Whether you are a young professional, retiree, investor, or looking at moving your family to another country, the prospect of owning a home abroad can be exciting and hard to resist. Depending on your needs, there are various property hotspots abroad with great deals. Think of destinations like Copenhagen and Berlin for young professionals, Singapore for families, Cape town for holiday homes, and Mallorca for retirees.
In case you are wondering whether your idea of buying a home abroad is exotic, look at the numbers and global trends. A report compiled by the National Association of Realtors revealed that foreign buyers took up $153 billion worth of residential property in the U.S. between April 2016 and March 2017.
On the other side of the Atlantic, Notaires de France noted that in 2017, Brits accounted for 14% of housing sales to foreign buyers on the French housing market. A further drill-down of the housing numbers shows that 33 % of luxury properties in the same year was taken up by Britons.
Therefore, the question is not whether to buy, rather where and how to buy. This guide will help you navigate the processes involved in identifying suitable properties, country-specific legal requirements, the actual purchase process and payment transfers. You’ll also get crucial insights into the impact of global realignments such as Brexit on the global property market. Let us dive right in!
The Process for Buying a House Abroad
The assumption is that you already have a preferred location which could be a country, state, county, or city where you would want to buy a property.
Set a Realistic Budget
Through independent online searches, you can establish the going rate for the sort of property that you are looking to buy. You don’t need to do physical house hunting at this stage. The aim is to establish a budget range that is realistic and one that you can work with. If you are planning to finance the purchase through a mortgage, ensure you first get prequalified. This step will give you the limits of what you should consider in the price of the home you want to buy.
Get a Property Agent
If you do a quick search online for available real estate properties in the area of your interest or pay a visit, you will come up with lots of options. Understandably, the temptation to pick up your phone and call the numbers or email the contacts listed can be high.
However, the best approach to buying property abroad is to begin by securing the services of a property agent well versed in the country or area. Prioritise agents with active listings or who’ve recently done business in the country.
Property business has gone global. You may have someone in your network who can give you a trusted referral. If not, try getting a referral from an agent in your home country. You may be lucky to find that they have a diaspora office.
You could also get leads from the national real estate association in your country. For instance, in the United States, there is the National Association of Realtors, NAEA Propertymark in the UK, Canadian Real Estate Association, Institute for Federal Real Estate in Germany, the Real Estate Institute of Australia among others.
Share with the agent your preferences including location and budget to give them a basis for getting you an appropriate property.
Secure an Individual Taxpayer Identification Number
If you are buying property in the United States as a foreigner, you’ll need an Individual Taxpayer Identification Number (ITIN). By law, any foreigners without a Social Security Number should obtain the ITIN from the Internal Revenue Service.
When the property agent comes up with their list of potential houses you could purchase based on your criteria, you can organise with the sellers for inspections. In the United States, Canada, the United Kingdom and other jurisdictions, home purchase contracts may require that a licensed homes inspector checks through the house on behalf of the buyer before the purchase is concluded.
In Massachusetts and other states in the US, there are licensing laws that prohibit listing agents from giving referrals to home inspectors. This provision helps avoid conflicts of interest. You can get referrals from international bodies such as the International Association of Certified Home Inspectors, or country-specific bodies such as the American Society of Home Inspectors, the Canadian Association of Home and Property Inspectors, or the Royal Institute of Chartered Surveyors in the United Kingdom.
The home inspector will assess the house you want to buy and come up with a written report detailing the condition of the house. If the purchase contract comes with a home inspection contingency, you have a leeway to cancel or negotiate the sale based on findings as documented on the inspection report.
Make an Offer
Technically, you can’t buy a house without making an offer. There are two main approaches you should consider at this point. The first approach is to make the offer also known as a letter of intent to purchase or a purchase offer before the inspection is done. If you go down this route, you'll have to include a home inspection contingency to give you room for negotiations based on the inspection findings.
The second approach is to have the inspection done before contacting the seller with an offer. This strategy can help increase your confidence especially if you are working with a timeline or a tight budget. Having seen the condition of the house, the offer you make will be closer to the true value of the property. The offer will also be more appealing to the seller because it won’t have a home inspection contingency.
Given the size of the transaction and long-term implication, it is crucial that you fully understand the various clauses in the purchase agreement. Experts recommend that you hire a legal representative such as an independent professional attorney who is conversant with overseas real estate transactions. They will help you interpret the documents and explain what each clause means to you.
Purchase Offer Contingencies
Generally, the purchase offer is recognised in law as a binding document. However, the execution of the contract is subject to several items which are normally detailed in the contract. Some of the common contingencies include:
Home Inspection -If the house is not inspected before the offer, it must have this condition
Hazard Inspections -This inspection is specific and covers aspects such as lead paint, radon and asbestos.
Sewer and Well Inspection-This contingency covers for the safety of the water and sanitation system
Appraisal - Mortgage lenders require that an appraisal be done before the mortgage is approved to avoid lending more than the property is worth
Loan Approval -This measure is a safeguard for the seller in case the buyer's financier declines the mortgage application.
Existing Property and Other Purchase Offers -If the buyer depends on the proceeds of a property they are selling to finance the purchase of the home, or they are considering other purchase offers, this contingency is necessary.
Early Occupancy -For buyers who want to move in before the closing date, an early occupancy contingency must be included in the purchase agreement
Walk-Through- This clause provides for inspection before closing the deal
Most of these details will be taken care of by your legal representative. With that said, you must also be at the forefront in knowing what is going on.
Sign the Contract
If every provision has been agreed upon and your attorney is comfortable that the contract has captured everything, go ahead and sign it. If the language used is foreign to you, you may ask a translation into a language you can understand. Before signing off the contract of sale, ensure you understand every clause including the fine print. Revoking the contract once signed could be costly.
Paying for The House Abroad
This stage is the most critical in a real estate transaction. If you are financing the purchase through a 100% mortgage, you won't need to think about how the money gets sent to the seller. However, in the case of partial mortgage or 100% cash payment, you’ll need to figure out how to send the money to the seller.
Choosing the right money transfer provider
Because of the huge amounts involved, you need a money transfer service provider that is regulated, safe, can transfer large sums directly to a bank account and offers attractive exchange rates. Property buyers or senders of large amounts lose significantly because of unclear exchange rate determination and transfer pricing.
To avoid overpaying, let's take a look at a realistic example where you are in Britain and want to buy a property in France. You can choose Currencies Direct as your money transfer service provider because it allows for transfers above £250,000 which is the sort of amount you would expect to put down as a deposit.
Following this example, you need to make sure the exchange rate and the regulations are in your favour:
Exchange rate - Compared to high street banks, Currencies Direct offers favourable exchange rates. Once you register on their platform you get access to live transparent quotes between the sterling pound and the Euro. For transfers above £25,000, Currencies Direct assigns you a dedicated account manager who will guide you through and offer useful insights. They also have a special rate-watch service that can help you monitor the pair of currency you want to exchange.
Regulation - Transferring amounts to the tune of £500,000 requires safety of the highest order. Currencies Direct is regulated by bodies in four markets:
The Financial Conduct Authority in the United Kingdom
Financial Crimes Enforcement Network (FinCen) in the United States
South African Reserve Bank
Financial Transactions and Reports Analysis Centre (FINTRAC) in Canada
These regulations ensure your money and personal information is secure. With cyber threats popping up at every corner of the globe you would want your money safe at all cost.
Currencies Direct handles 39 different currencies and has 20 support offices globally. This provider is truly representative if you are looking at exploring property markets in countries such as Spain, the U.K., the U.S., Australia, Canada and France.
Country-Specific Laws / Property Taxes
As you would expect, every country has its own set of property laws and taxes. Below is a summary of what you should watch out for.
UK - England and Wales
There are no legal restrictions for anyone looking at buying a property in the United Kingdom. Non-residents and foreigners can qualify for mortgages. However, those with less than two years of residency and with no permanent UK employment can only access non-status mortgages where they pay 25% in down payment.
In terms of taxes, you’ll be required to pay Stamp Duty Land Tax (SDLT) if the house you are buying is above a certain price. Currently, the threshold for residential property is £125,000 while for non-residential property is £150,000. If you later sell the property at a profit, you pay Capital Gains Tax at 18% or 28% depending on whether you are a basic taxpayer or an additional-rate taxpayer.
If you buy a rental property, you’ll be charged income tax on the rent you collect. For non-resident landlords, you may be exempted if your country has a double tax agreement with the United Kingdom.
Apart from stamp duty, other upfront costs of buying a home in the UK include mortgage deposit (5-40%), mortgage costs (valuation fee, arrangement fee and booking fee), legal fees (upwards of £1,000), land registration fees and removal costs (range between £300-600). If the property you buy is on leasehold, you will be required to pay leaseholder costs which range from £50-100 per year.
Foreigners are not restricted to buy property in Spain. All you need is a Número de Identificación de Extranjero (NIE), which is a foreigner’s identification number. You can obtain this number from a police station on the same day when you present your passport. Currently, property investors in the country are eligible for the ‘golden visa’ program and those who buy more than one property qualify for a residency visa.
The fees and charges borne by the buyer include property transfer tax (6-10% on existing properties), new properties attract a VAT of 10%, legal fees are at 1-2%. Other costs include land registration fee, title deed tax, notary costs and documentation tax at 1.5%. If you sell your home at a profit, you’ll pay a capital gains tax ranging from 19-23%.
If you are not a resident of Australia, you must be approved by the Foreign Investment Review Board (FIRB) to buy a property failure to which you can be fined up to AUD 125,000 or face up to 3 years imprisonment or both. Non-residents buying established properties as homes in Australia are required by law to make them their permanent residences.
In case you want to invest in several properties or you don’t intend to live full time in the home you buy, you’ll be restricted to investing in new build properties only. As a foreigner, you’ll be required to pay an application fee of AUD 5,000 or 10,000 if you want to buy an investment property. The lower fee is for properties under AUD 1 million and the higher fee for properties over AUD 1 million.
If you want to access a mortgage, you’ll be required to put a down payment of about 40% of the purchase price as most lenders have dropped their maximum loan to valuation ratio to about 60%.
As the buyer, you’ll pay stamp duty to the Office of State Revenue on a sliding scale ranging from 1.25% - 6.75%, registration fee to the Land Titles Office, Department of Natural Resources, or Department of Land Administration. There is also conveyance fee (0.5 -2%) and real estate agent´s fee which is negotiable.
There are no restrictions to foreigners looking to buy houses in France. Most banks here including international mortgage lenders can finance up to 80% of the cost of a house leaving you with just 20% to pay. If you have enough savings, you can buy in cash instead of mortgage and transfer your money through providers like Currencies Direct to the seller’s bank account.
The fees you’ll be required to pay during the transaction are agent fees (about 10%), notary fees ranging from (1-4.8%), public registration fees (0.6-4.9%), stamp duty (up to 20% depending on the value of the property), land registration fees of approximately 0.10%.
You should also consider the exchange rate fees if you are paying in a currency other the Euro. With the special rate-watch service from Currencies Direct, you can register for alerts and transfer when your ideal rate is reached on the currency exchange market.
The Impact of Brexit and the EU Property Market
Since Britain voted to leave the European Union, there has been a lot of uncertainty in the economy and this has spilt over to the property market. Many property buyers and sellers have slowed down or halted their activities waiting for clarity on the direction of Brexit. Transaction volume has fallen, property price growth has also stalled, and market confidence has weakened.
In the few months leading to the Brexit referendum, the average house price growth was at 5% based on data from Nationwide Building Society. In the months following the Brexit referendum, the price growth averaged 1%. Today, fewer homes are selling in the UK compared to the past decade.
Extensions in Brexit are only but causing the market to be price-sensitive and largely needs-based. Properties in and around London have been the hardest hit bearing in mind that they are also very pricey and attract a lot of stamp duty. However, Brexit extensions give reprieve to the sterling pound whose exchange rate against major currencies has been weakening.
In case of a deal, market confidence is likely to be restored and activity back to normal. With that said, there is a risk of price correction as pent up demand is released on to the market.
In the event of a no-deal Brexit, property prices are likely to plummet as far down as 6% or even 10% in some areas. Interest rates on mortgages may come down as the government increases demand to stimulate growth. The pound according to UBS may fall as low as 1.12 against the dollar.
The weakening currency would mean UK citizens will pay more to buy properties in EU countries or even the United States. To make your transfers affordable, you’ll need money transfer providers such as Currencies Direct that base their rates on the mid-market rates. They also have dedicated account managers to help you navigate the sloppy landscape of exchange rates and international money transfers.
We worked with Currencies Direct to get the most accurate rates for this independent comparison - if you would like to find out more about their award-winning service click here
Jonathan is the founder and editor of MoneyTransfers.com. Jonathan is highly experienced in the currency transfer market, having previously worked in the FX trading industry, alongside being an avid traveller. Using his knowledge he identified a need for transparency and further education to help people save money on their money transfers, leading to the creation of MoneyTransfers.com