Is Buying a Property Abroad a Good Investment?

1st December 2022

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If you are dreaming of brighter skies and warmer weather, investing in overseas property may be the perfect cure.

There are many reasons someone may choose to buy property abroad, from having a holiday home to making an investment, but you may be wondering if long-term investment in a home abroad is the right decision for you! However, you don't have to worry as we have created this complete guide to buying property abroad to help you be sure that investing in a property is the right choice for you!

Why are people buying property abroad?

People are choosing to buy property overseas for an abundance of reasons.

Relocation

Whether you intend to leave the UK entirely or you plan to relocate for only part of the year, there are many reasons you may want to move overseas, it may be for work, retirement or to have a new beginning in a new country, setting up a permanent base by buying real estate can help you make the most of your move abroad.

Holiday Home

Many people purchase a home in the sun as a place to stay at their favourite holiday destination. If you are in love with a destination and return to this location frequently, it can often make financial sense to purchase a holiday home abroad, with Coastal Spain being an incredibly popular choice to own property.

Rental Business

Many of the most popular holiday destinations, for example, Spain, France, Portugal, and Italy, offer more cost-effective properties that can yield higher rent than letting properties in the UK, especially due to the warmer weather and more reliable summers that draw large crowd of tourists making investing in a property overseas as a rental business a viable method to provide attractive returns.

Property Investment

Buying a property abroad can be a valuable asset, especially if foreign property prices are more cost-effective than that in your home country. It is recommended that those who are considering buying investment properties abroad should go on a trip to check out these properties and the surrounding area. If you are not a regular visitor to the region you are considering, it is highly advisable that you take the opportunity to explore the area and ask any relevant questions that you may have when assessing properties and the areas they are in.

Pros and Cons of Buying Overseas Property

Pros

  • Property is a substantial, long-term investment that has been proven to be relatively stable
  • Even if you are purchasing it to primarily be your personal holiday home, you can still use it as a rental property when you are not using it
  • You have a holiday destination ready for use all year round
  • Returning regularly to the same location or simply relocating entirely gives you the chance to feel part of a new community and create new lasting relationships
  • Higher letting value than normal residential renting
  • Consistent demand for property from tourists
  • Investing in property abroad can help those looking to diversify their portfolios

Cons

  • Two significant debts if you already have an ongoing mortgage at home and abroad
  • Fluctuations in costs and returns due to everchanging exchange rates and economic uncertainty
  • If you are living in a different country to the property and are remotely letting it out, you have to depend on managing companies or staff to handle payments, customer service and maintenance of the property all accruing additional costs
  • Tax bills on your rental income
  • An unwavering feeling of obligation to regularly visit the same destination for each holiday

Where Should you Invest When Buying an Overseas Property?

It is hard to definitively say where you should make a property investment. Some property experts and estate agents may try to promote new and growing markets that are seemingly booming with investment opportunities and they may push you to jump for cheap properties in countries where prices have fallen.

However, it is more advisable to think longer term about your investment and research the markets you are considering investing in, such as the location itself, the stability of the country's property market and how well similar holiday lets perform in this area. Although price cuts in areas can be really attractive to potential investors looking for a home overseas, it can often be a lot easier to let a property in a more established market.

Ultimately, it is a personal decision as to where you choose to invest in property, however, it is always best to research the global market and consider letting potential as well as your personal preference. Also, some countries offer tax incentives for foreign investors who purchase real estate within their country.

Which is the Best Country for me to Buy Property in?

As previously discussed, it is mainly personal preference as to where you choose where to invest, especially if you are looking for a holiday home or a new permanent residence. However, there are clear front runners in the popularity of certain countries with those looking to make an international purchase.

According to 'A Place in the Sun', these are the most sought-after locations for British investors purchasing property abroad:

  1. Spain
  2. France
  3. Portugal
  4. Italy
  5. Greece
  6. Cyprus
  7. Turkey
  8. Bulgaria
  9. Florida
  10. Malta

Additional Costs

Additional costs should always be considered when deciding where to invest. Mortgage fees, local taxes and bills are universal costs but can sometimes be overlooked when considering the overall cost, as well as some of these other outgoings:

  • Furniture and shipping costs
  • Translation Fees
  • Local equivalents to council tax
  • Service fees (if your property is part of a larger property development)
  • Fees for advisors, such as tax and mortgage advisors
  • If you ultimately end up owning two or more properties, you will have to pay additional stamp duty, regardless of if the property is abroad or not.

You may also have to consider Capital gains Tax, which is paid when a UK resident 'disposes' of overseas property and makes a gain on its sale.

Things to consider when investing in property overseas

There are many other things to consider when looking to invest in property abroad:

  • Is it somewhere you could return to often?
  • How convenient will travel there be?
  • Is it a popular spot with tourists and holidaymakers?
  • What are the local amenities like?
  • How long is the tourist season? How long will the property be left vacant?

Buying after Brexit

Although Britain is no longer a member of the European Union, Europe remains a very popular location for British real estate investment. However, due to the departure from the EU, rules surrounding British people owning property and becoming residents of these countries have changed.
 
The rules now state that anyone living out of the EU is restricted to spending just 90 days in the country of any 180-day period. Passports are stamped on entry and exit and those found to overstay will be sent home, fined or imprisoned. Those 90 days can be spent in one visit or spread over a series of shorter days.
 
These rule changes may be unimportant if you only unintended to stay there for a few weeks at a time, however, if you are undergoing the buying process with hopes to spend several months per year in your property, you will have to find a way around these rules.
 
Tax rates also differ for non-EU citizens and can differ from country to country. For example, in Spain, non-EU citizens need to pay 24% tax on their rental income rather than the 19% tax that applies to owners who are EU citizens. However, bilateral treaties are in place to ensure citizens won't be taxed by both countries on their income.

Taking Out a Mortgage for an Overseas Property?

Unless you're a cash buyer, you will most likely be purchasing the property through a mortgage and will need to find the best mortgage option for your needs.

Using a UK-based high-street bank can be very difficult but it isn't impossible. Many do offer foreign mortgages, however, you have to go through the international arm of the bank and they only offer mortgages in the countries where they have offices, which means that you have very limited options, especially when trying to look further afield than Europe.

Therefore, you may need to use specialist overseas mortgage brokers who provide personalised information and estate agents in your chosen country. They can often offer competitive rates and so borrowing this way can save you a lot of money compared to the high street banks. However, you do need to factor in exchange rate fluctuations which may affect your repayments.

Is it a good time to buy a house abroad?

Property demand has been impacted due to unemployment levels rapidly increasing and the decline of global production. For those interested in buying property abroad, this could be a perfect time to buy a home abroad due to the reduced demand meaning decreased competition and ultimately lowering house prices.

 

 

 

 

 

 

 

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