If you are tempted to dip a toe into the foreign property market in the hope of bagging yourself a bargain, you need to be aware that the process is complex. Often, buying/selling property overseas is more complicated than the process locally. You’ll need to consider a number of additional risks, as well as the usual, such as how to get mortgages or receive rent in a foreign currency. We discuss how to avoid the pitfalls of buying or selling property abroad.
Research, Research, Research
The first thing is to make sure you do your research; double and triple check it. Buying a property, for most people, will include their life savings so it is always best to be cautious and find out everything before signing any contract or sending any funds.
There is a multitude of things to research, but a few of the most important are:
If you are planning to buy and live in a new country, make sure you have visited the area many times and know this is somewhere you would like to live, not just visit for a holiday. Talk to the local people and learn about the area; they will be able to tell you things that you may not find online, such as floods in winter or a lack of water or electricity supplies in summer.
It is important you research and follow local laws on buying and renting out property, as these may vary between countries.
or example, for Brits moving to France, owners will need to decide if they are going to be a tax resident in France or the UK. If you intend to spend more than 183 days a year at your French home or to make your property your main residence, then you will be considered a French tax resident. Be advised, there are new Statutory Residence Tests since 2013, so seek specialist advice on this.
What comes with the property
If you are buying pre-owned property or land, check whether the owner has outstanding utility bills or local tax demands that you may be liable for upon purchase of the property. It is also best to make sure all of the utilities to the property work; you may assume that all properties have water and an electricity supply but these may be dormant if the property has been unoccupied for some time.
Make sure there are good transport links to the main cities and airports; some rural areas may only have one or two grocery shops so a trip to the main town may be necessary for the weekly food shop.
Before you start seriously looking, you need to have an agreement in principle if you are looking to mortgage a property. This will help you stay within your budget and stop you from viewing properties you cannot afford.
A title deed is a long legal document that has a great deal of information about a property (see below).
- Former owner(s) personal details (seller)
- Buyers personal details
- Details of the legal representatives involved
- Details of the translator
- Land Registry details
- Property address (which rarely matches the real street address)
- General property description which is usually obtained from a nota simple (dwelling, garage, store room)
- Cadastral reference
- Property price
- Taxes involved
- Breakdown on how the price is being paid
- Reference to the mortgage – if applicable. The full mortgage details are in a separate deed called the Mortgage deed
- i) Certificate of the Community of Owners stating the property is debt-free and up-to-date with its communal payments
- ii) Utility bills
- iii) Council tax bills
- iv) Cheques
- v) Copy of the Licence of First Occupation (if buying off-plan)
Check that the seller or property developer owns the title deeds to the property. The seller/property developer must have the legal right to transfer them to you and they must not have been offered as collateral for any loans. You will need to arrange your own translation.
Get independent legal advice from a provider that has not been referred to you by the estate agent, developer, seller, or buyer of the property; legal advisors that another party have referred you to may have a private agreement with this party and not have your best interests at heart. Also, we recommend appointing a solicitor that speaks both languages fluently as incorrect translations may cause problems.
If you are using a UK legal firm, make sure they are aware of any local laws and check that they’re registered with the Law Society in the UK and specialise in international transactions and property conveyancing.
If you’re appointing an adviser in the country where you’re buying the property, you should be able to find lists of English-speaking professionals on the website of your local British Embassy.
And as a general rule, always check that your solicitor/lawyer has the relevant indemnity insurances
Check all the paperwork
Especially when a document is in a foreign language, it is very important that you understand every section before signing or sending payment. Make sure your translator has explained every section to you.
Also, before signing, make sure you have all the relevant licences and planning permissions if you are planning renovations on the property.
Take the time to check the tax rules as buying abroad can come with a host of tax challenges – such as potentially exposing yourself to inheritance tax in your chosen country; it would be suitable to seek independent tax advice.
Factor in additional costs
Once you have found a property you wish to purchase is it important to make sure you have thought and accounted for all extra costs that may occur. There will be many fees when buying or selling a property abroad that are similar to doing so in the UK, but some may vary.
Some of the fees to account for include:
- fees for a chartered surveyor or quantity surveyor
- mortgage fees - these may include a mortgage broker fee, an arrangement or opening fee, and an administrative fee for the bank to appoint a representative to manage payment of taxes and inscription of the title in the property register
- fees to arrange power of attorney if required
- furniture, shipping and insurance costs
- legal fees to make a will, which may be mandatory in some countries
- translation fees
- connection fees for water, sewage, electricity etc
There will also be ongoing costs for the maintenance of the property or community fees if you have bought within a property development. As well as the mortgage, make sure you allow for transaction costs, including stamp duty, legal fees, taxes and insurance. In Spain, for example, the transfer tax, notary fees and other costs can potentially add another 10% to the purchase price.
Now let’s discuss how Brexit has affected your house purchase or sale:
Brexit: Currency values
One of the first things to consider before buying or selling your property is how much you can afford or for how much you wish to sell your property. Since the Brexit vote, these numbers have changed considerably which may have deterred people from buying properties abroad. Before Brexit, if you were purchasing a 500,000 EUR property this would have cost you £357,142.86 at an exchange rate of 1.40; since Brexit, this property will now cost you £446,428.57 at a rate of 1.12 - a massive £89,285.71 difference.
On the other hand, if you are selling your property abroad and bringing the funds back to the UK, you will be approximately £89,285.71 better off than before Brexit.
Brexit: Travel costs and easy access
The success of the no-frills airlines will be impacted; they had reduced fares and opened up new routes, enabled by the EU’s removal of the old bi-lateral restrictions on air service agreements and the introduction of more open competition on routes between EU countries.
Now, EU officials have warned UK airlines that they must move operations to one of the remaining 27 countries in the Union if they are to continue to fly intra-European routes. Both easyJet and Ryanair are likely to set up subsidiaries - easyJet in Europe, Ryanair in the UK - in order to continue to operate more or less as they do now.
Before purchasing in a remote location, it is important to check that airlines are still offering flights with rising flight fares and restricted routes; this may change post-Brexit.
Brexit: Freedom of movement
UK consumers are able to travel freely within much of Continental Europe and EU citizens only experience basic border checks entering the UK, and vice versa. After Brexit, travel requirements for UK-EU travel will depend on the settlement reached. However, it is worth noting that for travel outside of the EU, the UK will be able to seek new bilateral visa agreements with non-EU countries.
We discussed this in more detail in a previous webinar titled ‘What does Brexit mean for expats?’.
Buying processes in different countries
Each country's process will vary when buying or selling property. You should find out most of this process when researching online but it would be best to speak to someone who has purchased or sold in the area before, they may be able to advise you of any unforeseeable fees or a law you were not aware of.
Buying in Spain
In Spain, you can not purchase a property without an NIE number (Numero de Identificación de Extranjero) which is an identification number for non-Spaniards. An NIE number is obtained from the Policia Nacional (National Police), who have offices in all major towns and cities throughout Spain.
Applying in person for an NIE number whilst in Spain is a relatively straightforward procedure. The only inconvenience is that you may have to wait for several hours in a queue in order to submit your application at a Spanish police station. It does depend upon the police station where you apply and the time of day (early is better). With a bit of luck, you will be in and out in half an hour or less.
Selling in Spain
In order to be sure that the process runs smoothly you should have documentation ready. This includes:
- the original title deeds of the property
- copies of the receipts for the local property taxes
- copies of water, gas and electricity bills
- details of the community statutes
- receipts for community bills
- and a residencia card if you have official Spanish residency status
Those who are selling a property but are not officially a resident in Spain will have 5% of the purchase price retained by the buyer (so on a 500k house they would keep 25k). This will be given to the tax authorities on completion of the sale and will be offset against any taxes owed by the seller. This is mainly in respect of Capital Gains Tax. If the total taxes owed are less than 5% you can apply for a refund of the difference. If the tax owed is more than the 5% you need to ensure that the balance is paid within 30 days of the sale.
Plus Valia is another tax which is due to be paid by the seller but this usually amounts to just a few hundred Euros. This is a tax which is levied by the local authorities and will be based on increases in the estimated value of the property.
Buying in France
In France, to purchase or sell a property you will deal with a notaire (notary).
A notaire is a self-employed legal specialist who has public approval to draw up the conveyancing contracts and oversee the sale. All sales need to go through a notaire. They act on behalf of the state and are pointed by the Minister for Justice. Both seller and buyer are able to request a notaire of their choice – costs remain the same and they simply split the work.
Please note - while it may be common practice to go through a notary or solicitor, it’s not the case in all countries. For example, in Spain, funds do not need to go through a notary for the full buying or selling process, but you do need a notary stamp for the title deed.
Once you become the owner of a property in France, there are several annual taxes for which you are likely to be liable. You may be required to pay two local taxes. The first is the land tax (taxe fonciere). The more land a property has, the more land tax will be payable. A local refuse tax is also often charged together with the land tax.
The second local tax is the occupier's tax (taxe d'habitation). The occupier’s tax is payable by whoever owns of or occupies a property on the 1 January each year and so for many buyers, this won't actually become your responsibility until the 1 January of the year following the purchase. The land tax, on the other hand, is routinely apportioned between buyer and seller on the completion date with the buyer being required to pay the seller the amount payable for the period from completion to 31 December of the year in which completion takes place.
These two local taxes equate broadly to Council Tax in the UK.
As of January 2018, the occupier’s tax is being abolished on a phased basis over three years. The process will start for around 80% of households, with complete termination for eligible households in 2020. Second homes are excluded, and the TV licence remains payable. So those with a holiday home in France remain liable for the tax.
This tax is made up by a variety of factors such as how much land the property covers, how many occupants, your income, the size and condition of the property, the number of children you have, and whether it's your main or second home.
Selling in France
When looking to sell a property in France, it is important to set your expectations as the whole process can take up to one year, depending on how long it takes to find a buyer.
The seller is responsible for providing various technical reports to the purchaser, such as:
- Termites - if the property is in an area affected which includes most of the warmer parts France.
- Asbestos - if the property was built before 1 July 1997
- Lead - if the property was built before 1 January 1949
- Gas and electricity - if the installations in the property are more than 15 years old
- Major natural and man-made risks such as flooding, avalanches, land movement etc if there is a plan to prevent such risks in the area.
- Energy performance report
- Sewage disposal arrangements report - if the property is not on mains drainage.
Depending on which of the above apply to your particular property, you would need to budget a few hundred Euros for the surveys required.
There is also an obligation to tell the purchaser about any major man-made or natural risks that exist in the area and if there is a local authority plan to prevent the risk.
You are obliged to tell the purchasers of anything about the property that might affect their decision to buy. For example, you should tell them if the property is not on mains drainage, if it has any significant damage or defects and whether there are any nuisances in the area. Your French property lawyer, or the agent, or notaire can help with the provision of these reports.
Buying in Australia
Australians have traditionally been more likely to buy a property at auction, with as many as 65-80% buying in this way.
An alternative to finding a property yourself is to employ a buyers’ agents who will not only find your property for you but also help to negotiate for it, in return for 1-2% of the purchase price.
In some states, buyers simply employ a conveyancing clerk rather than a lawyer; the process usually taking 1-3 months from start to finish.
Australia offers a first home owner grant (FHOG) which is designed to help young people get on the property ladder. The grant is usually set at AUD$7,000 (£4,380), though it can vary. Still, it is a good chunk of the bill for a first-time buyer and is open to Brits, too, as long as they have never owned property in Australia before.
To secure your life in Australia you need to get a visa. It’s worth applying for one through an emigration agent, one that is a registered with the Migration Agents Registration Authority (MARA) and/or is a member of the Migration Institute of Australia (MIA).
Visa eligibility is based on a points system. There are also fairly steep charges for Australian visas, in excess of AUD$7,000, and the application process can take 2-3 years.
To find out more about visas and if your occupation is in demand in Australia visit www.immi.gov.au.
Selling in Australia
The costs of selling a property in Australia are substantial and cannot be determined by one figure alone. The charges also differ from state to state and location to location, depending on whether the property is based in a major city or a less populated region.
So, what costs are involved in selling a house? The primary costs in relation to the sale of a house in Australia include:
- Real Estate Agent Commission
- Conveyancer or Solicitor Fees
- Marketing Costs
- Mortgage Discharge Fees
- Capital Gains Tax
- Renovations and Repairs
- Auctioneer’s Cost
- Home Staging Expenses
- Moving Costs
While some of the typical costs such as auctioneer’s fees, home improvements, repairs and home staging expenses may not be entirely necessary, it is worth having money set aside for these added extras in case you decide to go down that route. A small investment, particularly regarding repairs and professional styling, could reap huge rewards.
The real estate commission fee is the most significant single cost you will have to pay when you sell your house. Once you begin to do your homework, you will see that real estate agent commissions vary depending on the state, location and size of your property. As a guide, real estate agents’ fees could be anywhere between 1.5% and 4%. Tasmania has the highest commission rate while South Australia has the lowest. The real estate agent’s commission only becomes payable once the house is sold.
As we have seen in the Brexit section, exchange rate fluctuations can have a huge impact on the value of your property, and this could make your mortgage repayments unaffordable which may mean you’ll have to sell the property.
What you want to look for is a currency specialist that will essentially help you mitigate risk from currency fluctuations. One way is by using forward contracts. A forward contract is when you lock in a rate for up to 12 months. Once you have found your property, you may not complete the buying process for months, and in this time the exchange rate will fluctuate. If the rate moves too much, you may not be able to afford the property.
Consider this example, if you need to transfer your pension and take out a 12-month forward contract for £1000 per month, at a rate of 1.12, you would receive 1,120 EUR per month. Even if the exchange rate moves, with a forward contract, you will still receive 1,120 EUR per month, therefore, you know you can afford your mortgage and have enough money to live off without worrying about the exchange rate.
Another option is limit orders where, if you prefer to transfer your funds in a lump sum rather than monthly instalments, and you know what rate you would like, you can set an order in the system. This means that as soon as the rate can be offered, we will purchase the currency and set your deal in place, even if it’s overnight or a weekend.
Another service to look out for is a rate alert, where your provider will contact you as soon as they can offer your desired rate and you can decide whether or not you would like to book a contract.
And finally, we advise that you choose a provider with multilingual staff - you don’t want translation issues to get in your way!
Overall, we hope at least some of this information has been helpful to your specific requirements; the main point to take away is that you should do your research and make sure you understand everything before making the decision to buy or sell a property.
If you wish to discuss a specific situation or would like us to expand on anything, we do offer free one-on-one phone consultations of 15 minutes. You can use these to get expert and unbiased advice on how to navigate the confusing landscape of international transfers.
Posted in Expat Resources on Apr 11 2018
About the author //
As our Private Client Account Manager Nicole assists all our individual customers with their exchange requirements.
Committed to customer service excellence, this Business Management graduate goes above and beyond to make sure our clients’ needs are met no matter how complex they are.