Buyers of property overseas often subject themselves to much too high a risk, something you can and should avoid. This month, I’ll share with you 5 top tips to buying safely – follow these tips and there is no reason why you’ll be taking any more risk buying overseas than you do at home.
Before I begin, I remind you that I’m not trying to sell you anything in this article (or, indeed, anywhere else). The AIPP is a non-profit organisation set up to make the international property market a safer place to buy and a better place to work. It is an independent industry body for international property.
So, onto those tips….
1. Independent lawyer
No matter what anybody tells you, no matter how easy it all seems, ALWAYS use an independent lawyer to represent you throughout the purchase of your property overseas. It is the lawyer’s job to protect you and inform you. You will need to pay the lawyer a fee – accept that as part of your purchase costs. This is not an area in which to keep costs down.
The definition of ‘independent’ is that the lawyer represents you and only you and certainly not the developer you’re buying from.
2. Do the numbers
Make sure you know your budget before you start looking at properties – this should include at least a provisional mortgage offer if you’re borrowing money. Never has it been more important to check that you can raise finance before you commit to a purchase as it is significantly more difficult to raise money now.
If you can raise the money, don’t then be tempted to buy more properties than you can afford (particularly on off-plan properties) hoping to sell the extra properties before completion unless you fully understand the risks as well as the rewards (see point 5). This was widespread practice in the boom years and was risky then – it’s even more so now.
If borrowing money, your repayments will stretch over several years, years in which lending criteria and borrowing costs may change. Discuss the long term repayment with a financial specialist before proceeding and make sure you’re also aware of the effects of foreign exchange movements (see point 3).
3. Beware exchange rate movements
The rates do not need to move substantially to affect the value of your purchase. When you start looking, £100,000 may buy you a certain property – a 10% drop in the value of the £ against the Euro, for example, may then put that property out of your budget. If you’ve already signed contracts to buy, this could cause you a problem. Speak to specialists in this area and secure your rate of exchange early.
The rate fluctuations will also affect the costs of mortgages (if you raise the mortgage overseas and earn your income at home). Again, speak to a foreign exchange specialist to highlight the risks and to take appropriate action.
4. Use professional agents and developers
There are few, if any, guarantees when buying property, at home or overseas. Using an independent lawyer (see point 1) significantly reduces the risks you take on an overseas property purchase and employing a professional agent or buying from a professional developer will also help you.
Ask lots of questions. 3 year old children are known for asking lots of questions (why? why? why?) and you should follow their lead when talking to agents about a purchase. Initially, focus questions on the company itself, not the properties for sale. Dig around for details on the founders of the company and the track record of the company. Ask for client testimonials (real ones) and make sure you find out in detail exactly what service they offer. Don’t just take their word for it – ask for details on their service in writing, preferably in the form of some type of ‘Terms of Business’. If there is disagreement in the future about the obligations of either party, a ‘he said, she said’ argument will carry no weight – get commitments and obligations in writing. (Colour Investments have standard reservation contracts which lay out the terms of the sale clearly and they have cooling off periods for all purchases to ensure their clients are making the right decision for them).
5. Remember the reward : risk ratio
If you are buying property overseas as an investment (as many people have done in recent years), you need to bear in mind that big returns may come with significant risks. Be careful to assess the possible downsides to an investment property as well as the enticing investment numbers that could be achieved if all goes to plan. The present climate has reminded us of the dangers but history teaches us only one thing: we rarely learn from history. Take the recent lessons and remember them when considering reward vs risk.
Simple!
That’s it. 5 simple steps. Most sound obvious. Most have been ignored by many purchasers for many years. Right now, I’m sure there will be someone signing a contract to buy a property overseas having done none of the above.
Mad, I know. Crazy, nonsensical, incomprehensible even. Happening every day. Don’t let it be you.
Article written by Paul Owen
Paul is Chief Executive of the Association of International Property Professionals (AIPP). A non-profit organisation, the AIPP was set up in 2006 to make the international property market a safer place to buy and a better place to work. Vetted and referenced before acceptance, all Members have voluntarily agreed to follow the AIPP’s professional Code of Conduct and to face disciplinary action if they fail to do so. The AIPP gives consumers free advice about how to buy overseas property safely and produces an annual guide. Full details including a list of Members can be found at www.aipp.org.uk