The Irish Independant 10.07

Buying foreign property is not always straightforward, with or without the services of a solicitor. Experts Tom McGrath, David O'Donnell and Gillian Ryan share their thoughts.
October 2007
Tom McGrath & David O'Donnell
NOBODY in their right mind, when buying a property in Ireland, would do so without the services of a solicitor. So why on earth would you do so if you are buying in another country? A lawyer specialised in the particular country in question will take instructions as to exactly what it is that you believe you have agreed to purchase. It is important to give full instructions so that your solicitor can liaise with the development company and agent to ensure that the terms you understand as agreed are incorporated into the contract. Some years ago, a number of gentlemen came to us having verbally agreed to purchase properties in a development in Spain with the consent to "flip", ie, to sell on before completion. They had already signed the contract and when we reviewed it, we informed them that there was no clause allowing for the property to be sold on. In the circumstances, they were obliged to source the finance in order to complete. Others might not have been so fortunate and would have lost all sums paid over at that time. A lawyer will make sure that all building and planning regulations have been complied with and that valid licences are in place.

Some countries have been fraught with difficulties on the question of licensing, in some instances due to local government corruption. Failure to license carries the risk that the property may be demolished. In some instances, unscrupulous vendors have requested that a percentage of the purchase price is paid "under the table"; in other words, the sum that is declared in the contract and put on the title deed is lower than the actual agreed figure. This is an attempt by the vendor to avoid their tax liability. This practice, known as "black money" or "B" money, is illegal and your solicitor will strongly advise you against it. In some countries, authorities are taking steps to eradicate this practice by appointing inspectors, who on discovering such an under-declaration will require you to not only pay the difference but also a hefty fine. In addition, when you go to sell your property the gain will appear greater than it actually is, therefore attracting a greater capital gains tax liability.

If any government notices have been served on the property, a check by a lawyer will bring this to light. Recently, we were instructed by a gentleman who had purchased a property in Berlin without using a lawyer. After taking possession of the property they discovered that a government notice requiring extensive repairs at significant expense had been served six months prior to his purchase. He came to us to ensure that there were no more surprises. Some unfortunate people have encountered difficulties. This is inevitable in an unregulated industry. However, we have had many cases of satisfied clients who have purchased properties abroad and who are thoroughly enjoying their holiday homes and making good returns on their investments.

Gillian Ryan
INDUSTRY leaders have long called for the regulation of the overseas market and I agree emphatically on this issue. Unlike commercial property investors, who generally have a strong investment knowledge, the majority of overseas buyers are ordinary people with relatively modest funds, hoping to secure a good return and real capital growth by investing in attractive schemes in up-and-coming tourist destinations. I believe regulation would help protect people from making unwise investments with unscrupulous operators.

I also believe that those marketing overseas developments should be required to show what due diligence has been conducted on the property developer, construction company and market. There should also be regulations covering the information that must be given to a buyer entering an agreement. For example, a clear statement on all costs related to their investment - acquisition, ongoing maintenance costs and exit costs - as well as an obligation to support any statements on yields, capital appreciation and so on, with independent data showing how the market has performed historically. At Colliers Jackson-Stops, we have agents with local offices in over 55 countries worldwide. Before we take on any development, we perform due diligence on the developer and use the Colliers office in the local market to research rental levels, appreciation values, etc. We also visit each location to research new developments. We turn down about 75pc of schemes put to us to market in Ireland. Regulation should not add to the costs associated with investing abroad, but rather should make the process more transparent while providing added protection to investors, who need that extra reassurance when investing in an unfamiliar market. Regulation will benefit not just purchasers, but also those of us acting responsibly in this area.

Gillian Ryan is manager of the International Homes and Residential Investments Department at Colliers Jackson-Stops. Tom McGrath and David O'Donnell are partners in Tom McGrath & Associates solicitors.