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Foreign fields

There are two types of person who buy property overseas – those who want a holiday home, chiefly for their own use and perhaps to rent it out to friends and family to help with financing, and the property investors looking to buy for commercial reasons to expand their property portfolio.

Advertisements promising returns in double figures on the initial investment are not uncommon and many are using the hook of placing overseas properties into Sipps. However, until the rules of placing overseas properties into Sipps are confirmed, anyone considering investing in overseas properties for these purposes should take advice.

There are several things to be considered. If the client is looking to buy a holiday home they will need to consider factors such as location, price, how far the property is from a beach, pool, golf facilities, etc.

Buyers are beginning to look further than the traditional markets. Spain will remain a popular choice primarily because of travel time, familiarity and the fact it is an established market gives confidence. But there have been problems buying in Spain, with horror stories of clients buying properties which did not exist and properties that did not have planning permission and should not have been built.

Buyers who bought off-plan and hoped to sell at a profit before completing can find themselves in the situation where they have a property they cannot sell and have to complete on the purchase. Never having dreamt they would have to buy the property, many are not in a position to do so. Consequently, there are many bargains available in Spain.

For the more serious investor, there are two factors to consider – is the property to be used for holiday let or for commercial letting? If it is to be used for the latter, then there is the potential for a year-round let rather than the peaks and troughs of the holiday let which can be very season-dependent.

Clients looking to invest in property often ask us which are the new hot areas. One of the key points to look at is what is the underlying industry in the area – leisure or commercial?

Some Eastern European countries now seem particularly attractive. For example, the Czech Republic, Poland, Romania, Hungary, Slovakia and Montenegro. Bulgaria is attracting huge amounts of interest as property is cheap and mortgages are available, although, at an average of 7 per cent, these seem a lot more expensive than mortgages for continental Europe.

Budapest in Hungary is a name which frequently crops up for property investment as there is an abundance of new industries moving there, such as banks and financial institutions and there is talk of the city becoming the banking and financial centre of Eastern Europe.

The US attracts a lot of attention, particularly Florida. The weakness of the dollar is making properties look good value but it is dangerous to buy purely on the weakness of a currency. If the dollar were to strengthen, then the sterling equivalent of any debt could increase, although this can be mitigated by using speciality currency companies or you can arrange your mortgage in sterling if it is secured on a property in Florida although this tends to push the interest rate up.

With property investment an unregulated area and claims of wild returns to be made, I would advise any investor looking to invest overseas, particularly in some of the new and emerging markets, to research thoroughly before signing any contract or handing over funds.

Buyers need to check the legal process and find out answers to questions such as if they will be able to own the property in their own name or if a company will have to be used, is mortgage finance available and which solicitor or legal adviser to use. There are solicitors in the UK who will act on your behalf overseas.

Whether looking to invest in property in the UK or overseas, the same principles should apply – if you are looking to buy for maximum returns, the property you buy may not be something which you would live in or use yourself but is ultimately simply an asset to be bought and sold.

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