Are you also dreaming of a property overseas? Those who want to buy a property in Spain, Tuscany, Greece, Montenegro or Croatia can certainly profit from reasonable prices. However, those who naively approach a real estate business abroad may experience some nasty surprises. From advance payments to interest rates, there is a lot to take into consideration.
One of the most popular regions for overseas real estate is Spain. The various markets around Barcelona, on the Costa Blanca, adored by the Swiss, and in Majorca have all recovered significantly from the property and financial crisis of 2006 to 2008. A particularly popular area is Majorca – but due to large demand from almost half of Europe, the prices here have risen significantly. For a prime location, it is no longer easy to find apartments or houses for under a million Euro.
Overseas real estate: from economical to top range
As a result of low interest rates and the sound condition of the economy, many nations are currently recording increasing property prices. So, the property business is not only flourishing in Majorca, but also in Malta, for example. Both houses and apartments have become significantly more expensive. The selling price per square meter of living space currently lies between 3200 and 3500 Euro on average. Depending on the development and exclusivity of the location, this price can fluctuate considerably. Croatia is regarded as an insider tip: The country on the Adriatic sea still offers many dream locations by the sea. For example, new builds in Zagreb are on the market for around 1400 Euro per square meter on average, which is not even half as much as in Malta. Montenegro has become somewhat more expensive at around 2800 Euro. Serbia, Moldova, Macedonia, Cyprus, Andorra, Romania and Turkey are all still relatively cheap.
[/caption]As a result of the financial and economic crisis, real estate prices in Greece have not yet bottomed out. Again, of course, there is a wider range to consider, depending on whether it’s an apartment in Athens or on a remote island you’re looking for. Let’s take Crete as an example: For apartments, the average price per square meter lies around 1400 Euro and for houses, it is 2500 Euro. In comparison, it is very expensive to dream of your own private corner in a European metropolis. Even average apartments in Paris cost around 8000 to 9000 Euro per square meter. A particularly expensive patch is Great Britain, of course, and the nice metropolitan spots in London in particular. Even for smaller apartments approximately 50 square meters in size, you would have to put around 750,000 pounds on the table at the moment.
Overseas real estate: Bargaining in Tuscany
Christian H. Kälin, author of the book “International Real Estate Handbook”, says: “Markets develop very differently from region to region.” In Tuscany, there is always a large range available at good prices. “Depending on the market situation, potential buyers can benefit from a lot of room to negotiate”, says Kälin. An elementary criterion when looking at overseas property is, firstly, the question of whether you can afford the local price level at all.
Secondly, there is the question of dealing with the differing practices and legal systems. Let’s take Spain as another example: In terms of tourism and economy, the country has developed significantly in recent times, but there is still a different set of rules for real estate purchases. “In terms of the Land Registry, for example, the obligations are not the same as in Switzerland”, says Kälin, the expert on overseas real estate. Entries in the Land Register are typically considered as a declaration and are not effectively legally binding. It sounds risky, but its true: In a purely formal sense, it is entirely possible that a broker could sell an attractive vacation home with a sea view to a Swiss person one day and then sell it again the next.
Incidentally, many Mediterranean coastlines are experiencing high amounts of construction activity. More often, promoters, brokers and contractors are looking for buyers before construction even begins. “Advance payments for construction projects seem even less secure abroad than in Switzerland,” the expert Christian H. Kälin warns. The two biggest risks are the contractor going bankrupt and the misappropriation of funds. Therefore, you should: Sound out the seriousness and financial background of the seller more rigorously. “In the worst case scenario,” says Kälin, “you could ultimately end up having neither a property nor a reimbursement of payments”. For a purchase of a certain magnitude, you should deal more closely with the legal conditions for construction and purchasing. Advice from lawyers, tax experts and architects is often required to properly assess all aspects of incidental costs, fees and taxes.
Overseas real estate: Non-transparent offers
For laymen, aggressively advertised timeshares in vacation homes are usually not very transparent. Often, these are low-quality projects or properties that are clearly over-priced. “Time and again, buyers are cheated out of their money by timesharing units”, says the expert, Kälin. The key indicators of such “overseas real estate” are usually incorrect information on the possibilities of using the apartment, extortionate maintenance costs or even the total loss of payments made for vacation resorts that are never built. It is often incorrectly suggested that timeshare housing rights are tradable at the original price and will increase in value. “Great caution is normally required when approaching such models”, expert Christian Kälin knows from experience.
Overseas real estate: Conclusions
There are currently all sorts of players on the market, particularly in areas with a booming tourist industry. Depending on the legal system and economic order, there can be many hurdles to overcome when opening a real estate or brokerage office along a popular tourist promenade. After their experiences, tourists often tell all sorts of stories of “robbery” when it comes to overseas real estate: About land that was sold, but was never actually allowed to be built on (construction ban). Or about contracts for constructions projects that were not worth the money. Remember also that tourist destinations and real estate markets are subject to strong cyclical fluctuations! So, in areas that attract easy money, a few years down the line, the construction sites may still be empty and simply end up representing expensive bad investments.
Overseas real estate: Checklist
- Time: Take time to get to know the location first. Ideally, see the region and view the property several times. You should never be forced into concluding a contract! Also keep in mind that each location can look completely different depending on the weather and time of year.
- Contract partner: Only consider contractors that have been active in the business and in that location for several years.
- Security: When it comes down to payments for a construction project, you should really put your construction partner through their paces. Make sure your contractor has sufficient financial reserves; inquire about financial safeguards (e.g. guarantees from an insurance company or bank).
- Fees: Make sure that all costs are included: the fees for architects and construction engineers, for building permits as well as for administration and local authorities. Here too: Depending on the country, considerable taxes, fees and broker’s fees can accrue.
- No oral promises: Be sure to get written assurances, such as, that the greenery in front of your house will never be built on and that the communal swimming pool will be built in the near future.
- Environment: Make sure that the area has a good infrastructure. The sea view is no use if the nearest supermarket is 20 kilometers away and the next English speaking doctor is 80 kilometers away.
- Location: Keep in mind that the most important value criterion for your property is its location. Houses near the sea will always be in demand, terraced houses far from the coast, however, not so much.
- Drinking water: Ask whether the tap water is for drinking. In some Mediterranean countries, the water is not only scarce, but it is poor quality.
- Financing: In practice, Swiss Banks rarely grant mortgages for overseas real estate. You must either be able to finance the purchase yourself or get in contact with local banks.
- Taxes: Overseas real estate must be listed in the Swiss tax return (they are not taxed here, but they are important for calculating the tax base).