Navigating Minefields: Why The Right Advice Can Be Priceless When Buying Overseas.Back to Insights
“Give clients and intermediaries a better way to buy property abroad.” That was our goal when we launched Property Vision International in April.
Business has got off to a great start and our network of hand-picked associates now covers the Republic of Ireland, Berlin, Geneva, Paris, the South of France, the Alpine regions, the Balearic Islands, Greece, Mauritius and the most desirable parts of the Caribbean.
We’ve learned a lot over the past eight months, but two things stand out. First, the elephant traps when buying overseas are even wider and deeper than we’d imagined. Second, there are sadly many owners out there who were less than diligent in unearthing issues that will significantly impact the investment value and enjoyment of their property. And that matters: however glorious a lifestyle, no-one wants to overpay to enjoy it.
The appeal of owning a home somewhere sun-kissed is stronger than ever during the long, dark days of December; so now seemed like a good time to remind would-be buyers of the main pitfalls.
Welcome to the wild west.
That’s how our local Associate describes the Spanish property market, with the biggest offenders being the selling agents. Stories abound of agents attempting to sell houses they haven’t been instructed on, cutting out rivals, using misleading information, failing to conduct proper planning checks and ‘forgetting’ to disclose development plans for neighbouring plots.
In fairness, agents aren’t the only culprits. Lawyers have been known to try and persuade clients not to buy the villa or apartment they came to them with, but to purchase something else instead. You don’t have to be Sherlock Holmes to guess that the lawyer stands to receive an introduction fee for the alternative property.
Spain is the #1 destination for British buyers. They account for 8.8% of all foreign purchasers and acquired approximately 10,000 units last year. The sad reality is that many of these owners will be sitting in houses that are already worth considerably less than the sum they paid.
Getting expert local advice is one way to avoid finding yourself underwater. The other, is to secure a mortgage locally rather than use cash or borrow against a UK property. Many find this prospect intimidating, but a buyer’s advisor can smooth the way. The great advantage is the professional scrutiny that comes with applying for a mortgage. Banks will want to see proper valuations and often demand that an independent lawyer reviews all documentation before lending is agreed. Combined with counsel from the right buyer’s advisor, it's the best way to ensure you pay a fair price today and avoid any nasty surprises tomorrow.
Think of a number, then double it.
You can’t blame vendors for seeking the highest possible price for their asset, especially if it’s located in an area where demand is strong and supply is tight. But on islands like Corfu, the influx of overseas buyers has led to sellers’ expectations becoming wildly over-inflated. Ratcheting this up further is the fact that agents will often put another 20% on top - just in case they need some headroom for negotiation. The combined effect is that asking prices are often twice what a property is really worth.
The challenge is magnified by the absence of credible historical sales information. In many regions of Europe, there’s no Rightmove equivalent or publicly available Land Registry data. This can be especially problematic for buyers of building plots. We’ve met people who laid out €8,000,000 for their finished villa 10 years ago, only to find the property is now valued at €5,000,000. The loss in value will be even greater if a new monstrosity has been constructed bang in the middle of what was once a wonderful sea view.
Compounding these inflationary problems is the fact that some aspiring owners will simply pay whatever it takes. We recently saw a valuation report in the South of France where a sale price was cited as ‘comparable’. The truth is that, in their desperation to own the property, the buyer ended up paying a 100% premium in order to clinch the purchase.
The lesson is this: even if you can find the information, you shouldn’t start negotiations based on what similar properties have sold for recently. You need a better way to determine fair value – and an experienced buyer’s advisor is usually the quickest way to get to an accurate answer.
The misrule of law.
In much of Europe, real estate broking remains unlegislated. ‘Caveat emptor’ is the abiding principle.
Italy is an exception. Agents have to be registered with their local Chamber of Commerce; must carry professional indemnity insurance before they can claim a fee; and have a legal duty of care to disclose pertinent information. Unfortunately, that’s where the good news ends because they’re not required to undertake significant due diligence on the properties they sell.
Italy is also one of a number of Mediterranean countries where an agent can work for both seller and buyer, demanding a fee from each. Convention suggests fees should be 3% on each side, but we’ve come across situations where the agent is asking 8% from the seller and 4% from the buyer. Notary fees of 2.5% and other frictional costs (plus VAT at 22%) push up the true price of acquisition still further.
Calculating the cost of ownership and disposal is equally complex. Tax regimes and succession laws vary widely across Europe. Each of Spain’s 17 autonomous regions, for instance, imposes different property taxes. The country also levies inheritance taxes on the beneficiaries rather than on the estate of the deceased. Meanwhile, in Switzerland, regulations now demand that all significant building works must comply with recently announced green policies. Praiseworthy, you might think – but owners are reeling from the attendant costs, and many fear the outlay will not be reflected in their home’s value when they come to sell.
A better way to buy property abroad.
Dubious business practices, spectacularly inflated asking prices, non-transparent markets, a lack of regulation, complex tax and inheritance laws…there are no shortage of traps for the unwary investor.
Property Vision International is designed to help minimise these headaches. It’s a buyer-only solution that combines our trusted ways of working with best-in-breed local expertise. Living in an overseas property should be great fun; and so should the process of finding and buying it. We do everything we can to make sure both prove to be the case.