The Irish Times 07.09

While many Irish buyers `left their brains on the plane', even prudent purchasers may now need help, writes Diarmaid Condon
July 2009)

By its very nature, buying property in overseas markets that don't have a similar purchasing system to Ireland carries an inherent level of risk. But in the boom years, many buyers seemed to be either unaware of these risks, or unwilling to evaluate them.

In many cases, the basic commonsense rules of purchasing a property anywhere seemed to go out the window. As one overseas property agent said: "The Irish seemed to leave their brains on the plane." Speaking to this newspaper two years ago, another agent described the actions of some Irish investors as "quite extraordinary. I've had people walk into my office with bundles of cash insisting they want to buy something there and then, despite the fact that they haven't even asked basic questions about the scheme or the developer. It's a licence for unscrupulous people to get money out of them".

Even in the normal course of events this type of carelessness could lead to serious problems, but in the present economic environment, which is far from normal, the number of buyers running into trouble has multiplied significantly. To be fair, there are also buyers running into trouble who carried out every possible form of due diligence reasonably open to them, and who are simply victims of the collapse of world property markets.

Whether the problems have arisen through ignorance or bad luck is, however, largely irrelevant - the fact is that a lot of people are struggling with property deals that have gone bad. So, what should you do if you are one of them? Technically speaking you have a number of options, in reality there are few enough avenues open to you that are likely to bring any form of appropriate closure.

Much will depend on exactly what it is that has gone wrong. If it is something as minor as a badly-completed snag list, then hounding the developer is probably as far as most buyers will be able to go. If it is something more serious, then you may have to consider legal action. How successful this will be is likely to depend a lot on the country in question — some have arcane and truly awful laws governing private property ownership, whereas others offer swift action.

Contacting embassies and consumer action groups, while often suggested, normally proves to be a waste of time.

Legal action is, unfortunately, the port of call most likely to end in something being achieved. But before you embark on the legal route you should bear in mind that it is also normally an expensive and stressful means of seeking a resolution. It will involve a substantial financial outlay, with no guarantee of success - so you should think long and hard about going down this road.

If you can negotiate your position in any way without taking legal action then it will prove a lot less expensive. Equally, if you can find others in a similar position it may help to defray costs and make the developer or agent in question take more notice of your complaint. If the problem includes a dispute between investors and an agent or developer in Ireland, then a case involving the property company Kuvera, which sold a number Of properties in India to Irish investors, will be of interest. Earlier this month a settlement was reached between the company and a group of investors known as the Kuvera Action Group (KAG), who were attempting to recover deposits paid to Kuvera. The case was settled without any admission of liability in a matter of weeks after it came to the Commercial Court. This was a case that could have dragged on for years under old legislation.

By far the most common issue with property abroad is legal representation, or the lack of it. In many cases trusting purchasers had no translation of their contract, and as a result, many of them were left dealing with contracts that obviously favoured the developer in the event of a disagreement.

Legal representatives recommended by agents or developers are often worse than having no legal representation at all, as they can cover up the fact that there are problems about which the client should be consulted.

Tom McGrath, a Dublin solicitor who for many years specialised in overseas property, said that while independent legal representation might seem like an unnecessary extra cost at the time of a deal, the initial investment was more than justified if a problem occurs. "If nothing else, it's worth hiring a solicitor to check that title is clear - if it is in any way deficient it spells trouble," he said.

McGrath said the under-declaration of the value of a property to avoid paying property tax was a constant problem, particularly in Bulgaria, Spain and Turkey. "This activity is fraudulent, illegal and prejudicial to the purchaser," he said. "A tax inspection will lead to a large bill and will also make it more difficult to sell the property at a later stage." Guaranteed rents - promised by many developers during the boom - were also a regular source of complaints, said McGrath. "Developers usually inflated the purchase price to take this rental into account," he said. "Many prominent rental companies are now succumbing to the downturn, and we have had numerous clients come to our offices who are not being paid rent."

Misrepresentation is also a common issue that is, not getting what you thought you had bought. While agents sell property, the contracts are normally with the developer. It is the content of this contract that defines what you purchased, not what the agent tells you; hence the stories of sea views that turned into walls, and "golf properties" where there was no golf course.

According to McGrath, the most common problem at the moment was, unsurprisingly, failure to complete on sales either by the developer or the client — and long-term delays. "Many developers are either insolvent or heading that way, which simply nullifies the contract," he said. "This leaves clients little option but to sue for a refund of the sums invested. Unfortunately, most insolvencies result in clients simply losing their money."

In the future, companies selling overseas property to Irish investors are likely to be regulated by the National Property Services Regulatory Authority (NPSRA). Legislation to put the authority on a statutory footing is expected to pass all stages of the Oireachtas next year.

The authority was established "for the purpose of regulating Property Services Providers (PSP) in Ireland". The role of the authority includes the licensing and regulation of the property industry, administration of an independent system of investigation, adjudication of complaints from consumers, and the promotion of consumer awareness.

Unfortunately, it will have no authority over transactions which made before it gained statutory status, so for those with existing problems, it has come a few years too late. For many investors, costly and lengthy legal proceedings may be the only option open to them.