Irish Property Buyer 05.08

Learning Curve (Irish Property Buyer)
(May 2008)

QUESTION: I'm thinking of buying an overseas property this year. What are the most common pitfalls and mistakes which people make when purchasing a second home?

ANSWER: We always caution people who wish to purchase a property overseas to be aware that not only are they buying in a foreign country with a different language, a different tax system, and a different legal system, but in addition they are also faced with a different culture.

It is essential that people do their homework before purchasing. Caution should be the order of the day. They should be sceptical of what agents say, some of whom are only interested in getting their commissions, which can be quite high. There are good estate agents, but there are many predators in the marketplace, too. It is essential that before any documents are signed - or any money paid over - you should take professional advice.

In addition, people should never sign a document without seeking the advice of a solicitor -especially if this document is in a foreign language. We have had cases where people have signed documents having been told that they relate to one thing when in reality they were signing away their rights, their entitlements or even their property. You may not have a comeback at a later stage so be careful and cover yourself.



QUESTION: Many developers or agents will tell you that you do not need a lawyer at all, or that they will provide you with one. Is this safe?

ANSWER: This is a typical situation we encounter, but it is highly dangerous to accept this advice. If the title to the property is not legally checked, you can be in for serious surprises. You may end up having paid for something which you will not be registered for, or that is burdened with serious imperfections.

Indeed, we know of some people who have signed contracts and paid over money for properties that didn't even exist!

On the other hand, if you instruct the lawyer suggested by the agent, there is a good chance that they will also be acting for the development company. In this scenario, there is a clear conflict of interest, and you can be sure that not all of the right questions will be asked of the company.



QUESTION: What do you think of the concept of guaranteed rent?

ANSWER: There are agents out there selling products overseas which they say has guaranteed rental income. However, be wary of these, as many of them in effect are only paying back to the purchaser their own money. In other words, the purchase price has been increased to allow for a rental income. This is not always the case, as there are genuine developments that do contain a bona fide guaranteed rental. Again, a purchaser should carry out checks on the development in advance. Is it in an area that is conducive to obtaining rent, i.e. is there a golf course nearby? Is it close to a beach? What is the weather like all year round? If there doesn't seem to be any favourable answers forthcoming, perhaps the purchaser should re-examine their motives for purchasing.



QUESTION: Is it important to take tax advice on my overseas investment?

ANSWER: It is essential that you should seek tax advice when buying property overseas. You should enquire whether there is a double taxation agreement in place in the country where you are buying with Ireland. You should also ascertain what the local taxes are on an annual basis and what the capital gains tax should be, if you decide to sell the property in due course.



QUESTION: I'm thinking about buying an overseas home but can't make up my mind as to where to plump for. From an Irish perspective, what have been the most pertinent developments/trends in the overseas property in recent years?

ANSWER: We set up our overseas department eight years ago. At that time, most of the Irish investors were buying in Spain and Portugal. Indeed these were the countries where holiday home buyers tended to go as well. Since then we have seen enormous changes, in that the investor in particular has gone elsewhere. Around five years ago, Turkey came on stream and became extremely popular with both holiday home buyers and investors. This was followed shortly after by Bulgaria. Then, of course, around two years ago, the Cape Verde Islands became extremely popular.

Now that things have cooled down somewhat, we find that the holiday home buyers are continuing to buy in Spain, Portugal, France and Italy. However the investor has gone to other countries, in particular to Poland and Germany, where there are still significant opportunities to be availed of. Places like the United States and South America are also becoming popular for investment, on a long term basis.