, it allows you time to get to know the area and available properties at greater leisure as well as talking to people who live in the area who will be well placed to tell you the reputations of the local agents and share war stories and recommendations.
Buying off-plan
Where you are buying off-plan direct from an agent there are potentially more risks. You need to be confident that the developer will be able to complete the development to the specification claimed, that they will remain solvent and that the value will be as projected.
Simple precautions should protect you:
- Check their track record of completing similar developments and try to speak to people who have bought other properties developed by them.
- Ensure that you have a bank guarantee from a properly authorised bank to protect any payments made and that the sales contract obliges them to return advanced payments plus interest in the event that they do not complete the construction on time or if they fail to get necessary approvals for the completed building.
- Keep written receipts for all payments made and copies of all documents.
Legal advice
In many countries the process does not specifically require that purchasers use a lawyer and people with considerable experience of buying in their home market decide to go solo when buying abroad with sometimes disastrous consequences. Especially when buying in an unfamiliar country it is always worth having an independent lawyer to advise you and it is essential that they are fluent in the local language as well as English. Many agents will advise that they have your best interests at heart, but you should always remember that where the seller will be paying their fees they are not truly independent.
You must be sure that the seller has title not only to the property, but to the land on which it is being developed and that they have the right to transfer this to you. Some fraudulent cases in Spain and elsewhere have involved collusion between a developer and landowner where they did not transfer ownership of the underlying land in full. There are also countries where you cannot own land or property as a foreigner or without partnering with a local citizen or permanent resident.
Issues that can arise include local planning restrictions where property is developed illegally, such as the problems seen in Spain or taxes owed on the property that become the liability of the buyer.
Tax Implications
If you are a US citizen or permanent resident and you buy a primary residence overseas, you are entitled to the same US tax benefits as a homeowner in the US. You can deduct mortgage interest, property taxes, and certain other items on your U.S. tax forms. You must have income against which to take the deduction, however.
In the UK your tax residence will be determined by the Statutory Residence Test. Unless you have been non-resident in the UK for five years you will be subject to Capital Gains Tax on the sale. You will, however, get relief if it is your principal private residence and other exemptions may apply.
You will also need to understand the tax rules in the country where you are buying the property and how this and any Double Tax Treaty impacts any tax due in your home country. Clearly understanding these implications for your plans requires professional advice from someone who understands both local and home country rules.
It is also often a requirement but always sensible to update your will when moving to a new country to take account of local inheritance laws and taxes, which can be very different to those in your home country.
The Buying Process
Ensure that you understand the process in your chosen country and how they differ from those in your home country. You need to understand how long the process is likely to take and what is required from you.
For more detailed information you need to look at the specific processes for the country you are planning to move to. We have guides on buying property in: