WHY do people buy property overseas today? Do you want a holiday home at your favourite ski or beach location? A regular escape to the place you dream of one day calling home — at least more often?
Many of us would like to own or keep in the family that second home in a country where parents or other relatives still live. Buying a family property could help those relatives live better in retirement, and keep family connections alive. In the past these were the major reasons people bought overseas, however increasingly today more people are buying for investment purposes.
In the current economic times several unique factors have converged at once to make the overseas purchase decision an even more compelling and attractive one. If you have been looking at property for some time, or you have a favourite overseas destination that you love and keep going back to, or even if you have considered retiring there one day, then now is a compelling time to act. Contact Sothebys International Realty UK for help finding estate overseas. If you have been looking at property for some time, or you have a favourite overseas destination that you love and keep going back to, or even if you have considered retiring there one day, then now is a compelling time to act.
Why? Well, let’s consider this rare situation that is occurring today, particularly for the Australian investor overseas.
The Exchange Rate
The Australian dollar is enjoying unprecedented highs against the US dollar, the Euro and the Sterling, to name but a few of the major currencies. Against the US dollar it has never been this high, generally speaking, since deregulation of the monetary system in the early eighties.
What this means effectively is your Australian dollar will buy roughly 30% more US dollars or English pounds than it ever has before. This means the property you find will actually cost you around 30% less than what it would have cost you before the great appreciation in the dollar.
This means more attractive buying conditions and a faster route to property wealth now, compared to 4-5 years ago, for any given property overseas, especially in these major markets.
Property prices overseas
It’s no secret that property in Europe and the US has taken a battering over the last 4-5 years as a result of the credit crisis. At the same time the Aussie dollar is strong, property prices in overseas markets like France, Spain, Italy and the UK, are depressed. As a result if property prices were depressed by 30% according to a real estate expert in the market you choose, then together with the currency effect, you could be buying property at 60% less than prices 4-5 years ago.
Property prices, like share prices and economic conditions, all move in cycles, so that prices don’t usually stay the way they are for too long, in attractive locations.
Australian prices and current trends
Whilst continents like Europe and North America have suffered greatly from the credit crisis, Australia and Asia to date have remain largely unscathed, prompting some experts to rename it the “Northern Hemisphere financial crisis” rather than a global one.
Australian property has not experienced across the board declines of 30 or 40%. Relative to these northern hemisphere markets then, Australia is seen as expensive to many experts. This would seem to indicate potentially better buying conditions elsewhere. Of course, just like any kind of investment, every property opportunity is not the same, and one cannot assume that simply buying “anywhere” in a depressed market will guarantee high growth and great value.
Australia has some of the highest interest rates in the Western world, and this is a reflection of our comparatively sound economic situation. Rates on average can be between 2-3% higher than equivalent mortgages for property in Europe and the US. Hence the largest ongoing cost of maintaining a mortgaged property is clearly much less if buying overseas. This translates to a significant saving in interest compared to buying the same value property at home in Australia.
Australian tax benefits
There will be some tax considerations for any international purchase. You must seek advice as to how your property will be treated, for instance, if you rent it out, or if you decide to sell the property (capital gains tax treatment for example). However since Australians are taxed on their worldwide income, this means that whilst any rental income is assessable here, all your interest costs and property maintenance costs will also be tax deductible as well, in accordance with Australian law.
The current combination of world property market, foreign currency and economic factors is quite extraordinary, and it’s a combination that may never be repeated again. Of course you may not ever have a need or desire to own property offshore, in which case these factors are simply a curious phenomenon right now.
However for those who either have specific needs like family overseas or otherwise are looking to diversify and grow their wealth, now is the time for reviewing plans in light of present opportunities, and the time for taking action.
You need to be aware that Australian lenders will not lend you money to buy property overseas. This is primarily because they are either unable or unwilling to take the property as appropriate security for the loan. There may be legal complications in claiming and selling property overseas in the case you default on your mortgage and these are risks banks may not be prepared to take — risks they do not encounter at home in Australia.
Hence you need an overseas bank active in the market of your choice to grant you a loan. This lending process is similar to Australian lending in some respects, like the fact there are limits based on maximum loan amounts compared to property value. However it is different in other respects, like the nature of the process, costs involved, property law, and the time it takes to obtain the mortgage. Not all countries have an efficient mortgage market. It is for this reason that it is imperative you talk with a professional early on in your purchasing process, to make sure finance is ready and not a roadblock when it comes time to settle on your overseas purchase.
Daniel Shillito is an overseas mortgage broker, CPA and Expat specialist at Aussie Finance and Property Group. Daniel can be contacted on Ph. 020 3239 0479 or visit www.aussiefpgroup.com