Overseas residential property-buyers beware! When you buy in Europe, you can pay up to 25% of the purchase price in round-trip costs, i.e., legal and other fees.
Punitively high round-trip transaction costs are incurred in Russia (25%), Bulgaria (24.9%), Italy (17%), France (16.3%), and Greece (15.5%) (i.e., the total cost of buying and selling a property, including all taxes and fees). Purchasers of new property often incur even higher costs, with additional VAT of 20% payable in some countries, according to a report released this week by the Global Property Guide .
Very high transaction costs in Europe
Residential investments in Europe incur punitively high roundtrip transaction costs in many countries, exceeding 15% in several cases. Purchasers of new properties often incur even higher costs.
In Russia and Bulgaria, transaction costs can reach around 25% of the property value for a typical transaction of a resale property. On the other hand, property buyers will be relieved to know that transaction costs are very low in Estonia, Slovakia and Lithuania, typically below 4%. Transaction costs in the UK are near the bottom of the scale at around 5%.
These are some of the findings of a landmark study of transaction costs in 37 countries in Europe, published this week by the Global Property Guide . As the study notes, previous research on European transaction costs covered very few countries, so an over-all picture was difficult to establish.
The study considers all transaction costs involved in the property sale-purchase process, including registration and notary fees, legal fees, real estate agentsâ€™ commissions, and sales and transfer taxes such as VAT.
To analyze transaction costs, the study looks at a ‘typical case’, adopting the assumptions that:
1. The property is purchased by an EU-national, not resident in the country where he/she is buying
2. Is worth €250,000
3. Is paid in cash
4. Is a condominium located in a major city
5. Was used by the seller as his principal residence for the past ten years
Interestingly, roundtrip transaction costs in countries with French legal systems are generally higher compared to other countries; these French legal origin countries include Monaco (19.7%), Belgium (17.9%), Italy (17%), France (16.3%), Luxembourg (15.7%) and Greece (15.5%). In several countries with French legal systems, the use of lawyers is mandatory, with fees set by law. Sales and transfer taxes are also more common in French legal system countries.
The study disputes earlier findings that southern Europe has Europe’s highest transaction costs. This impression was created by studies concentrating on selected southern countries with French legal systems.
Buyers of new residential property are in for a shock, because additional taxes are charged on newly constructed or renovated properties (which are often hidden in the sale price).
Monaco imposes 20.6% VAT (instead of 6.5% registration tax) on new properties, bringing total costs to 33.75%. In France, transaction costs for new properties are around 31%, because of the 19.6% VAT levied in lieu of registration fees.
Real estate agents’ fees are highest in Scandinavian countries. However, this is because the agent guides buyers throughout the property registration process. The use of lawyers in Scandinavia is common but not required.