How to buy or investment property abroad?

Learn a trick or two

Here are some guidelines to keep in mind before investing in a home abroad

Different countries have different rules relating to the right to own immovable property. Do your research so you are comfortable with the workings of the country, and, if in doubt, seek professional advice about that country and the ambitions you hold for owning a home in it.
If your property is difficult to reach, it will lose some of its value.

Investment wise

If you are buying a vacation home with a hope that it will go up in value and be not only a family retreat but also a great asset, know that real estate, just like any investment commodity, can go down in value as well as up. Do some research into the historic nature of the property market and predictions for its future.

Legalities

Legal systems and the title deed registration process are different abroad, so know your legal rights and look into the essential searches, surveys and title deed checks. Never enter into any agreement without the direct assistance of an independent lawyer and never accept someone’s word that a vacation home has its permissions and title deeds until you have physically verified all the facts and data.

Accessibility and desirability

If you are thinking about earning an income from your vacation home or even hoping to holiday in it regularly yourself, the location is one of the most important factors to bear in mind. If your property is difficult to reach, it will become a less desirable commodity.

How to find your property

Hire an estate agent who will help you look at properties across the city. Such professionals can save you time, effort and money. But keep in mind that these agents act for the seller, more than for the buyer, so verify their credentials and get a second opinion.

Financing your property

If you require a mortgage, consultants can help with an independent financial advisor who can offer bespoke facilities.

Making an offer

Once you find a suitable property, the offer is to be made, both verbally and in writing. However, it is important to make an offer ‘subject to survey and contract’, so you can withdraw if problems arise from the surveyor within the contract. An offer and its acceptance are not legally binding and either party can pull out or renegotiate until the exchange of contracts.

Gazumping

Until the contracts are exchanged, the buyer and seller are under no obligation. It is in this time that gazumping can occur, where the seller accepts an increased offer from a third party. Avoid this by signing the contract soon.
Survey and valuation
In case you borrow money to purchase your vacation home, the lender will require a valuation, for which he/she can appoint a surveyor who can visit the property and carry out the valuation that will reveal any problems. A structural survey, too, can be done to find out any defects.

Conveyancing

Conveyancing refers to the legal and administrative work associated with transferring ownership. This process can start only after an offer has been made and accepted for a property, and solicitors details have been exchanged by both the parties.

ONE THING LEADS TO ANOTHER

Here are some advantages of having a second home

Outlook for real estate

Real estate prices in India have grown at between 15% and 20% annually, over the past 50 years, across cities, and this growth is projected to continue.

Tax advantages

You can set off the rent received from the second home (less 30% for repairs and maintenance) against the interest paid on the home loan. If the rent received is less than the interest paid, then the resultant ‘loss from house property’ can be set off against your regular income. Thus, there is a tax hedge provided by the property till it begins to pay for itself.
When the flat is sold, the acquisition cost (adjusted for indexation) is deducted from the sale proceeds and only the balance is taxable.

Leverage

You can invest in a second home by putting 20% of the cost of the home as equity, and taking a loan for the rest.

Financial logic

Assume you own the asset by paying 20%. Your average cost of financing the remaining is 10%. The rental yield is 3% and property appreciates by 12% every year. Your financial situation every year is as follows: Cost of the property: 100 Investment (down payment): 20% Loan: 80% Annual appreciation: 12% Thus, the return on the investment is quite healthy.

Psychological factors

A house is a stable asset that is not bought or sold frequently. There is no greed or desire to cash in when the prices are high and there is no panic when prices do not rise.

The flipside

You should be comfortable with the monthly installment to be paid over the long term.
A property takes maintenance, which is a problem for those with transferable jobs.
A thorough evaluation of the developer, his track record and other legal aspects of the property is a must.