Key Issues When Buying International Property
If you are like me, you spend countless hours looking at real estate in exotic places or studying distant countries to see if they are attractive for investment. In today’s increasingly globalized world, it is easy to forget that real estate dynamics, laws and customs vary country to country. Here are some common issues to consider.
Can you lawfully buy? International buyers often assume they can own property without investigating the laws of the foreign country.
For example, Dubai permits foreign ownership in certain designated areas of the Emirate. In certain circumstances, Mexico only permits foreign nationals to indirectly own property (via a trust or corporation). Other countries require ownership through a corporation with a local partner or government approval. New Zealand recently banned foreigners from buying real estate altogether. So, know the position before you purchase property.
Financing. The banks in the foreign county may not lend to foreign nationals. Investigate the matter if you intend to finance the purchase with a loan from the foreign country. Do not assume you will get similar rates or terms in the foreign country.
Closing Costs. Closing cost items vary from country to country. As do the customary practice of which party pays for a given cost. For instance, in the US, the seller customarily pays the broker fee. In Dubai, it is the buyer that customarily pays the brokerage commission. Get a clear understanding of what the fees are and which party is responsible for payment.
Transfer tax. One closing cost to closely monitor is the transfer tax (stamp duty). In some jurisdictions (e.g., USA) the transfer tax (stamp duty) is relatively low (often less than 1% of the purchase price). In other jurisdictions, it is much higher, including a punitive tax of 30% in Hong Kong and 15% in Toronto against non-resident buyers.
Currency Fluctuation. This is a risk for many international property investors. Remember, you will repatriate the monies eventually. And in the interim, if the currency weakens in the foreign country, this can impact your return, albeit you can also gain from a strengthening of the currency in the foreign country.
Do you need to attend the closing? At some point, you will need to take formal ownership of the property. You may decide to physically attend the closing in the foreign country, or you may want to give power of attorney to a lawyer or family member to conduct the closing on your behalf (if possible). This requires an understanding of the laws of the foreign county. Think about this in advance of the closing.
Be wary of local scams. As a foreign investor, you will not be privy to the local traps. These can take many forms, including nonbuildable land, title defects, bait and switch tactics, etc. Make sure you are dealing with proper people and consider hiring a local lawyer to ensure (at a minimum) you are not falling for a scam. And always pay through legitimate channels (never via Western Union)!
Political stability. Do not put your head in the sand. The world can be an unstable place. I know people who own property in Syria that have seen the property destroyed, occupied by trespassers and threatened with appropriation by the government. These are risk that are often not insurable in the foreign county. Do not ignore the risk of political instability.
Income Taxes. Consider tax issues both in the foreign country and your country of citizenship/residence, including potential tax treaties.
Personal Use. Are you buying the property for investment or personal use. If personal use, make sure you investigate the immigration laws of the relevant country to confirm that you will be able to reside in the property.