In an ideal world, the process of buying a property abroad would be a methodical and systematic business, carried out with all the analysis, planning and skilful execution of a military operation. In the real world, it too often starts out as an impulse decision, driven by emotional rather than rational considerations, and muddled through in blissful ignorance.
The ramifications can be serious. Talk to anyone who has bought a new property in Spain and subsequently discovered that it had no Habitation Licence, and now faces the prospect of being refused utilities, unable to sell, or even having the house demolished. Or the person who didn’t have a survey and now finds his roof is collapsing.
At the very least, mistakes made during the purchase process can cause legal headaches, uncertainty and stress stretching into the future, the last thing that anybody buying a holiday or retirement home would choose. And if you’re buying for investment, getting it right can mean the difference between owning a lucrative nest-egg and a dud that will drain your finances for years to come. Buy a home abroad in haste and, as the saying goes, you will have the opportunity to repent at leisure.
It’s often tempting when you’re enjoying yourself on holiday to browse in estate agents’ windows, especially as so many of them are geared towards English-speaking buyers these days. And it certainly makes sense to buy a property in a country and region that you know, as opposed to somewhere that is completely uncharted territory.
It is certainly an excellent idea to spend time in the area you’re thinking of buying: exploring, finding the best locations, getting a feel for whether you really like it or whether the novelty will wear off. However, holidays may not be the best time to do this, because you are not necessarily in the most critical frame of mind, so it is better to organise a dedicated property-hunting visit.
One of the biggest mistakes you can make is to opt for the first property you are shown. It may look great, especially compared to what you could get for the same money in the UK, but unless you’ve really researched the market, by looking around at a range of properties, you won’t know whether it is the best available or represents good value for money locally. You can search for similar properties online at Primelocation.com to see what is on the market.
You should always look at properties from more than one agent to get the broadest possible view of the market and the possibilities on offer. If an agent has the idea that you’re a captive audience they may consider you easy prey. A classic manoeuvre is to show a potential buyer a number of mediocre properties, then follow it up with a good one, knowing that it will look good by comparison, and the buyers may snap it up out of relief that they’ve found something they like.
By the same token, you should be wary of developers’ inspection trips. They can be useful as they are usually subsidised, somebody else does all the organising, and you also get the chance to meet other people who are thinking of buying in that area, and to exchange notes.
However, developers and their marketing people have been known to hard sell and to put heavy pressure on customers to sign up with a deposit while they are on the visit; you should always wait until you’ve returned home and had a chance to think about it before making any firm decisions. Also, you will only see what the developer or agent wants you to see: far better to travel under your own steam.
One of the remarkable phenomena of recent years has been the number of people willing to buy a property abroad without having seen it, or without even having ever visited the country in question. One woman told me she bought a ski property in Bulgaria after her brother-in-law phoned her to say he was at a property exhibition in a local hotel. “They’re selling like hot cakes,” he urged. “Get down here fast.” When she did eventually decide to visit the site of her off-plan property, she discovered it was miles from the ski-slopes, had no access to the golf course it was adjacent to, and that there was a glut of similar properties nearby. Another lady did manage successfully to buy an older property in Bulgaria without seeing it, but only after she got the local agent to take dozens of photos and email them to her, so she was satisfied she had seen it from every conceivable angle.
Investors in property in Eastern Europe often buy property unseen; it seems that they place a huge amount of trust in the judgement and reputation of the company that is marketing the “investment opportunity”, as well as in market data and the fundamental rationale for the investment. This is, nevertheless, a high-risk strategy.
At the very least, you don’t know what the area is really like, whether there is some major flaw, such as a nuclear power-station on your doorstep, pollution, or hostility from the locals.
Another aspect of buying in an area without doing proper research is worth mentioning: natural hazards. Just as many parts of the UK suffered from terrible flooding in 2007, you could find yourself inadvertently buying in a location that is prone to this or other types of natural disaster.
Parts of the Caribbean are particularly vulnerable to hurricanes; in one hillside village in Liguria, where rusticos are offered for restoration, there have been serious landslides in recent years and in Greece, the devastating effects of forest fires have highlighted that danger. The only way to protect yourself against this type of risk is to spend time in the area in question, talk to as many people as possible, and do some research on the Internet.
Finally, don’t be seduced by visiting a property at a particular time of day, or a particular time of the year. It may be sunny now, but what will it be like at six o’clock in the evening? This is particularly true in mountainous areas: your property in an idyllic Alpine valley, for example, could have virtually no sun at all for large parts of the day if the orientation is wrong. And if you’re planning to retire abroad, or enjoy time at a second home outside the traditional summer season, you should definitely check how the weather changes throughout the year.
Buy away from the coast in Spain, for example, and you may find that the hillside village which is unbearably hot in summer becomes frozen and miserable from late autumn onwards.
You’ve found the house or apartment of your dreams, now it’s time to check that there are no major problems, and to make it happen. In broad terms, the process of buying property is pretty similar in just about every country in the world, and follows the same pattern as that in the UK.
There is almost invariably some form of title, a written record of who owns what, often with the history appended. There is a contract, or a series of contracts, which specify who is buying what from whom. Often this is in two stages: the first a preliminary contract stating the owner’s commitment to sell the property, and the buyer’s commitment to buy it, perhaps accompanied by some form of deposit; the second, a completion or closing contract, which finalises the deal.
Prior to the final contract being signed there is a raft of checks to be made from the legal status of the property, to plans for new developments nearby, the existence of any debts attached to the property, guarantees, covenants and, of course, the physical condition of the building.
Having said that, the detail of buying abroad does vary enormously, country by country. It’s partly a question of different legal systems and languages; but there are also differences in culture and tradition to take into account, and the people involved in the process also varies from country to country.
One of the first things most people would do after deciding to buy a property in the UK is to get a survey undertaken. In fact, if you are borrowing money the mortgage company will require a report on the building’s condition. Yet, amazingly, people buying abroad usually don’t see the need.
The surveying profession is not so strong in most countries as it is in the UK, but you should always do your best to check the physical condition of the building you are planning to buy, even if that means using a builder rather than a surveyor to do so. The risk of not taking some professional advice is that you find yourself saddled with structural problems such as subsidence or needing to replace the roof, which will cost a lot of money to sort out later.
In the UK, it’s normal that both seller and buyer each appoint their own solicitor to handle the “conveyancing” of the property; that’s not necessarily the case abroad. In many European countries, where the French Napoleonic Code is the basis of the legal system, a notary acts on behalf of both buyer and seller, carrying out much of the checking and contractual work for the transaction.
A notary is not exactly a lawyer; more of a public servant with legal qualifications. And it may be worth hiring your own lawyer in addition to the notary to ensure that your interests are fully represented. Don’t be railroaded into taking on the lawyer suggested to you by the selling agent: they may not be truly independent.
Depending on how reliable and Anglo-friendly the local lawyers are, it may even be advisable to take on a British firm of lawyers in addition to a local lawyer; the main point of this is to ensure that any implications under British law are fully considered, such as the eventual inheritance of the property.
Inheritance laws are often quite different from those in the UK; the classic example is that in French law, when one partner dies, a jointly-owned property does not pass automatically to the spouse, as any children also have an entitlement.
Clearly the more legal representatives you use, the more expensive the buying process becomes, and it is fair to say that the costs of buying abroad are typically much higher as a percentage of the purchase price than in the UK - 10% to 15% is not uncommon. So you should always bear this in mind when you draw up your budget and consider how much you can afford to pay for a property.
Apart from drawing up the relevant contracts, and a general process of due diligence, there are two key priorities that your lawyer(s) must address. The first is establishing that the property has clean title, in other words, that the boundaries are clearly delineated, and that the ownership is undisputed. This can be a much more significant issue in many other countries than it usually is in the UK. The countries of eastern Europe, for example, all spent decades under communism during which there wasn’t a free market in property and ownership sometimes became clouded.
The second is establishing the planning status of the property, especially when you are buying from a developer. As mentioned before, thousands of houses have been built in parts of Spain, notably Valencia and Marbella, where the land does not have the Habitation Licence required.
Wherever you’re buying, if the property has been built in the last couple of decades, you should insist on seeing evidence that it has the correct planning consent. If you’re intending to carry out restoration or extend the property once you’ve bought it, this is also the time to apply for permission – or at least ensure that it will be obtainable.
You should also do your own research to find out what is likely to be built close to your property in future. In areas such as coastal resorts, once residential development has begun, it will often continue for years and the danger is that your ‘front-line’ property with its sea views will be superseded by another building in a year’s time which obstructs your views. So buying next to land that is protected against development is generally a good idea.
Finally, in some countries, especially those outside the European Union, it is still necessary as a non-citizen to obtain official permission to buy a property. In Turkey, for example, permission to buy outside tourist areas has to be given by the defence ministry, a process that can take months. In Croatia, all non-citizens must obtain permission from the Ministry of Justice to buy a property; the waiting time is around four to five months.
Before you make any offer for a property, you should think about how you’re going to fund the purchase. If you don’t have sufficient cash to buy the property outright – and you’re not selling your property in the UK, then there are two main options. The first is that you borrow extra money against your UK home to pay for the overseas property. Many thousands of people have done this in recent years, spurred on by soaring UK property prices and low interest rates.
The advantages of this route are that there is no need for the abroad property to be valued, and the increased mortgage can often be obtained with the least amount of fuss and expense. Also, you are not exposed to currency fluctuations if all your borrowings are in sterling, so your outgoings are fixed unless interest rates change.
The alternative is to take out a mortgage against the foreign property, in the local currency. UK banks such as Barclays and HSBC do operate in some other European countries, but there are an increasing number of local banks in many countries who are willing to lend to foreign citizens. In most of Europe, your mortgage would be denominated in euros, which generally means a slightly lower interest rate than for a sterling mortgage. On the minus side, it is unusual to be able to borrow more than 70% to 75% of the purchase price.
Unless you’re buying direct from a developer, before the purchase can go ahead you’ll almost certainly need to open a bank account in the destination country. And if you’re moving the money from the UK, then you need to think hard about doing that. There are a number of companies which specialise in converting and transferring funds for home buyers; their aim is to ensure that you get the best exchange rates and that the funds are in the right place when they are needed.
If you’re buying an off-plan villa or apartment, where you agree to purchase the property from the developer’s plans before it has been built, you will usually be required to pay for it via a series of stage payments as successive phases of the construction are completed. The initial deposit to reserve a property is typically around €2,000 to €6,000, a sum that few would want to lose. Always ask if this deposit is refundable and if there is a ‘cooling off’ period during which you can change your mind.
People who buy a property with investment primarily in mind need to be far more focused on the financial elements than those who are buying a second home or retirement home. If you’re buying a property abroad in order to get the letting income, sometimes known as “fly to let”, then it’s essential you research the local rental market, and do your sums thoroughly to establish what return you can expect. Developers and selling agents in many countries frequently exaggerate the yield you can expect, the annual rental income as a percentage of the purchase price, in order to attract sales.
If the objective is to let the property to holidaymakers, including people from the UK, then the main questions you need to address are the balance between supply and demand, the length of the holiday season and the price guests are prepared to pay. One way to gauge your likely occupancy is to do some research as a consumer: how easy is it to book a comparable property nearby?
Add up all the costs, such as utility bills, local taxes, housekeeping, etc., in a spreadsheet and then try to make a realistic estimate of your rental income. You’ll also need to investigate the tax situation. Even as a non-resident, you will likely have to pay income tax locally on the rent you receive (though this can normally be offset against tax you pay in the UK).
If you’re investing in a property to rent out to local people, for example, city-centre apartments in eastern European capitals, then the considerations are somewhat different. One of the main questions to ask is how much local people can afford to pay in rent, as incomes are often much lower than in the UK. Whichever market you’re aiming at, unless you are able to handle the lettings yourself from the UK you will need a reliable local letting agent; and also somebody to maintain the property.
Lastly, buying as a purely speculative investment can work, but is not to be recommended for beginners. It’s easy to look at statistics on property price increases in other countries and think there’s easy money to be made. But if it were that easy, wouldn’t the local people be doing it?
Buying property from a developer, especially when it has yet to be built, is quite different from buying in the second-hand or resale market. One advantage is that the buying process can be much simpler; the developer will usually hold your hand throughout, prepare documents in English, including the contracts, arrange a mortgage and even let you pay the balance in sterling, so that all you need to do is sign on the dotted line.
The dangers are many, however. For a start there is the risk that the building will be delayed or not finished at all. Every year, developers go bust and projects are abandoned, with those who’ve signed up to buy properties left out of pocket. In other cases, the development may be illegal, if all the necessary consents weren’t obtained. More commonly, buyers don’t get exactly what they were expecting, or are dissatisfied with the quality of the build.
There’s no way to guarantee avoiding all these pitfalls, but the one simple thing buyers can do is to avoid placing too much trust with the developer, and to resist being seduced by the marketing gloss. Don’t take it for granted that features included in the brochure with all its slick computer-generated images will be included in your purchase price unless they are explicitly mentioned in the contract.
Read the small print, insist on having a copy of the detailed specification and find out if there are bank guarantees or stage payment insurance in place to ensure that if the building is not completed you will get your money back. Get a lawyer to read all the documentation.
You should also think about how you are going to monitor progress during the construction period. Will the developer (or their agent) undertake to provide regular photographic updates? The best way to gain assurance about a new-built project is to look at the developer’s track record and their reputation. Ask for references from previous buyers you can talk to.
To conclude, the process of buying a property in another country is fraught with potential pitfalls, and there are plenty of sharks looking for naïve house hunters to exploit. Nevertheless, that’s not a reason to be put off. Owning your own little piece of abroad can be a life-transforming experience for many people.
Perhaps the best advice to ensure that you navigate a safe course through the sometimes perilous waters of the property market is to talk to as many people as possible and ask for advice. One of the great advantages of the internet is that in many countries there are now websites hosting networks of people who have bought property in that country, with their own forums and bulletin boards.
On these sites, you can invariably find someone who has experienced the same problem as you, who may be able to endorse or warn you off a particular developer, and who can highlight some of the issues you may not have thought of. And you may soon find you have plenty of advice and experiences to offer to others.
Alexander Garrett is a freelance property writer who contributes regularly to The Observer and British Airways' Business Life.
The content provided in the Primelocation.com guides is for information only. In all cases, independent and professional advice should be sought before buying, selling, letting or renting property, or buying financial services products.