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Buying overseas property...
Every time I travel abroad I find myself looking is estate agents' windows. Is it a good idea to diversify your investment portfolio with overseas property? It depends, of course, on your circumstances. The advantages are:
- potential for substantial gains if you buy in a property hotspot before the market begins to move
- excellent diversification
- the opportunity to make additional profit from canny currency speculation.
The possible disadvantages are:
- paying above the market rate for a property because of ignorance of local conditions
- hidden or unknown extra costs both when buying and selling
- potential additional taxation liabilities
- potential losses from adverse currency exchange.
As with everything it is all about timing. In 1997, I purchase a small flat in Dublin city centre for £55,000, which I sold in 2004, well before the market crash, for £260,000. For various reasons, I paid no tax on the gain. A large enough profit to absorb any currency losses (although I can't for the life of me remember whether I made or not on the sterling/euro rate) but also a lucky one. A similar value in France made at roughly the same time is barely showing any gain whatsoever. Here are a few tips:
- Do your sums. Factor in a margin for error just in case interest rates rise, yield falls or the capital gain is not as great as anticipated.
- Do your research. Get to know the area where you want to buy. Visit it two or three times - at least - before you invest. Check and double-check everything you are told. Emerging economies may offer the greatest returns, but they also offer the greatest risk.
- Get expert help. When buying overseas it is advisable to use the best professional help that money can buy. Whether you are employing a lawyer or choosing a developer, stick with tried and trusted names.
Remember: there are often two prices for a property. What it would sell for to a local, and what it would sell for to a foreigner. Also, don't forget the oldest property scam in the book: guaranteed rental. More often than not, the tenants disappear once the ink is dry on the contract or as soon after as they can.
Jim Storm - December 2013
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