Many of you are interested in buying off-plan property overseas. Here, to end the week, are some words of advice from Peter Esders…
Research the development, the surrounding areas and the town itself.
It’s easy to do some initial desk research towards your due diligence. There is plenty of official and unofficial information out there for you to read from your computer at home. You can Google.com and Yahoo.com for the nearest town to source official and other websites. From these, you can uncover estate agents and letting agents and tourist offices etc. Wherever you are buying, the developer and their agents will usually say something like “prices here are going up by xx per cent a year”. See if local contacts agree; and particularly those who do not have a vested interest in saying so. If you are buying into a development, visit it rather than buying sight unseen. You should not really buy anything without seeing it. Even if the website, brochure and specifications all look good, you need to see the area for yourself. You may find, for example, that there is a huge patch of land between ‘your’ development and the sea. That’s likely to be filled in by the time the development is completed.
Looking for fast profits from capital growth?
Make sure you can sell the property onwards at completion. A developer or agent will often tell you that it is easy to sell the property on or around completion to someone else so that you only ever have to pay out for the deposit. This may be true – but equally, it may not be the case. Your solicitor – always employ a solicitor before signing anything – should check the contract to see that it is assignable as and when you want; and that there are no hidden-away restrictions. You should also research to see that the property will actually be in increasing demand on or around completion. There are always various ifs, buts and maybes than can occur between now and then. There may be many similar units coming to market at the same time. The development may be incomplete. The expected infrastructure may not have been completed. The low-cost airline may have stopped its regular flights. Work through the possible ‘what if?’ scenarios and be sure you can handle the worst case situation.
Do some due diligence on the developer and their agents.
Most are perfectly respectable and honest, although you should always bear in mind that they are trying to sell to you. So you can expect them to highlight the positives. You cannot expect them to showcase any negatives. But you should not have to listen to lies and half-truths. You can start by making various checks to see if they are well-known and established, are registered in the UK (so they are covered by UK legislation) and don’t generate any negative comments when you Google.com and Yahoo.com for them. You should also talk to them and follow through on what they say. Some common comments that often turn out to be incorrect are as follows. “There is no problem getting a non status mortgage” is often stated, but not put in writing, prior to you paying a deposit. Read the small print early on. “A new golf course/marina/other major attraction is to be built close by soon” is a favourite – but the development never gets built and the expected wave of tourists never arrives. Visit the local town hall!
Seeking long-term lettings and capital appreciation?
Be sure you can rent the property out after completion. The developer and their agents will tell you that you can easily rent that property out for most of the year. Few will put that in writing though or make any sort of guarantee. Of course the developer and the agent are selling the property so you need to check what they are saying is correct. If an estate agent in the UK told you you’d let a property easily, you’d check with local letting agents first. You need to do the same in an overseas market. If you are holding on beyond completion, number-crunch your finances as it may take several months to find a tenant. That’s especially likely if the development and infrastructure are incomplete or, vice versa, the development is complete and many similar units are available to rent. With a holiday let, you will do well to get a 60 per cent occupancy rate over the year. Number crunch your finances with three, four and five void months and/or 60, 50 and 40 per cent occupancy. Talk to other investors with comparable properties to see what they achieve.
Always get your own independent, professional advice.
Increasingly, developers offer you a complete package; a mortgage broker, a surveyor, a solicitor, and so on. All you have to do is to pay the deposit! Everything else is done for you and you can sell on completion and recoup your deposit and more besides. If only it were that straightforward and easy! If you bought a property in the UK, you would source your own mortgage via a broker and would have your own survey and valuation done. You would not rely on the seller of the property to provide this information. Nor should you overseas. Similarly, you would not use the seller’s solicitor (especially if they put 100’s of deals via the solicitor and you are only doing the one). You may hear comments such as “No, you don’t need an independent lawyer – everyone uses ours. It’s quicker and easier.” Your own English-speaking solicitor who is close to hand is a must. The developer or agents will tell you, for example, “Of course the property has planning permission”. Your solicitor will check!
More to come on off-plan buying and other ‘hot’ topics such as fractional ownership shortly. Do also let us know what topics most interest you, which countries, and so on.