While many home buyers complete their transaction and are very happy with the deal and the home they acquire, there are also pitfalls to trap you if you are not careful.
This brief article will highlight the main issues you need to consider when buying property abroad.
Restrictions in Property Ownership by Foreigners and Differences in Legal Title
Many countries are quite happy for non-citizens to buy property and enjoy the same property ownership rights as their own citizens, however there are numerous countries who will not allow non-citizens to own property. In some instances, a foreigner may own a lease but not the freehold, in others there is an outright ban on foreign owners. This can usually be worked around, frequently by the formation of a property holding company in the country concerned – the expat owns the property company which in turn owns the property.
Legal title may also vary depending on the country’s own legal system. In some countries it is not possible to acquire property at all because title can only vest in the state; this may be a blanket situation or only affect certain parts of the country. Moving from that extreme situation there are numerous variations on how a buyer can acquire title and the exact nature of the title they can enjoy. Related to this is the impact of building regulations on what can and cannot be done with property – in many countries there are restrictions on building new homes, and unless you are able to obtain “planning permission” or “regulated building” status, that perfect lot you have bought will never see your dream home built on it.
Home Purchase Financing
Buying an overseas property presents the issue of home financing. Mortgage products and services will vary depending on the market and regulations in the relevant country. It may or may not be possible for expats to raise home financing in that country, while it may not be a good deal to use a mortgage product in the home country in any event.
Where a foreign mortgage is used, there are the issues of making the repayments in the foreign currency – if you are being paid in US dollars but your mortgage repayments are in another currency, then you are exposed not only to interest rate movements on the loan, but also to fluctuations in the exchange rates which can have a dramatic impact on your monthly payments even though the interest rate is fixed.
Many expats seek to raise the purchase price using their home in their native country so they can make the overseas property purchase in cash. This means that they are using a mortgage system they will understand better, and where they are earning money in the same currency as their mortgage repayments, then they do not have the risk of foreign exchange fluctuations.
Differing Building Standards & Safety Issues
Different countries have very different views on building and construction quality and the safety of the structures. It is imperative that overseas property buyers take every precaution when they are buying a home; this means using a reputable builder who is familiar with the level of building standards and quality you expect. More than this, you need to ensure that you arrange for structural and building surveys to be conducted and to a standard which you are happy with. It is not only the bricks and mortar construction you need to be satisfied with, but the supply of water (don’t assume that because the toilet flushes, you have an adequate water supply); the safety of the electrics and the location of the property itself.
The Need for Expert Legal Representation
You would not buy a property back home without a lawyer, but you may be surprised at how many purchase a home overseas without ever seeing one. It is imperative you retain the services of an experienced local lawyer who is familiar with the specialized issues confronting overseas buyers. Good legal representation will help to minimize the risks associated with buying and owning an overseas property and improve your ability to make a good investment and enjoy your overseas home.
More Expat Resources
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