Restricting property investment to your own domestic market can mean limiting your returns. After all, what is the chance that your country currently has the best market to invest in? British residents, for example, have seen the Bank of England raise interest rates and is expected to continue so. With a mediocre forecast on the property market for many major markets, looking abroad to smaller and less saturated markets has been an increasingly popular strategy.
Not only is there more choice when opening up your options to abroad, but it is now easier than ever to perform investments remotely, and it is cheaper than ever to hop on a plane, too. Overseas property investments are a weapon of choice for many of the world’s richest and most successful people.
Top 10 Tips for Buying Property Abroad for the First Time
Buying a property, particularly if it is for investment purposes, is a stressful endeavour. Long chains can cause deals to fall through, and there are macroeconomic conditions to worry about, being approved for a mortgage, communicating with agents and so on. Buying a property abroad makes almost every single one of those factors even more difficult. Here is a top 10 list of things to do to make the process easier, more secure and perhaps more lucrative.
1. Perform strong research
Understand the local property market: Study the trends, price fluctuations, and factors affecting the property market in the area you’re interested in. Look for data on the past performance of the market and future projections. This will help you make informed decisions on the right location, type of property, and the appropriate price range.
Know the legal framework: Familiarize yourself with the legal requirements and procedures for purchasing property in the chosen country. These may include property ownership laws, taxes, and necessary documentation. Understanding the legal framework will ensure a smooth transaction and prevent potential issues.
Investigate the local infrastructure and amenities: Examine the availability and quality of basic infrastructure, such as transportation, healthcare, education, and utilities. Additionally, consider proximity to amenities like shopping centres, restaurants, and recreational facilities. These factors can significantly impact the property’s value and attractiveness to potential renters or buyers.
Assess the area’s safety and security: Research the region’s crime rates, natural disaster risks, and other safety concerns. A safe neighbourhood will be more appealing to potential tenants and provide peace of mind for you as the property owner.
Identify potential risks and challenges: Look for any red flags that may pose risks to your investment, such as political instability, economic downturns, or overdevelopment in the area. Being aware of these challenges will help you make a more informed decision and potentially avoid costly mistakes.
Consult multiple reputable sources: Diversify your research by consulting a variety of trustworthy sources, such as government websites, industry reports, and reputable news outlets. Additionally, online forums and blogs can provide valuable insights from other investors and expats who have experience in the local property market.
Visit the location in person: If possible, visit the area where you plan to buy property. This will give you a first-hand understanding of the neighbourhood, its amenities, and the local property market. It’s also an opportunity to establish connections with local real estate agents and professionals who can assist you throughout the process.
2. Have a local partner where you’re buying
Perhaps nothing is more helpful than having a partner local to the area you are buying into. Their ability to communicate in that language, their understanding of the market, and their understanding of regulation and the law. No amount of lone research could match their knowledge – so this is a great advantage.
Language proficiency: A local partner who is fluent in the local language can greatly facilitate communication with real estate agents, sellers, and other professionals involved in the transaction. This can help prevent misunderstandings and ensure that all parties are on the same page throughout the process.
Cultural understanding: A local partner can help you navigate cultural differences and local customs that may impact the property-buying process. This understanding can be invaluable in building trust and rapport with sellers, agents, and other stakeholders.
Knowledge of the local market: A local partner will have a better understanding of the local property market, including the best areas to invest in, fair property prices, and any hidden opportunities or risks. Their insights can help you make well-informed decisions and potentially save you time and money.
Access to local networks: A local partner can leverage their existing connections with real estate professionals, such as agents, lawyers, and mortgage providers, to help them access better deals and streamline the transaction process. This can be particularly beneficial if you are new to the area and lack the necessary contacts.
Property management: If you’re planning to rent out your property, a local partner can play a crucial role in managing the property on your behalf. They can help find and screen tenants, collect rent, and handle maintenance and repair issues. This can save you time and effort, especially if you live far away from the property.
3. Use a dual-lingual and dual-qualified solicitor
Working with a bilingual and dual-qualified attorney when buying property abroad is crucial for various reasons. One of the primary advantages is the seamless communication that comes from having an attorney who can speak both your language and the language of the country where you’re purchasing the property. This ensures that your interests are well-represented and that all parties are on the same page throughout the transaction process. Misunderstandings can be costly, especially in international property transactions, and having an attorney who can communicate effectively will save time and prevent potential issues.
Another significant benefit of engaging a dual-qualified attorney is their familiarity with the legal systems of both your home country and the country where you’re buying property. Their expertise in navigating complex legal matters, such as property ownership laws, taxes, and necessary documentation, can be invaluable in ensuring a smooth transaction. Additionally, they can help you understand and comply with the specific regulations and requirements of the country where you’re purchasing property, minimizing the risk of legal complications.
4. Using Money Transfer Companies
Utilizing money transfer companies when purchasing property abroad offers several key advantages that can significantly impact your investment experience. Traditional banks may seem like a safe option for transferring funds internationally, but they often come with higher currency exchange margins and transaction fees. These additional costs can quickly add up, especially when dealing with large amounts needed for property transactions.
On the other hand, money transfer companies provide a more cost-effective alternative to traditional banks. These companies typically offer more competitive exchange rates with lower margins, often less than 1%, making them an attractive choice for international property investors. Moreover, money transfer companies generally charge lower or even no transaction fees, which can result in substantial savings when transferring funds for your property purchase.
5. Consider taking a mortgage locally where the asset is located
Considering a local mortgage when purchasing property abroad can offer numerous benefits that may enhance your investment experience. By obtaining a mortgage in the country where the property is located, you can take advantage of local mortgage companies’ expertise and offerings, potentially resulting in more favourable terms and rates compared to securing financing in your home country.
Local mortgage providers have in-depth knowledge of the property market and the various laws and regulations governing property investments in their jurisdiction. This expertise can be invaluable in guiding you through the mortgage application process and ensuring that you secure financing that best suits your needs and investment goals. Furthermore, local mortgage providers can help you understand the intricacies of taxes and other financial obligations related to property ownership in the country.
Another advantage of obtaining a mortgage locally is the potential to minimize currency risk. When your mortgage debt is in the same currency as your rental income, you can avoid the costs associated with fluctuations in exchange rates. This can be particularly beneficial if you plan to use rental income to cover your mortgage repayments, as it provides a natural hedge against currency volatility.
6. Don’t get sucked into investments aimed at foreigners
When purchasing property abroad, it’s essential to be cautious of investments specifically targeting foreign buyers, as these can sometimes lead to less favourable deals. Such investment projects often market properties at higher prices to take advantage of foreign investors’ wealth and limited knowledge. Being aware of this tactic can help you avoid overpaying for a property and make more informed investment decisions.
Instead of focusing solely on investments aimed at foreigners, seeking genuine local investment opportunities is advisable. This can be achieved by visiting the area in person, conducting thorough research, or collaborating with a local partner who has knowledge of the property market. By expanding your investment search beyond properties tailored to foreigners, you can gain access to a broader range of options and potentially secure better deals.
7. Find a professional real estate agent
Working with a professional real estate agent when buying property abroad can be an invaluable asset in your investment journey. Local real estate agents possess extensive knowledge of the property market in their area, which can help you identify the best investment opportunities and make well-informed decisions.
While it’s important to be mindful of the fact that real estate agents have their own interests and agendas, their expertise can provide insights that are difficult to obtain through independent research alone. To maximize the benefits of working with a real estate agent, it’s advisable to seek out highly-reviewed agents online and choose one with a strong reputation for professionalism and client satisfaction.
Keep in mind that you are not obligated to stick with a single agent throughout your investment journey. If you find that your chosen agent is not meeting your expectations or providing the level of service you require, feel free to explore other options. The key is to find an agent who understands your investment goals, communicates effectively, and consistently delivers results that align with your objectives.
8. Translate the documents
When purchasing property abroad, it’s crucial to have all relevant documents translated accurately by a professional translator. This step may seem obvious, but it’s essential to emphasize its importance, as accurate translations can help prevent misunderstandings and potential legal issues down the line.
Relying on automated translation tools like Google Translate may seem like a convenient solution, but legal documents are not advisable. These tools may not accurately convey the nuances and specific wording used in legal documents, which can lead to misinterpretations and potential complications.
Instead, invest in a reputable, professional translator with expertise in both the language of the country where you’re purchasing property and your native language. By doing so, you ensure that the translations are accurate, and you clearly understand the terms and conditions outlined in the documents.
For added security, it’s also worth considering hiring a local legal representative to review the translated documents. This can provide an extra layer of assurance that the translations are correct and that you’re fully aware of all legal obligations and potential risks associated with the property purchase.
9. Be aware of the macroeconomy
Being aware of the macroeconomic conditions of the country where you’re planning to purchase property is critical to making a well-informed investment decision. A country’s financial stability can significantly impact property values, rental demand, and the overall success of your investment.
When investing in property abroad, it’s essential to consider factors such as the nation’s debt levels, economic growth, and susceptibility to crises. For example, smaller countries like Greece and Lithuania experienced severe consequences during the 2008 financial crisis, resulting in devastating effects on property values and the livelihoods of their citizens. Understanding a country’s vulnerability to economic downturns can help you evaluate the potential risks associated with your investment.
To assess the macroeconomic conditions of a country, research key economic indicators such as GDP growth, unemployment rates, and inflation. Additionally, consider the nation’s political stability and the potential for regulatory changes that could affect property ownership and investments. This information can provide valuable context for your decision-making process and help you determine whether a specific market aligns with your investment goals and risk tolerance.
10. Opt for low volume, focusing on a single, well-planned investment
When investing in property abroad, it’s essential to consider the volume and size of your investments. In many cases, focusing on a single, well-planned investment can be more advantageous than spreading your capital across multiple smaller investments. This approach can help reduce losses from transaction costs and minimize the risk of making multiple mistakes.
International property transactions often involve various third parties and middlemen, resulting in additional fees and expenses. Currency exchange margins, translation services, and legal representation are just a few examples of the costs associated with investing in property abroad. By concentrating your capital on one larger investment, you can lower the impact of these costs and improve the overall efficiency of your investment process.
Additionally, a single, carefully planned investment can help minimize potential errors and oversights. As each property transaction involves numerous steps and complexities, spreading your resources across multiple investments increases the likelihood of encountering problems. By focusing your efforts on one property, you can dedicate more time and attention to researching the market, understanding local regulations, and ensuring a successful transaction.
According to data from GlobalPropertyGuide.com, the average rental return in 2022 varied widely across different countries. The highest yields were seen in Georgia (10.73%), South Africa (9.06%), and Kazakhstan (9.70%), all of which were rated as “spectacular” or “excellent”. At the other end of the scale, some countries had very low yields, such as Hong Kong (2.78%) and Monaco (2.49%), which were rated as “very poor”.
Many other countries had yields in the moderate to good range, including Armenia (7.84%), Bahrain (7.87%), Ireland (7.38%), and Morocco (7.23%). In terms of the largest economies, the United States (6.12%) and United Kingdom (6.21%) were rated as “moderate to good”, while Germany (3.12%) and France (3.97%) had much lower yields, rated as “poor”.
There will, of course, be some instances of higher yields in many places, this is just a rough average. What is also important to remember here, though, that many places mentioned have nominally low prices, making the investments more affordable.
Suppose you are looking to buy a property and turn it into a hotel, either on your own or through a syndicate, or perhaps renovate a property into a holiday let. In that case, looking at a city’s average yield will not get you very far. Instead, these are unique and sophisticated investments that require more in-depth research. These are the investments that can return a much higher Return On Investment (ROI) because they are not as accessible to retail investors – therefore the market isn’t saturated, and the opportunities are not snapped up as quickly.
This is why it is worth building expertise in the area before jumping into it. Below are some tips to get you started.
Global Real Estate Trends
The UBS Global Real Estate Bubble Index 2022 reports elevated imbalances in global metropolitan housing markets, with prices out of sync with rising interest rates. Toronto and Frankfurt are the top markets with pronounced bubble characteristics, while risks are elevated in Zurich, Munich, Hong Kong, Vancouver, Amsterdam, Tel Aviv, and Tokyo. The five US cities analyzed (Miami, Los Angeles, San Francisco, Boston, and New York) are in overvalued territory. Stockholm, Paris, Sydney, Geneva, and London also rank in overvalued territory. Other overvalued markets include Madrid and Singapore, while fair-valued markets include Sao Paulo, Milan, Warsaw, and Dubai. House price growth in the 25 cities analyzed accelerated to 10%, the highest increase since 2007. There was an increase in household debt and outstanding mortgages in virtually all cities.
The lingering impact of COVID and central bank actions?
During the COVID-19 pandemic, house prices in most advanced economies rebounded due to expansionary fiscal and monetary policies. The trend in house prices was due to several factors, such as changes in buyers’ preferences due to confinement and teleworking, fiscal policies cushioning the impact on household income, low-interest rates, and accumulation of “forced” savings. The impact of COVID-19 on prices was uneven across countries, with Canada and Luxembourg having the fastest growth, while some countries showed a change in trend compared to previous years. The low-interest rates, as a result of monetary policy to stimulate the economy, had a decisive impact on rising house prices.
Drill Down on Real Estate in 2023 & bubble risks from UBS
According to the 2022 UBS Global Real Estate Bubble Index, Frankfurt and Munich are the Eurozone cities with the biggest risk of a property bubble. The two German cities have seen property prices double over the last decade, with growth slowing to 5% between mid-2021 and mid-2022. The housing market in Munich is supported by low vacancy rates and a growing workforce, but the German economy presents a challenge. In Amsterdam, the housing market saw the strongest price growth at 17% in nominal terms. Madrid saw property prices increase after the pandemic but remains overvalued. Milan’s price growth is supported by post-pandemic recovery and fiscal incentives, while Paris’s housing market stagnated and remained overvalued.
In the rest of Europe, index scores have decreased or stagnated in most cities outside the Eurozone, with a wide variance in risk. Zurich is in bubble territory due to negative interest rates and strong growth, while Warsaw is fair-valued. Geneva lags behind Zurich in price and population growth, but the housing shortage is likely to persist. Stockholm’s housing market is overvalued due to tighter monetary policy, while London’s is overvalued due to a structural housing shortage and post-pandemic demand. Housing prices in Warsaw have increased by 10% annually, driven by excess demand and scarce supply.
In the United States, cities have experienced higher price growth since the pandemic compared to previous years due to low mortgage rates, income growth, and household formation. Despite this strength, there have been several reasons imbalances have not risen. Price changes in most cities (excluding Miami) trail the nationwide average, rents have recovered from their pandemic-induced weakness, and income growth is keeping pace with rents. However, the high level of affordability may take its toll in all markets.
In New York, price growth has been the lowest of all cities analyzed and continues to be less affordable compared to other cities. San Francisco saw strong price increases, ending a period of weakness since 2018, but its outlook for house prices is more subdued. Boston had the highest income growth among cities in the study, but rising interest rates and house prices will impact affordability. Los Angeles saw house prices rise in line with the booming US market, driven by its strong labour market and structural housing undersupply, but unaffordability has reached near all-time peaks. Miami continues to benefit from inward migration and foreign investment, recording the strongest annual house price and rental growth rates, but affordability has worsened sharply since 2019.
In Canada, real house prices in Vancouver and Toronto have more than tripled in the last 25 years due to urban housing shortages, strong population growth, and falling mortgage rates. Property price growth has accelerated to its highest rate in five years, with bubble risk highly elevated. The recent rate hikes by the Bank of Canada could be the last straw to break the camel’s back as new buyers and owners will need to pay higher interest rates and provide more income to qualify for a mortgage, leading to a price correction.
In Asia Pacific, Hong Kong once saw the strongest price growth among cities in the study, but this phase ended with the onset of the US-China trade war and civil unrest. Singapore has seen steady price growth, but the outlook for property prices has become more uncertain due to the economic impact of the pandemic. In Australia, a slowdown in price growth is expected due to the economic fallout of the pandemic and weak consumer sentiment, and this will increase the number of people that need to send money between NZ and Australia or transfer from UK to Australia. Property prices have continued to rise in China, but with growing concerns about the economic slowdown, the outlook for property prices is becoming more uncertain.
We at MoneyTransferComparison.com strongly advise using a commercial Foreign Exchange firm to transfer your funds abroad. Specialists geared towards large international money transfers allow much greater flexibility than banks in several factors: pricing, locking today’s rate, paying in instalments, and the specialized ones like TorFX and Currencies Direct even offer property-specific advice on other things such as taxation and processing. While banks provide a number of services (and usually not as well as our Natwest bank review tells us), foreign exchange firms focus on one thing – getting you the best currency deals.
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