Remember the days when it was only millionaires that could afford a bolthole in the sun? Well how times change. Britons have always had a keen interest in bricks and mortar but now there's a new passion: owning a home overseas. The figures themselves are rather compelling. Recent research by financial advisors Grant Thornton showed the number of properties owned overseas by UK households has trebled since 1995 while the Office of National Statistics says we spent a whopping £23 billion on foreign property investments in 2005 alone.
Exact figures remain elusive but what is clear is that whether for lifestyle choices or investment opportunities, more and more Britons are buying property abroad and they are not restricting themselves to the old hotspots like Tuscany and Provence. It seems that almost nowhere is out of bounds.
Emerging markets from Eastern Europe to The Far East have attracted huge interest in the past years along with lesser known regions of familiar countries: Puglia in the heel of Italy or Seville, the flamenco capital of Spain for example where recent annual price rises have reached 20%.
Several factors are driving this boom. Low-cost flights mean more of us can travel more often - Ryanair alone opened 153 new routes in 2006 and easyJet carried 3m passengers in September 2006, that's nearly 10% up on September 2005. Then there's the influence of the buoyant UK property market. As property prices at home continue to race ahead of inflation, more of us have equity in our homes to fund overseas purchases while younger buyers unable to get on the property ladder in the UK are more inclined to look abroad for an affordable alternative. Watching capital values increase in many markets around the world is a powerful incentive to share in the profits, especially for investors wary of the UK stock market.
Research, research, research.
There is rather more to an overseas purchase though than easy profits. How you go about researching and planning your purchase can have a big impact on future economic and personal rewards. Buyers should research everything from where to buy and how to finance the purchase through to legal and tax implications and ease of resale. Who will look after the property for you when you are not there? How will you pay the mortgage if you cannot rent it for a few months? Summer weather might be perfect in your new home but what is it like in the bleaker months of the year? Do you understand the full tax implications of your new home? How does the legal system differ from the one in the UK and what will that mean to you? All these questions need answering before you begin the excitement of house hunting.
Investment or holiday home
So where to start? Well the first thing is to be quite clear whether you are buying for personal use or for investment.
Buying for investment
How often will you stay in the property yourself? Most costs will stay the same whether you rent the property or not. If you plan to have large family get-togethers over Christmas and New Year in your swanky new ski chalet or aim to take August off to enjoy your Tuscan apartment, you will be losing your most lucrative rental weeks while still having to pay mortgage and running costs.
Two key questions for investment buyers are who will rent it from you and who will buy it when you come to sell. A market where everyone is an investor and there are no "end-users" - people who want to use it themselves - should raise concerns. Investors banking on future capital growth should be clear whether the rental returns will cover mortgage payments and other bills. Similarly if there is too much building going on in one area, how do you ensure your property will stand out when you come to sell it? Ideally investment buyers should take a long-term view, all the better to ride out any dips in the market. A forced sale at the wrong time is not the way to maximise profits.
Investment buyers choosing emerging markets have to make several market predictions to forecast future returns. There are several indicators to look for. Property prices generally get a boost when new flights start to an area or when a major sporting event is held there - think Olympics in Barcelona or The America Cup Sailing Event in Valencia in spring 2007.
Other indicators are economic factors. When multi national companies move in to an area - such as Eastern European capitals - to take advantage of a cheaper, well educated workforce, property prices will generally rise as a result. Cape Verde, 10 islands off western Africa, is tipped as a destination to watch because although it is poor and undeveloped now, good weather, improving accessibility and a low cost of living should attract the growing numbers of retirees in the future. And as China emerges as an economic force, demand for holiday property throughout Asia should rise, creating opportunities for investors in several far flung areas.
Holiday home
If you are buying for personal use then to some extent your heart may be excused for ruling your head. An apartment in Bucharest may increase in value much faster than one on the seafront in Nice where prices are already sky high but if Nice is what you really want, then go ahead. Just be sure that you understand the full financial implications of any decision and have a clear idea of selling costs and any legal restrictions on resale. At the time of writing in 2007, certain areas of Switzerland for example do not allow you to sell a property until you have owned it for 10 years. And in Italy there is no capital gains tax after five years but before that you could pay up to 43%.
Finances
Whatever your reasons for buying, it makes sense to prepare your finances as early as you can and to set a clear and realistic budget. Work out what you can afford to spend not forgetting to add in buying costs such as lawyers fees, agents charges, Vat, stamp duty and mortgage arrangement fees which all need to be paid for upfront. Buying costs in many European countries are significantly higher than in the UK and a common pitfall is for buyers to underestimate these charges. Be clear how you will cover the annual maintenance charges, utilities and local taxes and don't forget to open a local bank account. Many countries demand you have a National Identity Number before you can open an account.
Consider how to finance the purchase. Most buyers choose either equity release, taking advantage of buoyant UK house prices to remortgage UK properties or else choose to get a mortgage abroad. Throughout much of Europe, interest rates are lower than in the UK creating a more favourable repayment rate. Elsewhere, mortgages may not be available at all whilst in some emerging markets the mortgage industry is immature and rates are high. Remember that mortgages in the local currency mean you are at the vagaries of exchange rates.
Be fully aware of your tax liability including any rental income and capital gains when you come to sell. Certain countries have favourable tax regimes but usually only residents can benefit from this. Second-home owners who spend only a few weeks a year in their holiday home will still be subject to British taxes.
Legalities
As well as the obvious but often ignored advice - never sign anything you don't understand and always deal with an independent, bilingual lawyer - make sure you fully understand the legal process. The notary, found throughout Europe, is not the same as a lawyer but is a civil servant whose role is to draw up the legal deeds of purchase and sale. The rule of subrogation applies in many countries where debts are inherited by properties and not by individuals. Your lawyer should ensure any purchase is free of debts.
There are lawyers based in the UK who specialise in overseas property purchases and will hold your hand throughout the process, advising you of potential pitfalls before they happen. Information is available on the internet and there are shelves full of authoritative books but remember that laws change regularly.
Location
Access
Carefully research both the country and the area where you plan to buy to ensure the location suits all your demands. How often do you plan to visit your new home? Consider the ease and cost of accessing your property. If you are totally reliant on low-cost airlines, what would you do if they cut that route? Several areas of western Europe can now be easily reached by trains with new high speed routes opening up to Spain and Italy. This could provide a cheaper, more reliable and greener alternative to flying.
The transfer time from the airport is important. One of the major reasons for the popularity of French Alpine resort Chamonix is because it is within an hour of Geneva airport, making a quick weekend visit very easy. Most agents consider a transfer time of 45 minutes from airport to holiday home to be optimum.
Facilities
Consider what facilities you want, such as sports grounds, theatres and affordable restaurants and bars. Golf courses, tennis courts and boating facilities will all help make your property attractive for you and for future buyers and will also affect your chances of rental success. Local schools and hospitals may be important if you are planning a more permanent move and everyone needs shops. Where will you buy the major things like furniture as well as day-to-day shopping like milk and bread?
Language
If you buy off the beaten track before you have learned the language, will you be able to make friends and enter into local life? In many emerging markets the speed of development means that there are few residents who can speak English: a small frustration that could become a major problem when you are trying to communicate in an emergency with a doctor.
Weather
Escaping our grey weather is often cited as Britons main reason for looking for a second-home abroad so make sure you look at the year round climate at your chosen destination. The internet is an easy way to check this. Glorious summer sunshine can change into damp and dreary winters and directly affect the numbers of weeks of rental you get.
If you are looking at ski resorts, get an average snowfall for the last five years so you can see just how long the season is. If you are buying in a low resort, what other facilities are there for the weeks when the pistes are bare? Ski resorts are increasingly aware of the need to create year-round activities and many families have members who don't ski.
Local knowledge
Thoroughly research the area. Read local newspapers to know where the trendy areas are, which area is best established and which is considered up and coming. Talk to as many people as you can: estate agents are a good source of information but strike up a conversation in any bar or restaurant and you could be rewarded with a great deal of local knowledge.
New or old
Then think of the property itself. Should you buy off-plan, new build or do you want a renovation project or an older property?
Off-plan and new build
Buying off-plan can mean a good discount on prices and you may be able to make adjustments to the internal design and décor. New-build property might give you a few snagging problems but you should get valuable building certificates, guarantees and a pristine, untouched property. The problems are that at best you will have to wait for the property to be built and at worst the project may never happen should the developer go bankrupt. In much of western Europe new build property is often sold without fitted kitchens and bathrooms so remember to factor in this cost.
Older property
If it's an older character property you're after, a villa in Umbria or a farmhouse in the Dordogne for example, don't forget to get a survey and local searches to highlight any new developments or plans for the immediate area. Your rural idyll could be ruined if a new airport is planned nearby.
This type of property can also mean you need to think about maintenance when you are away. Who will come and water the garden or check the roof after a bad storm? Many buyers get around this problem by buying on a resort where they pay a management company to maintain their property and possibly organise rentals. Normal costs for this are anywhere between 40% and 60% of the rental income. Security on a resort is normally good - many British buyers like the added safety of a fully gated resort - but check the nationality of the other buyers if you are keen to get away from living in a British dominated area.
Finally
There's no doubt about it, there's plenty to think about before you buy a home abroad. Properly prepared and planned the purchase should be a satisfying and rewarding experience. So let the adventure begin.
April 2007
Cathy Hawker is a freelance property writer who contributes regularly to The Evening Standard and BBC Good Homes Magazine.
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