Guide to buying property abroad

Buying property abroad is a substantial, long-term investment. Therefore, it is imperative to research various overseas real estate markets before deciding upon the one that you want to invest in, because there is always an opportunity cost to allocating substantial resources to one particular investment. Purchasing an ocean front property on an island might seem like a great idea, especially if you are looking for a holiday home, but if the market is weak, you might find it difficult to sell that property later on and get a good return on your investment.

Deciding where to invest in real estate will depend on your personal financial situation and ambitions. That said, there are always some hotspots for international property investment. In an article titled “Why The Best Investment In 2016 Might Be Global Real Estate” on Forbes.com, Kenneth Repoza reports that “London, Paris, New York, San Francisco, Tokyo and Sydney are the main targets for direct cross-border real estate acquisitions over the next 12 months.” As 2017 unfolds, emerging markets have seen a lot of interest from international investors. Eastern European economies like Poland, Latvia and Estonia have attracted foreign capital and are a just a few of the interesting options for real estate as well. (You will need to check your local tax office website for more details.)

In addition to having access to the most interesting properties that are in line with your budget, the right international real estate company can guide you in terms of what areas are best for foreign investors and what risk/return profile suits your personal financial situation best. While OFX does not endorse any particular company or agency for overseas investments, here are a few to consider:

You may also want to consider hiring an independent attorney who can look out for your best interests and steer you in the right direction. Even though the majority of local real estate transactions will not need a lawyer, when it comes to buying property overseas, it is best to work with an experienced lawyer who can represent you legally and point out any flaws in your purchase contract before you sign it. Plus, the right independent real estate attorney will also be able to help you thoroughly understand every legal document that comes your way when you are ready to finalise a purchase overseas.

It almost goes without saying that if you are planning on purchasing property in an overseas market where you do not speak the local language fluently, you will need to hire a translator or work with a reputable agency who can translate all legal documents before you sign them.

As you do your research into where to buy property abroad, one of the primary factors affecting the viability of your investment will be the exchange rate. Aside from doing a quick currency conversion, you may want to review the current economic standing of a foreign currency against historical rate charts.

Keep in mind that currencies will fluctuate, sometimes quite dramatically, over time. And sometimes currency exchange rates will change rapidly over a short period of time.

After the Brexit vote in the U.K., for example, the pound’s value fell 10% against the USD in one day. On Telegraph.co.uk, Rhiannon Bury reports that in the three months following the Brexit vote, 78% of commercial property sales were paid for by foreign investors swooping in on a bargain.

In a similar way, President Trump’s policies against Mexico caused the peso to fall in value dramatically, however, real estate in tourist areas continues to attract foreign investors looking for a good deal.

Aussie real estate is another hot target for foreign investors looking to profit from exchange rate fluctuations. Because of the international demand for housing in major metropolitan areas, assets in capital cities like London, Sydney and New York may be protected to some degree from declines due to demand fostered by currency fluctuations.

The amount of tax you’re required to pay on your international property investment should be factored into your decision-making process. Some countries do not impose property taxes; others do. Some countries or cities may levy taxes if you leave your property vacant for a certain percentage of the year.

If you are planning on renting out your property, you might be required to declare that rental income to your home country and the country where your investment is located. Unless there are double taxation treaties in place, you could be on the hook for taxes in two countries.

When you are ready to sell, you’ll need to be aware of both local and foreign taxes on capital gains.
International taxes are complicated and penalties can be steep for failing to declare assets that wouldn’t otherwise be taxed. Finding an accountant with sound international expertise could lower your your tax bill substantively.

When purchasing real estate in another country, it could be difficult to find the appropriate financing option, especially since some countries might not have any financing options for foreign buyers at all. In some countries, banks cannot take a foreign asset as a security for the loan, so you may not be able to get a standard mortgage from your domestic bank the way you would for a local purchase. Still other international regulations may prohibit banks from even initiating a conversation to a client about a mortgage if the client is based overseas–even if you’re a citizen of the country in which you want to buy. So how can you get a mortgage for an overseas property purchase?

While traditional bank financing might not be available for overseas assets like it is in your home country, developer financing may be available when there aren’t any other options for foreign investors.

Other payment methods might include using the funds in your retirement account or pulling equity from your primary residence in your home country. You may qualify for business or personal loans that you can use to pay for your down payment overseas. Certain banks, like HSBC, offer mortgages for international borrowers, if you can maintain a minimum bank balance at a designated threshold.