Guides and Tips

Permission for UK Real Estate Investment Trusts (REITs) to launch in January 2007 was one of a series of changes to the property investment scene brought about by the UK Treasury in the last few years. It follows the change in unit trust rules in March 2004 that allowed unit trust funds to be 100% invested directly into property. In December 2005 these funds were opened up as an option for ISA purchasers.

Investors have had to wait over three years since Gordon Brown first announced that REITs were being considered in order to give savers another way of investing in commercial property. Last year the Chancellor made a last minute decision to exclude direct investment in property from the new self-invested pension plans (SIPPs) with the exception of halls of residence and property syndicates above a certain size.

When looking at alternatives to direct investment in property the field is now looking fairly full and it’s helpful to distinguish between the different species and sub-species and their different strengths and weaknesses.

Property Investment Companies

First in the list are property investment companies. Share price services such as Thomson Datastream show that there about 50 property companies listed on the LSE main market’s property sector with a further 90 quoted on the AIM market. Some of the leading UK property companies (10 of them by mid-February) had metamorphosed into REITs but, confusingly, they still appear with as property companies of the share price pages in the newspapers.

YouTube

I came across an interesting article on CNN Money titled “The ‘YouTubing’ of real estate”. It talks about a new trend in the US by home sellers who now incorporate professionally produced ‘news style’ video streams on their websites to promote their property.

According to Charlie Young, the vice president for marketing at Coldwell Banker, “we were telling all our brokers about the need to put more [still] photos on their Web sites. Today, if your site doesn’t offer virtual tours, mapping technology, neighborhood guides and a video library of buying and selling tips, it’s nowhere.”

This trend can be connected to the YouTube phenomenon in the States, where virtually everybody makes and posts their own videos online. The website on focus was the Peninsula on Indian River Bay development in Delaware which is hosted by a male and female “news presenter” cost the project’s developer about $50,000. In my opinion the cost is a no brainer for property developers but should be dramatically scaled down for individuals selling their homes. Maybe its an opening for small time film makers to team up with estate agents….hmm

First-time buyers are being targeted by a growing band of property experts who claim that anyone priced off the ladder in the UK should consider buying cheaper houses abroad, in locations such as Poland, Turkey or even India.

A new website, www.from55k.co.uk, from Parador Properties, one of the biggest British-owned property companies in Spain, promises aspiring homeowners the chance to buy a new two-bedroom apartment abroad for as little as £55,000. Another website, www.newskys.co.uk, also offers first-time buyers an overseas service.

A survey by YouGov, the polling company, shows that nearly half of 18 to 29-year-olds plan to buy abroad, and two thirds of these say that this would be their first property purchase.

The idea is alluring. This week the Royal Institute of Chartered Surveyors reported that some European housing markets enjoyed double-digit growth last year despite interest rate rises. An added bonus is that a plush flat in a sunny location could also bring rental income from holiday-makers, as well as providing a getaway destination.

Jonathan Burridge, of Quantum Mortgages, the mortgage broker, says: “This is still a relatively new concept and, as a pioneer in new territory, you can expect to meet bagmen and cowboys. However, there is gold to be had for the wise and the lucky.”

But experts advise that buying overseas carries a host of unpredictable risks and costs. Ray Boulger, of John Charcol, another mortage broker, says: “I am not surprised that overseas consultants are targeting first-time buyers – the low prices look appealing. But for most first-time buyers, buying abroad is wrong for so many reasons that it is difficult to know where to start. The biggest mistake is assuming that the overseas market will perform in the same way as property in the UK.”

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British investors are finally cottoning on to the holiday developments in France that offer exemption from VAT, providing savings of nearly 20 per cent.

These holiday complexes, known as residences de tourisme, are built by a developer who then sells the units to investors. They, in turn, lease them back to an operator who does all the hard work – including furnishing, letting, cleaning and general maintenance.

To encourage the building of tourist accommodation, particularly in the South, the French government exempts leaseback residences de tourisme from VAT on the purchase price, currently 19.6 per cent. Irish investors have known about leaseback for years, says Laure Baldacchino of Chesterton International, but it is now catching on in the UK. “The best capital appreciation is in the Alps and the South – growth has been about 10 per cent a year,” she says.

It pays to plan ahead if you’re buying overseas. Stephen Pritchard tells you how

For some holidaymakers, browsing estate agents’ windows is as much part of a break as soaking up the sun or touring the cultural attractions of a foreign city. But a growing number of people go further, and put in an offer to buy an overseas property.

Just under a third of Britons are interested in owning a property abroad. A fifth of all remortgages taken out in the UK are in order to fund an overseas property. Often though, would-be buyers do not consider the finances until they have already put down an offer. This can leave buyers struggling with two problems: arranging the right type of mortgage, in the right currency, and transferring what can be a substantial lump sum overseas for the deposit.

In many overseas markets property transactions take significantly longer than in the UK, so any delay in organising the finances could put the purchase at risk. “Usually buyers have not thought about the timescale or the length of the process,” says Neil Burns of mortgage brokers Mortgage Maestro. “They might have dealt with lenders in the UK where you can submit an electronic application in minutes. In Spain or Portugal you need to allow 10 to 14 weeks.”

Ideally, anyone looking to buy an overseas property should take independent financial advice. Lenders in continental Europe often require substantial deposits: 30 per cent is common. Mortgage terms are usually shorter, too. As a result of the complexities of raising finance abroad, UK home owners buying properties overseas often do so in cash, or by remortgaging their UK property.

Remortgaging here is straightforward enough, at least for buyers who have sufficient equity in their home. But it brings two risks: they could lose their UK property should they fail to meet the new, higher mortgage repayments. And the finance is only available in pounds sterling.

For some buyers, a mortgage in the local currency they are buying in makes sense; in other cases the best way to finance a property could well be in a third currency. Some buyers in Cyprus, for example, are currently arranging mortgages in Swiss francs with Cyprus banks, in order to take advantage of the lower Swiss franc interest rates.

Whether such an approach makes sense, cautions Burns, depends on the buyer’s attitude to risk and how flexible their finances are. For someone with a large overseas mortgage and most, if not all, of their income in sterling, a mortgage in euros or another local currency brings with it exposure to fluctuations in the money market.

One area where it does make sense to think in local currency terms is the deposit and any transaction fees. By being prepared to convert money into the purchase currency ahead of time, buyers can increase the chances that exchange rates will work in their favour. The simplest option is to open a savings account with a local bank or a UK or offshore bank that operates foreign currency accounts.

Citibank offers its UK customers US dollar and euro savings accounts, and offshore branches of banks such as HSBC and Barclays have similar deals. Unfortunately interest rates, especially on euro savings accounts, are low.

As an alternative, a growing number of overseas property buyers are turning to foreign currency brokers, who can book currency ahead on the money markets, known as a forward contract. Foreign Currency Direct, for example, can reserve funds for up to three months. This has the advantage of fixing the exchange rate, but the funds can stay in a sterling account until the last possible moment.

According to Foreign Currency Direct director Robin Haynes, currency brokers can often achieve a far better rate of exchange than using a bank, especially for larger transactions. The exact savings will depend on how good the property buyer’s UK bank is: Haynes expects to save 0.5 to one per cent over a good bank commercial rate, but if the UK bank is only offering “tourist” rates, the saving could be as high as three to four per cent.

“In one case we managed to save a client US$30,000 on a dollar purchase,” says Haynes. “That could easily be enough to buy a swimming pool.”
Source: The Independent Online

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Most British investors are missing a trick by focusing solely on holiday lets when buying overseas. Assetz research reveals that much more reliable returns with a lot less work can be gained by investing in properties to let to the local market.

There is a common misconception that overseas property investment must mean holiday homes, with British investors competing fiercely over properties located close to airports, beaches and golf courses. Most of the rental income must be generated throughout the traditional holiday seasons when the properties are let to a series of holidaymakers for short periods.

While these properties can undoubtedly generate strong returns, especially in counties with a strong tourist industry such as France, the alternative route into overseas property investment through letting to local people is usually more reliable, is much more a hands-off investment and is often overlooked.

Local lets are usually considerably less hassle for the investor, as one tenant will probably last for a year or two, perhaps longer, compared to holiday rentals which change every 1 – 2 weeks, often with long voids in low season and a high cost of ‘changeovers’.

Property in city centres such as Saint-Brieuc in Brittany, Montpellier in the Languedoc (France) or Limassol in Cyprus, expensive than in tourist hotspots, meaning investors can access better quality property at lower prices.

Stuart Law, Managing Director of Assetz comments:

“Amateur investors in particular are driven by the desire to holiday in their overseas property once or twice a year, therefore focus on holiday destinations which they might ultimately choose to retire to. However, with the time taken to manage the holiday bookings and the hassle of arranging changeover/cleans between holiday let clients, it would make sense financially to consider separating the investment from any intentions for personal use and seek local let property.”

Assetz is selling locally let property in the Cotes-D’Armor near Brittany, France. This buy to let property is already occupied by tenants, so can be purchased as an immediately cash-positive investment. Where property in central Brittany is often inflated, smaller satellite towns surrounding the cities have an active professional market which demands quality rental accommodation, providing an ideal opportunity for investors wishing to access the local French buy to let market. The apartments cost from EUR88,500 (£60,561) and are yielding 5% rental incomes, managed by a top class management company.

Assetz also has one and two-bedroom local let apartments in Limassol, Cyprus, for £70,000 – £100,000 Sterling with 8% yields available and a fully managed local service available, making it an ideal hands off and profitable investment.

Source: Firstrung.com

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If you are considering joining the great stampede overseas and buying property abroad, be warned that it can all be a bit more taxing than it first appears.

With the holiday season under way, many people will be tempted to join the growing numbers of Britons who own foreign property.

But potential buyers are being urged to be fully aware of the different tax regimes abroad before deciding where to buy.

Latest figures show there are 257,000 British households with second homes abroad, with the most popular place for Britons to buy being Spain, ahead of France, Portugal and Italy. The US is also a popular destination, with many also tempted by off-the-beaten-track locations such as Bulgaria.

But, Richard Proctor, tax partner at financial advisers Grant Thorn-ton, said: “While good weather, availability of low-cost flights and the cost of property are the biggest factors when making the choice of where to buy, the local tax implic-ations should also be carefully considered, as these can have a significant impact on the costs associated with the holiday home.”

“If you do buy a property abroad, income received from its rental may give rise to local taxes.”

“In many countries any gain arising on the sale of the property or merely its ownership can lead to a tax liability.”

“Furthermore, if the owner is a UK tax resident, rental income or gain on the sale of the property may also result in a UK tax liability, with the individual having to obtain relief under the complex ‘double tax relief’ provisions.”

“This is on top of all the property taxes associated with purchasing property.”

Among the things to consider are tax on rental income, wealth tax, capital gains tax, inheritance tax, and the interaction with UK taxes.

Mr Proctor said: “People who are considering taking the plunge should seek specialist tax advice both in the country in which they intend to buy and in the UK – otherwise it could end up costing them much more than they bargained for.”

“Once a property has been purchased, they should make sure their will is updated, and in certain circumstances, it would be wise to have a will in the country where the property is located.”

Source: BIZOnline

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AS holidaymakers relax on a foreign terrace this summer conversation will inevitably touch on how nice it would be to own a place in the sun.

The number of Britons owning overseas homes has soared over the past decade, but the pitfalls involved in turning aspirations into real-life bricks and mortar remain.

But whether you are buying in Morocco or Madrid there are some simple rules to follow that can make the process go as smoothly as possible. Simon Lambert outlines the five steps to buying a holiday home in the sun.

1. Research, research, research

If you are seriously considering buying a property abroad you need to do research – and a lot of it. The internet means there is no excuse for not taking advantage of the wealth of information at your fingertips.

Investigate the countries and areas you are considering and see what is on offer. Any website owned by a property-related business is interested in getting you to buy. Look at community websites run by expats or those who have holiday homes in the area as well.

There are countless internet forums run by people who have taken the overseas property plunge. Reading about other peoples’ experiences will give you an idea of the potential problems of buying in your chosen country, and any extra expenses you’re likely to incur.

There are also hundreds of companies that, for a fee, will help you buy a home on the Continent. If this is a route you’re considering, investigate them carefully before choosing to give them your hard-earned cash as they’re not all particularly reputable.

It’s also worth noting that This is Money has a brochure service for overseas property. We will send you brochures for free. It’s not a recommendation but helps you to research before you set off house-hunting.

2. Get your finances sorted

Funding the purchase of a home abroad can be done in a number of different ways. One of the most popular means is remortgaging a British home to release cash to buy a second home. The advantage is that borrowing is all from one place and repayments will be made in the currency you are paid in.

Some lenders offer special overseas purchase mortgages and Abbey uses its link with parent company Banco Santander to offer a Spanish mortgage, paid in euros. If you are looking for assistance, it is possible to borrow in a variety of countries through a specialist overseas mortgage broker. Brighton-based broker Conti Financial Services can find mortgages for countries ranging from Poland to Australia and offer further expert advice to purchasers. Bear in mind currency fluctuations will affect your repayments

3. Visit where you want to buy

Getting to know the area is essential and a number of visits before buying is ideal. Investigate the area without an agent in tow and then make plenty of bookings to view properties. Don’t fall for the hard sell and if you see a property you like make sure you have a cooling off period to discuss its pros and cons.

Don’t get carried away with the romance of a particular Spanish villa. Approach this purchase with the same caution as you would with a house back in Britain and ensure you get the appropriate checks and surveys done before handing over your money.

4. Get the experts in

Different countries have different property laws and regulations, so it’s important that you find a good, fluent English-speaking solicitor who is not connected to your seller, estate agent or property developer. They should be used to dealing with overseas purchasers and go through all the possible fees, taxes, insurance issues, local authority rules and any possible pitfalls. The laws and procedures involved with every aspect of the housebuying process are often different to British laws, so make sure your solicitor’s local knowledge is excellent.

The local tourism office will be able to give you a list of solicitors and it’s important to visit a few before choosing.

If you have bought a plot of land and are having a property built make sure all planning permissions are covered and find a good architect. Again, the tourist office can help. If you think the service you are receiving is unsatisfactory, say so and explain if things don’t improve you will go elsewhere.

5. Make an offer

Once you have found your ideal home, set a maximum price you will pay and don’t go over it. After your offer is accepted and you have instructed solicitors make sure you keep tabs on them and the estate agents. Ask for regular updates and make sure you fulfil all the requests made of you promptly.

Make sure your funding is in place and consider using a currency specialist, such as HIFX or Moneycorp, which can offer better rates and the opportunity to agree a purchase cash advance at a set rate.

Source: thisismoney

The Association of Mortgage Intermediaries (AMI) has launched its latest advice paper, giving guidance to members who are thinking of making a purchase of property abroad.

The intention of the factsheet, entitled “Advising clients thinking of buying abroad”, is to make people aware of the regulations governing foreign property purchases and the potential pitfalls that come along with them.

Risks include currency difficulties caused by exchange rates and confusion over quotations, legal issues, such as varying legal systems and obligations, and the process of buying the property itself and the stages that must be fulfilled in order to make the purchase official.

“An increasing number of UK residents are buying property abroad, be they holiday homes, future homes to retire to or as buy-to-let investments,” said Rob Griffiths, associate director of AMI.

“There are many considerations for mortgage intermediaries when advising their clients on such a purchase and they must take great care to ensure the process goes as smoothly as possible.”

Mr Griffiths also noted that the key point to remember is that there will be variations in the process involved in making a property purchase outside the UK, no matter how similar it seems on the surface.

Establishing a bank account, ensuring you have the correct insurance cover and determining the taxation issues of a particular country were all important and potentially problematic areas, the AMI concluded.

Source: Adfero Ltd

Interesting article from Peter Conradi Editor of Times Online Overseas section and Overseas Property Weblog. To view the full article click here or read below: Almost a year ago in this column, I sang the praises of Shanghai as a destination for the foreign property investor. China’s commercial capital appeared to have it all: some spectacular modern developments, high capital growth, decent rental returns all underpinned by one of the world’s most dynamic economies.

It was not, to put it mildly, the most prescient of pieces. The ink on the page was barely dry when the Chinese government stepped in with a raft of “market-cooling” measures that triggered a collapse almost overnight of as much as 20% in the price of some properties turning potential paper profits into immediate losses.

Like others selling property in the city, Dominic Keogh, managing director of the London office of agent Shanghai Vision, is putting a brave face on developments.

Prices, he insisted last week, have been recovering in the months since the crash and, in most cases, are back to their previous highs. The future prospects continue to be good, thanks to the growth of the Chinese economy and continuing shift of population into the cities. “Last year, 500,000 more people moved into Shanghai alone,” he says. “Even for a city of 17.5 million, that is a very big number.”

China is not the only property hot spot that has been given British property investors pause for thought in recent months: in Dubai, another favourite with foreign buyers, there have been gloomy predictions of a glut in property and perhaps even falling prices when the latest wave of new flat developments comes on stream next year.

As for the even more heavily hyped Bulgaria, the merest mention of Sunny Beach or one of the other Black Sea resorts is enough to prompt knowing looks from those in the trade.

Underlying it all is the growing question mark over the biggest one of them all: the US property market. After five years of unremitting growth which has seen prices increasing by an average 50% and doubling in some of the hottest citiesthere are signs the boom times may soon be over: sales have been falling, while repossessions and stocks of unsold houses are growing.

America’s authoritative National Association of Realtors has predicted a soft landing, much as we have seen in Britain in recent years, with annual growth set to slow to a more sustainable 5%.

Pessimists predict a crash, which, given the amount of money tied up in the US property market and the scary levels of household debt, could bring down not just the American economy, but also the global one as a whole.

Setting aside such doomsday scenarios, what is really going on? And what lessons should be drawn from it by the small property investor, looking to put his or her hard-earned cash into an investment property abroad? Liam Bailey, head of residential research at estate agency Knight Frank, which has just launched the first global house-price index, believes the international property boom, which spread from Britain and Ireland across the world in the late 1990s as interest rates fell, is drawing to a close. Average prices, according to its weighed index, rose 6.6% in the first quarter of this year – against 9.3% a year earlier.

“There is undoubtedly a slowing down and overall prices are growing less quickly than they were last year,” says Bailey. “But this doesn’t mean that there isn’t scope for growth in certain areas over time.”

So where has been doing well? Estonia, the Baltic tiger with one of Europe’s fastest growing economies, heads Knight Frank’s list, up 17%, with New Zealand, Bulgaria and South Africa all in double figures although the latter two have slowed down appreciably compared.

More unexpected, perhaps, are the second place for Denmark (up 16.1%) and seventh place for Ireland (up 10.7%), especially since prices in both have been accelerating rather than slowing this year. This is all the more surprising in the case of Ireland, given the amount by which the market has already gone up.

Where those investing should put their money is more difficult, since past performance is, of course, not a guide to future profits. As well as Estonia, and the neighbouring Baltic states of Latvia and Lithuania, Bailey fancies Germany – particularly the southern regions of the western part. After stagnating and even falling for several years, prices have shown modest gains this year, with more to come, he predicts, as the German economy continues its export-led recovery.

To Bailey’s list, one could add Romania, Thailand, Turkey, Bali and, for the really adventurous, even Argentina and Brazil. As for China, though, I think it would be best if I kept my predictions to myself.