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04 September, 2017
Buying a property overseas conjures up images of sun drenched breakfasts, a laid back lifestyle and siestas by the sea. For others it brings back memories of builders vanishing without a trace, thousands of pounds disappearing and dreams becoming a nightmare. So, how do you avoid the pitfalls of investing in property abroad?
Location, Location, Location
Following the trends and opting for the next up and coming area may seem forwards thinking, but in a country you don’t know, it can be perilous. For a safe investment, stick to areas that already have an established market that is tried and tested, particularly if this is your first foray into overseas property. This doesn’t just minimise your risk, it is also favoured by mortgage lenders who prefer homes in a proven rental market.
If you know what you want to get out of the overseas property investment it will help you to choose the right area. Romanticising the idea may blind you to some of the problems, and when it comes to investment it is better to let the head rule the heart.
Whilst most are familiar with UK tax laws, it does not mean that the same applies abroad. Every country has its own system of taxation so it is important to make sure that you understand this thoroughly before spending a penny to ensure you will be making the profits that you expected. To invest in property you may be subject to the overseas equivalent of stamp duty and VAT, so it is good to understand how much these will cost and when they apply.
If you are looking to rent out your overseas property, then you will need to declare the income to HMRC. The investment is likely to be subject to taxation in the UK as well as the country the property is based in if you are making money from it. A professional tax advisor will be able to give you a full break down of all the costs that are likely to be incurred.
Local laws in each country differ greatly, and you may find that you are not legally allowed to let out certain properties. You need to make sure you research this thoroughly before you buy, and understanding how you intend to use the property before you invest will avoid you being disappointed further down the line.
Whilst we are all aware of exchange rates, it is important to understand how these may fluctuate and how it will affect your investment. To make the most of your money, it is worth employing the services of a currency transfer specialist to find the best rates when transferring payments to or from your bank account.
The paperwork may be the boring bit but it is always essential, especially when buying overseas. It is sometimes the case that the owner of the property does not always have the title deeds and are not actually in a position to sell. If you are investing in a new build property you need to ensure that the title deeds do actually exist in the first place. Make sure you check this out early in the proceedings before you waste too much money on fees.
When dealing in other languages, details can get lost in translation. Make sure that you get every conversation and agreement in writing and keep a clear record of all your correspondence.
Whilst it is tempting to stick with the professionals that you know, using a lawyer with local knowledge can be advantageous. This can be a UK-based law firm if they have specialists in the area you are interested in. Combining knowledge of the British financial markets with an understanding of the overseas market should be a winning system. If your chosen law firm doesn’t specialise in overseas property, you will need to ensure that they have a licence to practise in your chosen country.
If your chosen development has not yet been completed then speak to your developer about their previous projects. If they are unable to do so then you should be extremely wary. You should make sure that a bank guarantee is in place before transferring any money, and write a clause into the contract stating that your money will be paid back in full if the development fails to be completed.
Buying an overseas property can be a profitable and fun way to invest, but you need to full understand how the laws and systems differ to the UK property investment market if you are going to make it a success.
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