Buying overseas property for Investment
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You don’t have to be super-rich to be able to benefit from overseas
property investment. Indeed, many UK citizens are investing overseas
to help generate the capital to make a purchase in the UK. Others
are choosing to release some of the equity that they have built
up in their homes to fund an overseas investment to enable their
financial dreams to become a reality.
Realisation about inadequate pensions and depressed stock markets
coupled with the cooling down of the UK buy-to-let market has
led more and more people to grasp the nettle and secure their
own future prosperity through property investment abroad. Indeed,
the number of people looking to purchase good off-plan investments
overseas has trebled in recent years. With property price rises
stagnating at home you can take advantage of the emerging markets
overseas, where strong capital appreciation at rates significantly
above the UK can be found.
Investment off-plan allows you to leverage your investment without
the need to take out a mortgage. Many of our developers require
only 40% of the price of a property to be paid during the construction
phase. If property prices rise by 30% during this period your
investment will have produced a 75% return before costs. Off-plan
properties are available from as little as £27,000 and require
as little as £11,000 to secure this growth potential.
If you would like to have information on how to pay your deposit
please click on our “Financing your Overseas Property” page.
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We carry out constant research into where the best opportunities
can be found. We believe that high-quality, off-plan properties
with year-round rental prospects, in good beach-front locations
near to golf courses are the best prospects. This is why we believe
that the current investment hotspots are Morocco and Egypt – they
tick all the boxes! Considerable investment is being made by
the governments in both countries to encourage tourism, build
infrastructure and attract low budget airlines. Attractive taxation
regimes are also being offered to encourage investors, with double
taxation treaties and full repatriation of funds. Now is the time
to invest to make the most from the rapidly increasing property
prices.
The current investment hotspots are Mediterrania Saidia on the
Mediterranean coast of Morocco and Sahl Hasheesh on the Red Sea
of Egypt. Both are truly fabulous 5 star developments with every
amenity available for the discerning tourist. Property prices
in these two countries are predicted to increase by at least 50%
over the next two years. Many experts envisage that Morocco should
have an increase in prices nearer 100%, if investors purchase
quality off plan developments in the new government created tourist
resorts.
Morocco Hotspot Summary
- 100% return on investment over 2-3 years.
- Only 20% deposit required.
- 60% mortgages available at just 5%.
- Rental yields up to15%
- 0% tax on rental income for first 5 years.
- 0% capital gains tax after 10 years or before if under †65,000.
- 0% inheritance tax if passed on to a family member.
- 100% repatriation of funds.
Egypt Hotspot Summary
- Fantastic capital appreciation.
- High rental income up to †1400 per week expected.
- Easy payment structure.
- 10% initial payment.
- 100% repatriation of funds.
- 0% inheritance tax.
- Income tax reduced to 10% - 20%.
- Tourists have increased by 2m over last 2 years.
Please click our country links to view the reports on both developments.
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| Information for First Time Investors |
We find that most people buy a property overseas for one or more
of three reasons: investment, holiday use, or retirement.
Buying an overseas property for investment purposes is completely
different from buying for your own use. When deciding where and
what to buy, you need to focus on two things:
Is this country, region and property somewhere that other people
will want to be in the future?
How do I want to make my money – from renting out the property
or by selling it?
In other words, you need to consider location and returns. An
analysis of all the relevant factors should enable you, with the
help of a little expert advice, to make the right decision!
We can advise you objectively on a range of investment choices,
and provide opportunities to buy off-plan for even more gains.
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Apart from the obvious things like the weather and the scenery,
you need to ask some very specific questions about your chosen
location.
Are there plenty of recreational opportunities (beaches, golf-courses,
mountains, shopping) nearby?
What child and family-friendly activities are on offer? Florida
obviously is the best example of this, but the Spanish Costa Blanca
also has theme parks and attractions.
What are the plans for golf courses in the area? For example,
the Costa del Sol and Portugal are well known for their abundance
of courses, but 3 courses are planned at Mediterrania-Saidia in
Morocco and 4 are being constructed at Sahl Hasheesh in Egypt.
Is it close to growing urban centres and an airport?
Is there commercial investment in the area. Are new hotels, retail
centres and conference centres being built?
All this should add up to a picture of a location that is at the
very beginning of its popularity boom, much like the Spanish Costa
del Sol in the 1970s, Orlando in Florida more recently, and Mediterrania-Saidia
or Sahl Hasheesh now.
Accessibility is key, so you need to look at what it will be like
in 3 or 5 years time.
- Are new roads being built?
- Are regional airports being developed?
- Are budget airlines looking to add this location to their destinations?
For example, the north coast of Morocco is currently not particularly
easy to access, but the Moroccan government, as part of its drive
to increase tourism, has guaranteed to provide the necessary infrastructure
projects to connect the coastal resorts with the rest of the country
and Europe by constructing 1,000 kms of new roads, increasing
internal and international flights, and developing new regional
airports.
Look at historical trends. These are likely to continue, albeit
in a modified form. The Costa del Sol, for example, has always
been a good investment prospect and continues to be so.
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| Rental income versus capital appreciation |
How do you intend to make your money – from rentals or from selling
the property, either quickly or in several years time? Both have
tax implications that need to be considered in the light of local
legislation.
The rental returns from a property need to be carefully assessed
and not over-estimated. As with everything, rental income can
never be fully guaranteed, and so you should be careful not to
take on something which you may struggle to pay for when it is
not rented out. Look at local supply and demand. Currently, Crete,
for example, has a shortage of high quality rental accommodation.
Some countries offer advantageous terms: properties in our developments
in Morocco, for example, are tax-exempt for the first 5 years.
30 weeks rental per year might be a reasonable expectation and
should produce a net return of about 6%, but also means that the
property may be empty for 22 weeks per year. A secure development
such as Regal Palms Resort in Florida means you do not need to
be concerned about leaving it unattended.
Another issue is keeping the property in rentable condition.
You will need to organise (and pay for) some sort of property
management in your absence. We can arrange this for you, but in
some other properties you may have to source a cleaner and gardener
yourself?
If you are looking to sell the property in the future you will
need to consider the current capital gains situation in the specific
country. For example, in Spain, capital gains tax (CGT) for non-residents
is 35%, but residents under 65 are partially exempt if they have
lived in their principal home for at least 3 years and plan to
buy another home in Spain within 3 years, in which case they are
taxed only on the amount that was not re-invested.
In Portugal, CGT is a flat rate of 25%, but in Crete property
gains by individuals are generally not taxable. In Morocco, it
is 20% of the profit, but after 10 years of ownership the property
is exempt, and after 5 years the tax is 10% on any gain over about
90,000†. In Cyprus, the first £20,000 is exempt from CGT and thereafter
it is applied at 20%. Whereas, in Florida, the buyer is required
to hand over 10% of the gross sales price to the Inland Revenue
Service as pre-payment of CGT.
It’s a lot to think about, and all the factors need to be carefully
considered and balanced before you make this important decision.
We can advise you on all aspects of the various investment opportunities
available.
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| Financing your Overseas Property |
Whilst some purchasers choose to use their savings to put down
their deposit for their overseas property there is another option
to consider.
It might be possible to release the money tied up in your current
home. If your house in the UK, Ireland, Spain or wherever, has
grown in value over recent times you are likely to have accrued
significant equity in the property. If, for example, your house
is valued at †300,000 and your mortgage is †100,000 then you have
equity of †200,000.
This would release additional funds that could be added to your
current mortgage to raise the finances required. Obviously, this
approach would mean your monthly mortgage payments increasing.
However, there is another option that could be considered where
your monthly outgoings are unaltered.
If you are looking to put down a 30% deposit on an overseas property
selling for †200,000 you would need approximately †70,000 inclusive
of all fees. If the cost of financing this over 2 years is 5%
per year, this would make the total amount required for the deposit
and two years interest †77,000. This †77,000 would be released
as a lump sum, meaning there would be no additional impact upon
your current mortgage as the interest payments would come from
this lump sum and not from your savings or monthly earnings.
Upon completion of your off-plan property your financial advisor
will be able to secure a mortgage in the country of the property
purchase. This mortgage will be based upon the value of the property
upon completion (not the lower purchase price). Based upon capital
appreciation of 20% over the two years, a property which sold
for †200,000 will have a bank valuation of †280,000 on completion.
An 80% mortgage will generate †224,000 thereby repaying the deposit
and the additional money borrowed. Remember that on completion
you only need to pay the outstanding 70% of the †200,000 purchase
price plus the †77,000 initially borrowed (totalling †217,000).
These figures are for illustration only and clearly future forecasts
of capital appreciation cannot be guaranteed, but it is an option
worth exploring with your financial advisor.
Managing Consultant
Property Matters Overseas
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