Buying Property Abroad - The Guide

Summary: If you are one of 'us' and have decided that you'd like to see more of the world, experience a different culture and broaden your geographical horizons, this guide to buying property abroad should prove a useful resource.

Legal fees & legalities

Factor the legal bills that you will incur when buying, renting or selling your property into your 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!  In most countries they tell you to add 10% to the purchase price to cover all your extra fees...usually this 10% figure is a little on the optimistic side!  Take the figure your estate agent suggests and consider having another 5% to fall back on just in case.

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, so don’t ignore the problem!  Don’t blindly sign on the dotted line.  It is your responsibility to get informed.

Always ensure that you seek specialist local advice from independent solicitors, architects and surveyors before considering a purchase overseas. 

And when instructing a lawyer, make sure he ensures that you do not inherit a debt 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.  So, just make sure you are not liable for any outstanding debts!

Purchasing through an offshore company

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.  It is not a case of one method suiting all.  Be careful and get informed, speak to a qualified consultant.

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 if you decide to do so?  Ask the right questions of your consultant; make them work hard for you!

Ask whether there will 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 for example?

Make sure you consider the tax situation from the UK point of view and the local situation in your country of choice.

Affording your dream - mortgages and financial considerations

What option would you like to take when it comes to financing your purchase?  Are you considering a second mortgage, a cash purchase, or raising a mortgage in the local currency? 

Know the pros and cons of each option.

Cash may seem like the easiest and best way but do you want to have all that money tied up in a relatively slow to liquidise overseas asset? 

A mortgage in the local currency?  Have you considered the changing exchange rates, how will this effect the amount you pay monthly compared to the value of your home currency?  It could be on the positive side!  And if not 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 to you.

A second mortgage can be a cheaper option at the moment - but remember you’d risk losing both homes if you fell behind on payments.

If you are using a mortgage to finance the property, make sure that this is mentioned in any contract you sign and insist on an ‘opt-out clause’ being written in just in case the mortgage is refused - this will then allow you to have any deposit paid refunded to you. 

Of course, if possible try to arrange your mortgage ‘in principle’ before agreeing to purchase any property and certainly before signing any contract or paying a deposit as this may avoid hassle in the long term.

If you open a bank account in your chosen country and deposit or transfer money into it, get a ‘Certificate of Importation’ for the sum of money you bring in if you can, otherwise - worst case scenario - you could encounter money laundering and/or tricky tax questions both at home and abroad!!

Consider setting up standing orders locally to pay your regular bills and any ongoing taxes.  If you are late with payment, services can be cut off and in some countries getting them reconnected can be a drama in itself (trust me on that one!)

Furthermore, in some countries such as France and Spain, the failure to meet tax payment schedules can lead to court action and possible repossession of your property! 

Not good!

A typical purchase process

Well, as you’re already aware there is no such thing as a typical purchase process; things never go exactly to plan whether you’re buying at home or abroad!  But these are the basic steps that the path to purchase follows...and they should give you some idea on which you can base your planning.

Step 1 - Finding a good estate agent.

What’s the definition of good in this context? 

Well, someone who makes an effort to note your areas of interest, your budget and your requirements and then takes the time to show you suitable properties!

If you’re new to the country you’re considering buying in a good estate agent should introduce you to alternative locations and developments to those you’ve considered if at all possible, and he will certainly take the time to chauffeur you around a little.

A good estate agent will also give you a break down of the buying process in the given country, suggest legal and financial professionals to assist you and help you understand any extra fees for which you’ll be liable.

Step 2 - Viewing properties whilst keeping an open mind!

Do not be seduced by the sun, the view or the price of a property.  Think about the practicalities of living in the property - ALL year round...i.e., are you SURE you don’t need central heating, running water, a roof?!

Do not let your heart rule your head and don’t take what you view at face value.  Ask all the questions you’d ask if you were buying the same property back home.  Such as who else has access across your land, does the water ever run out, do you experience power cuts in the winter?  What’s included with the development if you’re buying off plan, when’s the completion date and what contingency/compensation is written into the contract if the developer fails to finish on time or fails to finish full stop. 

Be a tough customer! 

And then, if you set your heart on something consider speaking to neighbours or other expats in the local vicinity to get a real feeling for the purchase process, the property, the area etc.

Be aware that us expats can be a funny breed though and don’t be put off by any negativity you encounter - it could just be they want to keep their chosen dream location a secret.  Gather and hold on to FACTS, not opinions or gripes or even dreams.

Step 3 - Agreeing a price.

In some countries you can negotiate, in some countries you can’t.  As my dad always says, ‘if you don’t ask, you don’t get’ - so, as long as you’ve not been told negotiation is illegal or offensive, make an offer!

The worst that can happen is it’s refused and you have to make another offer!

Step 4 - Signing a preliminary contract & handing over a deposit.

Before you sign the contract and most certainly before you hand over any money I would always advise someone to have appointed a local solicitor.  Other people will disagree with me I’m sure. 

But my thinking is that a local solicitor will at worst give another opinion for you to consider - hopefully his opinion will tie in with your own - but if not, at best he’ll prevent you from buying something that isn’t really for sale or purchasing from someone who shouldn’t really be selling!

The British consulate in your chosen country should have a list of solicitors and lawyers you can contact, alternatively ask around or take the recommendation of your estate agent.  If you take their recommendation make sure your interests only are represented by the solicitor and that there is no conflict of interest.

Once a price has been agreed upon some form of preliminary contract is usually signed.  This contract effectively reserves the property for you and takes it off the open market.

Do make sure you’re aware of the wording of the contract and that you agree with all it states.

As mentioned earlier, if you have any conditions that you need adding to the contract - such as you’ll only go ahead if your mortgage is agreed, or you’ll only go ahead after any surveys are successfully completed - these MUST be in the contract. 

Insist on it please!

You will probably be required to hand over a deposit at this point.  If the contract contains conditions the deposit should not be paid directly to the vendor as it may be hard to recover it in the event that the contract’s conditions are not met. 

Step 5 - On the way to completion.

Between the signing of a preliminary contract and completion all sorts of this can happen.  From the conducting of local searches and surveys to applying for a right to buy in your chosen country.  From the building of the property to finding the finance to pay for it.

It would be impossible for me to think of every single scenario!  Just make sure you’re aware of the path the process will take from preliminary contract through to the completion.

Your initial contract may have a set completion date, especially if you’re buying a resale or completed property, you will have to work to have all your searches, surveys and architect reports in place and your finance agreement finalised before this date is reached.

Step 6 - Completion.

You’ve finally done it!  You’ve purchased your dream! 

Upon completion vendor and purchaser will be required to sign some form of contract in front of a lawyer or notary. 

This contract hands ownership of the property to the purchaser - or his mortgage company!

Deeds will be transferred and the final balance will be due.

If you’re buying off plan or a completed but brand new property, find out whether you can hold back a small percentage of the money until you are completely satisfied with the build quality and finish.

In some countries the withholding of this amount is standard practice, in other countries not.  Sometimes the solicitor can withhold it as an independent intermediary.  It is really worthwhile asking for this as it can be a good carrot to dangle when you move in to find your shower’s not been plumbed in or the bathroom tiles weren’t what you chose (yes those are both examples based on personal experience!).

It’s far easier to negotiate when the money is in YOUR pocket - or at least NOT in the builder/vendor’s pocket.

And finally

Now, this guide is certainly not exhaustive when it comes to the considerations you need to take when exploring the idea of purchasing a second home abroad. 

So, seek professional legal, financial and taxation advice at every step of the way, stay informed and don’t be seduced by the sunshine.  Don’t enter into an idea abroad that you wouldn’t entertain under the rain clouds back home!

And finally don’t let the above points put you off realising your dream - if you buy a second home in the sun you’ll find you never knew you had so many friends all willing to come out and visit you!

If you would like any further information, advice or assistance feel free to with your requirements.  We do speak from a point of view of experience, and if we don’t know the answers to your specific questions it’s possible we may know a man who can or at least be able to point you in the right direction.

We look forward to hearing from you.

If you would like to learn about purchasing overseas investment property, or where the emerging real estate markets abroad are in 2005, check out part two of our International Property Guide, “Overseas Investment Property Guide.”

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