Investment Property 01.07
ON THE RIGHT SIDE OF THE LAW
Where's Where In Investment Property 2007
Conor Caffrey speaks to Tom McGrath of Tom McGrath & Associates regarding the legal issues relevant to investing in overseas property. Investment in property abroad often seems like a very easy option and the returns can certainly be very rewarding. Yet there are still people who don’t protect their investment by getting sound legal advice before they part with their hard earned cash. However, if you are not careful and buy with the heart rather than the head you may be left considerably out of pocket.
“You wouldn’t dream of buying a property in Ireland without going to a solicitor. It is extraordinary the number of people who do so when buying a property abroad”, says Tom McGrath, the Principal of Tom McGrath & Associates, a Dublin based solicitors practice that focuses on overseas property investment.
“You should employ a professional to ensure proper planning permission has been complied with, that the developer actually owns the land on which they are building and that there are no crimes attached to the property in question. Your lawyer will carry out investigations on the title to ensure that the building has had prior planning permission and, if you are buying a second hand property that any additional extensions, that have been put on have complied with that planning permission”.
The first step you need to take is to decide exactly what you want the property for. If you wish to purchase a holiday home your priorities will be different to those of an investor who buys solely for investments purposes. Let it never be forgotten that, as easy as it may seem, investing in property does involve risk and good research pays off.
The first step you need to take is to decide exactly what you want the property for
It is a good idea to visit the country and the location where you are planning to buy, rather than to rely on those glossy brochures you picked up at and overseas property fair in Dublin or Cork. Doing your homework and doing it right is absolutely essential. Make your own judgements as to the soundness of your investment and don’t just take the word of the estate agent.
“There are a los of good agents our there but there are a los of dodgy ones as well and they will tell you anything to try and get you to buy their property”, cautions McGrath.
The pitfalls are many and the hard luck stories often end up on the solicitor’s doorstep. For example, some people come in with government notices served that they must carry out extensive repairs on the overseas property that they have just bought. A recent case highlighted the fact that if you buy a property in Span you are responsible for the mortgage on that property. A buyer came in for advice after he had inherited a €150,000 mortgage that he hadn’t been made aware of when he bought the property.
Once you pick your purchase the next step is to get professional advice. Seeking advice after you purchase a property is leaving it too late. For example, McGrath states that in some cases a reservation deposit may be required to take the property off the market and that it is important to make sure that this deposit is refundable and to have in writing an assurance of this.
It is a good idea to seek professional taxation advice to establish whether there is a double taxation agreement in place and what the local taxes involve. Sometimes you can source this information on the Internet but tax is a complicated issue and advice from a professional will likely save you money in the longer term. Prior to signing any document it is imperative that you seek independent legal advice.
“Your legal advisor will go through the contract to make sure that there is nothing in it that is prejudicial to your interests. They will also make sure there is nothing missing in the contract to protect your interests” says McGrath.
He cites one example where a couple who came to him for advice after waiting for an apartment for two years after the development was projected to have completed. He found that their contract didn’t even contain a closing date. He surmises that in this case it is possible that the purchasers used the same lawyer as the development company and warns that failing to get independent legal advice can lead to conflicts of interest.
“People need to be so careful that they go to their own independent lawyer who will make sure that everything is in order. They can feel safe when they pay over on signing contract what can be a substantial amount, often 25 to 30% of the contract price”.
Sourcing a cheap local lawyer in the local phone book may seem like a good way to save money, but you might get badly stung. “They are good and bad lawyers.
You are taking a chance. You don’t know if they speak good English. You don’t know if they have experience in this area and if they are conveyancers. You don’t know their track record,” advises McGrath.
One way to source proper local legal advice is to get a list of lawyers from the local law society or local consuls or embassies. The law society may be able to tell you which local lawyers specialise in which areas. The best thing to do is to get a recommendation from someone you can trust.
“With any professional service you get it is always better to get a recommendation in my view. Ask your own solicitor for advice,” says McGrath whose own firm specialises in providing advice to overseas purchasers.
The value of having a lawyer is particularly important in reducing risk, as there is always a gamble element to investing in property. The biggest risk to your investment if you invest off-plan is likely to be that the development company will go bust before your property is completed.
“Your lawyer will try to make sure that any money you hand over during the course of the transaction is secure. If the construction company goes into insolvency, any money you hand over is at risk. In Spain, for example, there is a legal obligation to provide bank guarantees to protect your money during the course of construction. Even though it is a legal requirement to provide these bank guarantees sometimes it can be enormously difficult to extract them form the building companies, but they have to give them at the end of the day”, says McGrath. Other countries don’t require these bank guarantees but you can ask for them.
Legal fees for buying a property abroad can be higher that those that relate to the purchase of a property in Ireland. However, resist the temptation to compare Irish conveyance fees with fees charged abroad, in Ireland the cost of these fees have reduced and may be cheaper than those charged when buying overseas. The price you pay for good legal advice is worth it, according to McGrath. “Our fees range between one and 1.5%. There is the value and peace of mind that a client is paying for and the satisfaction particularly if you are looking for a good return on an investment.”
If you are buying a number of properties in a given country your lawyer can advise you as to whether it is legally advisable to set up a company in the country where you are buying and whether this will generate good savings on tax.
Inheritance of your property is an important area to consider and some countries, such as France, have quite bureaucratic rules and regulations that may prevent you from doing as you wish with your property.
“We always advise our clients to make a will in the country in which they are purchasing a property and to exclude the property from their Irish will. That avoids problems in the future. If they don’t do that, then the country in question will require a high court order on their Irish will to prove probate. We ourselves are now in the position to make Spanish wills in Ireland and we hope to do it for a number of other countries shortly.”
It is a good time to invest in overseas property and reducing the risk by getting good legal advice will increase the likelihood of gaining a better return on you investment.
“Take your time. Take advice. Do your homework,” concludes McGrath.