Before you wonder if your dream of buying a home abroad is out of reach, first 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 US 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 you should buy, but instead, where and how to get the best deal. This guide will help you navigate the processes involved in identifying suitable properties, deciphering country-specific legal requirements, the purchase process and making an international money transfer. We will provide crucial insights into the impact of global realignments such as Brexit on the global property market.
Guides to buying property abroad
The Process of Buying a House Abroad
Assuming you already have a preferred location in mind - whether you want to move country, state or city - for buying a house abroad, we recommend following these steps.
Set a Realistic Budget
Through independent online searches, you can gauge the going rate for the type of property you want to buy: you don’t need to do physical house hunting at this stage. First, establish a budget range that you can work with realistically. If you are planning to finance the purchase through a mortgage, ensure you first get prequalified. This step will provide you with the limits of what you should consider in the price of your desired new home.
Get a Property Agent
If you do a quick search online for real estate available in your area of interest, it will result in contact details for numerous estate agents. Understandably, the temptation to pick up the phone and call or email these people 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 working with agents who have active listings or have recently done business in the country.
Property business has gone global. You may know someone who can give you a trusted referral. If not, try getting a referral from an agent in your home country. You may get lucky and discover they have a diaspora office.
You can also source leads from the national real estate association in your chosen 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, to name a few.
Give the agent your preferences including location and budget, so they can understand your needs when searching for 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.
Property Inspection
When the property agent comes up with their list of potential houses you could purchase based on your criteria, you can organise inspections with the seller. In the United States, Canada, the United Kingdom and other territories, home purchase contracts may require a licensed homes inspector to check the house on behalf of the buyer, before the purchase can be completed.
In Massachusetts and other US states, there are licensing laws prohibiting listing agents from giving referrals to home inspectors. This provision helps to avoid conflicts of interest. You can get referrals from international bodies such as the International Association of Certified Home Inspectors, or country-specific bodies like 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.
A 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 documented in the inspection report.
Make an Offer
Technically, you can’t buy a house without making an offer. There are two main approaches to 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 tight budget. After viewing 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 you fully understand the various clauses in the purchase agreement. Experts recommend hiring a legal representative such as an independent professional attorney who is conversant with overseas real estate transactions at this stage. They will help you interpret the documents and explain what each clause implicates.
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 the safety of the water and sanitation system
Appraisal: Mortgage lenders require an appraisal to be conducted 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 vital
Early Occupancy: For buyers who want to move in before the closing date, an early occupancy contingency must be included in the purchase agreement
A Walk-Through: This clause provides an inspection before closing the deal
Most of these details will be taken care of by your legal representative but with that said, it is worth knowing what stage of the process you are at.
Sign the Contract
If every provision has been agreed upon and your attorney is confident the contract has captured everything, you are free to go ahead and sign it. If the language used is foreign to you, you can request a translation into your native tongue. Before signing off the contract of sale, ensure you understand every single 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 any real estate transaction. If you are financing the purchase through a 100% mortgage, you won't need to think about how the money is 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 large sums of money 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 often lose out significantly because of unclear exchange rate determination and transfer pricing.
To avoid overpaying, let’s take a look at a realistic scenario as an example: you are in Britain and want to send money to France in order to buy a property. You hypothetically choose Currencies Direct as your money transfer service provider because it allows for transfers above £250,000 which is in the realm of what you expect to put down as a deposit.
Following this example, you need to make sure the exchange rate and regulations are in your favour:
Exchange rate - Compared to high street banks, Currencies Direct offers favourable exchange rates. Once you register with their platform you receive 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, offering 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 regulators ensure your money and personal information is secure. With cyber threats popping up in every corner of the globe you must guarantee your money is safe at all costs.
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 non-residential property is £150,000. If you later sell the property at a profit, you will 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 exempt 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.
Spain
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 you arrive in the country. 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 incurred by the buyer include property transfer tax (6-10% on existing properties) and new properties attract a VAT of 10%, with legal fees costing between 1-2%. Other costs include land registration fee, title deed tax, notary costs and documentation tax at 1.5%. If you sell your home for a profit, you’ll pay a capital gains tax ranging from 19-23%.
Australia
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 do so can result in a fine of up to AUD 125,000, 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 on living 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 is for properties over AUD 1 million.
If you want to access a mortgage, you’ll be required to offer a down payment of roughly 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 agent fees which are negotiable.
France
There are no restrictions to foreigners looking to buy homes in France. Most banks, including international mortgage lenders, can finance up to 80% of the cost, 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, straight 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.
More guides on taxes
The Impact of Brexit and the EU Property Market
The UK housing market has remained resilient in the face of Britain leaving the European Union and the COVID-19 outbreak. It is difficult to predict how the country's exit from Europe will effect property prices in the long-term, but many experts anticipate COVID-19 will impact the housing market more, due to widespread job losses. However, in response to these two factors, mortgage interest rates are reportedly at an all-time low, encouraging prospective buyers to secure their purchases.
In the months leading up 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.
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 who base their rates on the mid-market rates. They also provide dedicated account managers to help you navigate the confusing landscape of exchange rates and international money transfers.
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