Buying property in this year's overseas property hotspots

Buying in this year's overseas property hotspots - 1st July 2008

Despite the falling pound and ongoing credit crunch, thousands of people in the UK are expected to buy overseas property this year. For many people, it will be the realisation of a dream of the path to a better quality of life, but it requires careful consideration before the dotted line is signed. The importance of doing your research cannot be overstated.

One important rule applies – don’t let your heart rule your head. The principles you would stick to in the UK also apply when buying overseas. Many people make rushed decisions, not taking enough precautions or not investigating fully other alternatives, disadvantages or pitfalls.
Conti Financial Services, the overseas mortgage specialist, has taken a look at four of the current ‘hotspots’ which are reported to offer good investment opportunities and outlined various issues to be aware of when applying for a mortgage.

Canada
Canada has plenty to offer the UK buyer. A robust domestic property market and an increasing expatriate community are coming together to create a steadily growing housing market that should make for reliable long-term investment.

The majority of foreign buying is either city apartments or ski accommodation. Over the last few years, in Conti’s experience, demand has switched away from holiday properties and more towards downtown condominiums for investment purposes. And this is despite foreign buyers having access to better rates for holiday homes than for investment (rental income) properties. Current hotspots for investment are Vancouver, British Columbia, Calgary, Alberta and Toronto. With Canada hosting the 2010 Winter Olympics, however, Vancouver and Whistler will come under the global spotlight and are likely to enjoy a boost in buy-to-let investment.

If you’re applying for a mortgage in Canada, you’ll typically be asked for a deposit of 35 per cent. Funds for this can be leveraged from a UK property and proof of the down payment must be provided. As you would expect, existing liabilities, e.g. mortgage or rental payments, loans and credit card payments are taken into account, together with the proposed Canadian mortgage payments and taxes. All this must not exceed 40 per cent of your monthly gross income. It’s worth noting, however, that Canadian lenders may take up to 50 per cent of any proposed rental income into consideration.

The Canadian property market is one of steady growth rather than spectacular gains, but there is a steady influx of professional tenants as the country’s popularity for immigration and retirement increases. Its growing reputation as a safe and politically neutral country is only likely to enhance this.

Cape Verde
Billed as the closest Caribbean islands to mainland Europe, Cape Verde’s property market has seen some impressive growth over recent years, both in the amount of building that’s taking place and in the number of tourists visiting the island archipelago. A haven for water sports enthusiasts and beach bums alike, there are now direct flights from the UK to Cape Verde, eliminating the need to go via Portugal. In the last few years, the islands of Sal, Boa Vista and Santiago in particular have become known as desirable holiday and second home destinations – so much so that Cape Verde’s expatriates apparently now outnumber its locally born population.

According to the Organisation for Economic Co-operation and Development, the Cape Verde economy grew by 6.7 per cent in 2007 and predictions have it growing by over 8 per cent in 2008. With major infrastructure developments underway and regulatory initiatives such as the Cape Verde Initiative (CVI), this area should continue to see strong growth in its property sector as well as overall economy. The government of Cape Verde has worked to put in place the best possible legal and regulatory framework so that investors can be assured of getting what they want. The CVI was created so that the mistakes and problems associated with other emerging markets can be avoided, and as such, it ensures that all companies doing business under its umbrella adhere to a code of conduct and that property investors are protected.
Despite this, the mortgage market in Cape Verde is more limited than other more established hotspots. At the moment, Conti says it’s only possible to get a mortgage on property that has already been built, not on the many off-plan new build opportunities springing up on the islands. However, recent reports suggest that more options will be open to buyers in the near future as banks on the island are poised to start lending on new properties as confidence in the market grows.

According to Conti, mortgages are in euros and rates start at 8 per cent. Again, existing liabilities are taken into account, together with the proposed Cape Verde mortgage payments. All this must not exceed 33 per cent of your monthly gross income and you will generally be asked for at least a 15 per cent deposit – on a case by case basis.

Cyprus
British people reportedly make up the largest expatriate community on the island and there is a large variety of property for sale. The Greek-Cypriot South is more popular with homeowners than the Turkish North which remains a more complex proposition for potential purchasers.

Cyprus has often been described as an ‘excellent’ location for property investment, with the added bonus that flights there are very affordable. In addition to excellent weather – there are approximately 340 days of sunshine a year – it has the advantage of having laws very similar to the UK’s. The locals speak excellent English and second homebuyers can also benefit from low taxes.

Contrary to some press reports, Conti says that obtaining a mortgage in southern Cyprus is a straightforward procedure. The majority of banks on the island provide homebuyers with mortgage products in euros and in a number of foreign currencies. To protect your own financial interests it is advisable to take out a mortgage in the currency of your main income. This will prevent fluctuations in the exchange rate affecting the cost of your mortgage repayments.

A deposit of 30 per cent of the purchase price is generally required and you will also be liable for solicitor's fees. Cypriot mortgages are repayment and interest-only loans, rates start at around 6 per cent, and the maximum term available is 40 years. The maximum loan to value for non-residents is 70 per cent, rising to 80 per cent for residents and mortgages are available for both off-plan and completed properties. Existing liabilities, together with the proposed Cypriot mortgage payments must not exceed 35 per cent of your monthly net income, or 45 per cent of monthly gross income, depending on the final lending scheme
Things are somewhat different in North Cyprus, however, where you’d be hard-pressed to find many UK lenders happy to finance property purchases. And while some Turkish banks have started lending in the region, you might only be able to borrow 50 per cent of the value of a property.

Berlin
Owning a property in Germany offers overseas property investors an ideal opportunity to benefit from low prices, a stable economy and a strong rental market, particularly in cities like Berlin, a location that’s starting to show all the signs of delivering good equity growth.

A major factor in the trend for Brits to choose Germany for their second home is the fact that it has a low proportion of owner-occupiers - less than 50 per cent. As a result, the German property market offers attractive long-term rental streams from stable tenants with full-time employment. Property prices in Germany are still comparably low and Berlin represents some of the lowest prices of any European city. That, together with the fact that Berlin home ownership is considerably lower than the rest of the country (around only 13 per cent), and that it plays host to a large variety of tourist attractions, makes it a definite hotspot.

According to recent reports, over the last 12 months, Berlin has seen its busiest period for investors snapping up property since World War II. And more than three quarters of buyers have been from overseas, many of them British investors. In Conti’s experience, more than 90 per cent of enquiries received in recent months about Germany are from people looking to acquire a block of flats or to re-finance a block of flats. It’s rarely just a holiday home they’re after!

This is definitely an investors’ market and as such, it’s possible for buyers to gain access to buy-to-let mortgages, something of a rarity in the overseas mortgage market, according to Conti, and these are available at between 60 to 70 per cent loan to value. The property must be rented out with an existing tenant and the rental income must cover the new monthly mortgage payment. No other proof of income is required. For non buy-to-let mortgages, existing liabilities and the new German monthly mortgage payment must not exceed 35 per cent of your monthly net income.

Take advice before taking the plunge
With bargain properties still available, especially in emerging markets, it’s only too easy to hand over savings, or money raised against UK properties, seemingly cutting out all the middlemen, red tape and the extra costs they would entail. However, there is significant evidence that using intermediaries is, whilst possibly a little more expensive, potentially a life saver in the long term.

Handing over hard cash runs the risk, even in countries with established markets, of losing everything if a lender isn’t involved. The major advantage to arranging an overseas mortgage is that the lender should carry out essential checks and arrange a valuation.

It cannot be stressed highly enough the importance of seeking independent advice from an overseas solicitor, which would not necessarily happen if the sale was in cash. A local solicitor will examine all documentation, which may well not be in English. They will ensure legal title to the property exists, establishing that the seller has the legal right to sell the property, and if there are any legal or financial burdens registered against the property for which the buyer would be responsible. If the property is new or off plan, the solicitor will establish liability or redress should the developer be unable to deliver. A valuation should point out any issues with the property, e.g. subsidence, damp, wiring etc. and most importantly, potential boundary disputes.

Increasingly, people are deciding that one of the safest options is to arrange their loan through an independent overseas mortgage broker, such as Conti Financial Services. Simon Conn, Conti’s Sales & Marketing Director, says, “We’ve got many years’ experience of arranging overseas mortgages, and have heard of many bad experiences through people not taking basic precautions, which they wouldn’t dream of doing in the UK. There are numerous potential pitfalls in buying properties abroad, but taking out a loan via ourselves or similar intermediaries can go a long way to eliminating these.”