Financial Perspectives » Property Investment

Things to think about when you’re buying or selling a property overseas

admin — Thu, 18 Jun 2009 14:39:47 +0000

Although not too many people are doing it at the moment, this is probably one of the best times to consider buying an overseas property as prices are generally rather more depressed than they normally would be. Having said that there are lots more people selling or at least trying to these days which in itself brings up similar issues.

For a start there’s the different legal system to consider. Even if you’re European and buying or selling in another European country you can still find that, although illegal, the local authorities will retain some of the proceeds of a sale in case it turns out that you owe them any taxes. It’s worth pointing out to the legal person dealing with your sale that they are legally required to treat you as though you were a national of the country and that applied even if you fully intend to take the proceeds abroad afterwards so long as it’s to another European country.

Obviously with a property investment you can be talking in terms of quite substantial amounts of money and if you’re going to be changing currencies then it’s worthwhile looking into your options to reduce the costs of exchanging the money to the other currency and also of reducing the risk to you of there being a substantial move in the exchange rate. For example, this year the pound/euro rate has moved from around 1.10 to around 1.20. Ten cents doesn’t sound like much but if you’re looking at a typical property of around the EUR 300,000 mark that’s EUR 30,000 of a difference which is enough to cover legal fees with change or think of it as the swimming pool that you quite fancied.

How do you reduce these charges and risk? If you go to your bank as most people do you are likely to be hit with the maximum charge possible although the charge can be even higher if you just use the local legal people to send you the proceeds as they’ll add charges on top of that. The best way is to go to one of the specialist money brokers who can shave 5% or more off the charges that the banks apply and can also arrange to fix the rate you’ll get months in advance which eliminates the uncertainty in the amount that you will ultimately receive. Aside from the charges from the rate fix, there are no downsides as if the exchange rate moves in your favour you can let the fix lapse and exchange the money at the current rate.

On non-financial matters don’t neglect the time delays inherent in overseas moves generally. Not only does the money take longer to arrive (unless you just take it as a suitcase full of cash which is quite legal though may raise a few eyebrows), but it’s obviously going to take longer for the removal truck to move your stuff from A to B. There aren’t any formalities required in moving your own stuff around Europe although expect checks for illegal immigrants at the ports and be sure that the lorry doors are secured with a padlock (most aren’t) to avoid a few questions along the lines of the “have you packed the case yourself” familiar to air travellers.

It’s best to plan the move more carefully than you would for a normal domestic move as you’ll appreciate from the above that there are a lot more places that complications can arise.

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International property sales: don’t forget the exchange rate!

admin — Mon, 10 Nov 2008 11:18:51 +0000

If you’re selling property outside your home country it’s easy to fall into the trap of pricing it in the local currency and then forgetting about it.

That usually works fine if property sales in the foreign country move at a fairly brisk pace but often they move at a much more sedate pace than you are accustomed to. Whilst exchange rates between the major currencies rarely move quickly they do move and over a period of many months the price translated back into your home currency can change quite substantially.

For example, take a property that you wanted to sell for £60,000 at the start of 2007 and you therefore priced it at EUR 90,000 (£60,641). By the start of 2008 you could sell that property for EUR 85,000 and pick up £62,553. You might think that a year is a long time to have a property on sale but in many European markets property sales proceed at a very sedate pace and it’s not unusual to have a house for sale for quite an extended period before you find a buyer.

If you are counting in your home currency it can often pay to check whether or not you can lower the local price but still collect the same amount of money as obviously it can speed up the sale of the property.

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Thinking of buying a gite in France?

admin — Wed, 15 Oct 2008 11:24:33 +0000

When people think of moving to France their first thought as to how to generate an income is to buy a gite complex and rent it out to people from back home.

It sounds like an idyllic lifestyle, doesn’t it? You work one day a week and the rest of the week you can be sunbathing by the pool.

The snag is that you need to wash all the sheets and towels and carry out maintenance work during the week. OK, so two days work and five at the pool? In theory, you might get away with that though, of course, the guests will be using the pool too and, usually, expect you to do things for them like organise tours or the area, tell them all the best places to go and so on.

What’s frequently forgotten about in all this is the financials that go along with this lifestyle. From a typical six or seven person gite you can probably get around 700€ a week in the peak season. That size of gite equates to a small three bedroom house in size and, of course, amount of work to look after. In reality most people aim for a gite complex of around four or five gites. On the whole, you’ll eventually reach an occupancy of around ten weeks per year for the gites which translates into around 35,000€ a year of an income.

However, there’s the matter of expenses to consider. Bearing in mind that you only have four or five hours to reset the gite between guests you’ll end up hiring a cleaner to help you which eats into the income somewhat and you may need someone to look after the pool. There’s also the business of maintenance: unlike a normal house rental you’re getting a new set of tennants virtually every week and that tends to be quite hard on the furnishings so you’ll need to renew at least some items pretty much every year.

Oh, and don’t forget the taxes!

I’ll look at the normal alternative to this next time ie buying a B&B.

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Interest rate or exchange rate: which is more important when you’re investing?

admin — Fri, 10 Oct 2008 11:21:54 +0000

If you’re considering investing outside your own country whether it be in shares or in property you need to consider the interest rate in that country relative to your own and the echange rate with your own currency.

The two tend to be linked and can rarely be considered totally in isolation. If you consider relatively stable currencies then a higher interest rate will tend to make a currency more valuable and conversely a lower interest rate will tend to make it less so. I say “tend to” because it’s far from a direct link as exchange rates are notoriously fickle: if markets take a view that a currency is overvalued then it’ll go down regardless of how high the interest rates are raised in that country.

However, unless you’re into short term trading it’s largely trends in exchange and interest rates that are important rather than the value that either may have at a given time. In fact, the neither the interest rate nor the exchange rate at a given point really matters a great deal but what you do need to do is to keep an eye on the exchange rate which is, usually, the most important variable when you’re investing outside your own country.

This also affects how you should keep score. Say you’re in the UK and you’re investing in America. In that case you need to measure the performance of your portfolio in dollars, not pounds. To rate the performance in pounds is just going to create a false performance statistic as it’ll be affected by the ups and downs of sterling vs the dollar and those can be quite substantial: in the last 20 years the pound has ranged from around $1 to the pound to over $2 to the pound. Obviously you’ll still measure your bottom line performance in sterling in this case but the performance of the portfolio itself is best charted in dollars.

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How much is a property really worth?

admin — Wed, 24 Sep 2008 11:05:05 +0000

We’ve been looking around the prices of places locally and there’s quite a divergence between what some places are actually worth and what they might sell for at the moment.

For example, there’s a major hotel/restaurant complex near us that’s listed for almost EUR 2.5 million. It’s easily worth that as it’s a recently modernised building with over 30 rooms, large swimming pool, gardens, sports facilities, has a second building under construction to add another 30 rooms and planning permission for a third building for the complex plus extensive grounds.

Unfortunately, that complex is totally out of character with the region. There’s nothing comparable to it locally and for good reason: there just isn’t the market for it here.

So, whilst it might well be worth 2.5 million (and probably more), chances are that it’ll sell for around 1.5 million or so. That’s if it sells at all, of course, as it’s nothing like what people would expect in this area which means that nobody is looking to buy such a facility here.

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The rental prices start heading up in Northern Ireland

admin — Wed, 17 Sep 2008 10:56:04 +0000

Rental prices tend to lag the corresponding rises in house prices, essentially because rental contracts are generally 6 to 12 months in duration.

With the incredibly strong rise in house prices in Northern Ireland over the last year to 18 months it could only be expected that the rents being asked for would make a move after the customary time lag. Now, the house prices have levelled off at the moment but that’s not stopped the rents starting to shift upwards.

For example, in one estate which we have a vested interest in, a typical house was £130k in September 2006 vs £225k now. The increase in rents being asked is also heading upwards over that time from a typical £425 last year to £495 now. So far that’s only a 16% rental increase compared to the 73% price rise but I suspect that it’s merely a taster of things to come from the landlords as they test the water for reactions to that rise. Certainly if the prices of the houses resume their progress upwards I would be surprised if there wasn’t a certain amount of catching up happening this time next year with the rents.

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Selling your house really, really fast

admin — Mon, 11 Aug 2008 14:24:59 +0000

Whilst I haven’t had to sell my home in the UK, the rise in interest rates has landed large numbers of people in the situation where they have loads of equity in their house but not enough money to pay the mortgage on it.

You can end up in that situation extremely quickly so it’s often the case that you find one month you can cope and the next you can’t. If that’s happened, then you need to do something about getting cash quickly.

Likewise, if your house has been sitting on the market for a while and you’re now living somewhere else, you can easily find that you need to get the money fast.

If this has happened there are now a number of outfits that will buy your house in as little as seven days. Yes, just a week!

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Buying a house in France: Post Office and Co-Operative bank accounts in France

admin — Fri, 25 Jul 2008 15:17:18 +0000

For historic reasons, the various post offices and co-operative banking organisations in Europe maintain loose connections with their opposite numbers in other countries and it’s therefore often useful to open accounts with these organisations before you move.

For instance, the co-operative bank offer a service called Tipanet which offers quite cheap international money transfers: around £8 as compared to the £25 that a normal bank would charge you. In the UK, it’s the Co-Operative Bank that does this, in France it’s Banque Populaire. The co-operative movement is quite frequently used by various unions and in France Banque Populaire offers special deals to public servants.

The post office links are even more widespread and various special arrangements exist between considerable numbers of national post offices for their account holders. However, information on these isn’t widely distributed and it can take a little searching to find out about them. One advantage that almost all give you is that a post office account effectively gives you government issued proof of address once your first statement arrives.

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Buying a house in France: Offshore banking

admin — Fri, 18 Jul 2008 18:00:55 +0000

Offshore banks are banks that operate in various tax havens around the world. The most familiar in the UK are the Channel Islands and the Isle of Mann but there are many based in small islands in the Carribbean.

If you’re moving abroad, it can be useful to have an account with one of these banks both to simplify your taxes a little and for the additional services that many of them offer to the expat community. None of the legitimate centres offer taxfree interest on your accounts these days but offer you two options for the interest on your accounts: 1) a withholding tax roughly equivalent to the tax that you would normally pay in your country of residence and 2) no tax but they report your income to the authorities in your country of residence.

Although no longer taxfree, the additional services that many of these banks offer can still make them worthwhile. Even the simplest of them are much more familiar with international bank transfers than a normal high street bank could be expected to be but most go beyond that offering multi-currency accounts, debit cards in a range of currencies and often expat advisory services.

On the whole, the range of services on offer increases in proportion to the increase in the minimum income that the banks ask for. A reasonable compromise with this seems to be Abbey International which offers accounts and debit cards in pounds, euro and dollars for an opening balance of £5000. If your needs are more modest, try the Co-Operative Bank in Guernsey (under Current Accounts, Offshore Banking).

Most people will think of Switzerland in terms of “offshore” banking, but is there anything special about it? The banks there are generally more aware of the needs of international clients but this generally comes at a price. By and large, unless you have fairly sizeable amounts of money (say £25,000 upwards) to deposit or invest, they probably aren’t worth it. Sadly, the Swiss Post Office no longer offers its excellent Yellow Account outside Switzerland (despite what you’ll read on some of the “open a Swiss account” sites).

We’ve included a list of the main banks operating in this arena in the directory which should let you choose the perfect combination of prices and services for you.

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Buying a house in France: what about your UK finances?

admin — Wed, 16 Jul 2008 18:00:53 +0000

Even if you are intending to live the rest of your life in France, you should resist the temptation to close any UK bank accounts or credit cards. The only exception to this is, possibly, for those accounts/cards which have an annual fee.

In addition to the accounts which you already have, you may find it useful to open others as the international dimension changes how you use accounts. For instance, if you have a holiday home in France you’ll obviously be transferring money from pounds into euros much more than you were previously.

The range of accounts in the UK is massive and therefore we can only give an indication of those that you might find useful here.

The Nationwide Building Society Flexaccount (cheque account) is a must. It gives you entirely free transfers from pounds to euro and, at the moment, is the only truly free currency exchange service. Their credit card comes close behind with free exchange on purchases although it has competitors now in the form of Abbey’s Zero card and the Post Office credit card (NOT their “0% commission” deals as they actually cost almost 4%).

Beyond that, if you are going to live in France, it’s useful to open credit cards with a number of card issuers. In general, you will not be able to do this if you are living in France and neither can you easily get credit facilities in France so it’s useful to have a number of UK cards as a fallback should you need it. The main issuers are Capital One, the Co-Operative, GE, Halifax, HSBC, LloydsTSB, MBNA, Nationwide and Royal Bank of Scotland (most other cards are rebranded versions of these eg Sainsbury is really Halifax). It’s worth getting an American Express credit card too as you can transfer the account to France, although as the charges in France are considerably higher you may not want to do that right away.

Cheque accounts are also useful to have. If you qualify for the HSBC Premier service, they’ll open an equivalent account with HSBC France for you which has the additional advantage that you get free transfers between your UK and French accounts with them. Barclays and LloydsTSB offer a similar (but more expensive) service though their branches are largely confined to Paris and the Cote d’Azur. The Barclays account offers withdrawals with no transaction charge at BNP-Paribas machines in France (you are still charged 2.75% on the exchange rate). I used to recommend Citibank a lot but they have increased their charges substantially and it’s not as clearly a useful account for expats as it once was.

The Nationwide account is excellent if you are in France and need to transfer relatively small amounts of money from the UK but the £300 per day (about €400) limit means that it’s not practical for large amounts such as for your house purchase. You can use your own bank for this but the charges are generally quite high and the exchange rate isn’t particularly good either in most cases. To transfer more than a few thousand euros you are best to open an account with one of the specialist companies such as moneybookers; if you are going to be making regular transfers (eg paying for a French mortgage from a UK account) then HIFX offers a facility for this. Slightly more convoluted is by way of a UK Halifax cheque account to the equivalent account with Halifax in Spain which offers free transfers to Spain and from there you can transfer the money very cheaply to France (or any other Euro country).

If you are retaining your house in the UK as we recommend, then you will probably need to change the mortgage to a buy to let one. It’s best to do this before you leave the UK as there are a relatively small number of brokers who deal with overseas clients.

The field of investments in the UK is even wider than the range of banks. However, most seem prepared to change your address to an overseas one. However, if you don’t yet have a UK broker or similar it’s worthwhile opening an account with one before you leave as few will open accounts for overseas clients. We’ll cover it in more detail later but at this point it’s worth mentioning that having a SIPP (Self-invested personal pension) account open is also useful.

If you’ve not yet ventured into this arena, a few useful accounts to have are the Halifax sharebuilder (which lets you buy shares monthly), Fidelity’s Funds Marketplace (which lets you buy numerous unit trusts) and TD Waterhouse brokerage. All are free to open.

As always, you can find links to sites we have mentioned in the Foreign Perspectives directory along with other similar outfits which we haven’t had the space to mention here and the reference version of this entry on our emmigrating to France pages is more complete.

Although you can open offshore bank accounts after you leave, it’s best to open your choice from the above before you leave the UK as it can be difficult or even impossible to do it after you leave.

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