At some time in your life you may be thinking about purchasing real estate overseas. Whether this is for work or leisure, for your own occupation or investment, there will be many decisions and considerations. The process differs from country to country, and city to city, with New York being one of the hottest markets for overseas buyers.
“Buying a one million dollar apartment in New York is a big decision. Hopefully you can find a great home and achieve good financial returns on your purchase.” says Daniel Webber, Managing Director of FXcompared.com, a leading money transfer comparison service focusing on international property, “To achieve this though, you need to do your research, be patient and seek good professional advice.”
London and New York are two of the most popular destinations for overseas property buyers. According to the U.S. National Association of Realtors, China overtook Canada to become the largest source of overseas investment in the country, accounting for 24 percent of the US$92.2 billion purchased by overseas investors between April 2013 and March 2014. Interest is greatest in New York, and the vast majority, some 75 percent, of purchases are in cash. Canada, Mexico, India, and the U.K. are the next largest sources of overseas purchases in the U.S., and account for a further 30 percent. The average price paid by international buyers in the U.S., whether for investment or for living was US$369,180, nearly 50 percent greater than the average paid by domestic purchasers. The survey found that the weakening of the US dollar over the period had a “moderate” or “significant” impact on the purchase decision, although the dollar has strengthened since then.
Overview of the Purchasing Process
When starting the process, familiarize yourself with the neighborhood you are thinking of buying in. If you are already living in the city, walk the streets to get a real feel of the area. If you are buying off-plan from outside the country make sure you find this out and an experienced agent will be able to provide such insight. Derek Lee, Managing Partner of LG Fairmont, a NY-focused real estate broker notes that “trust and communication are the cornerstone of a good relationship, particularly if you cannot be present to view properties yourself.”
Interact as much as possible; Lee and his colleagues have even streamed property viewings for overseas clients using Google Glass. He also recommends that you be upfront with the purpose of the purchase as that will make it much easier to find the right property quickly. Will it be for living, the occasional visit, investment, a mixture? If you are looking for an investment, a good broker will not just understand the rental market and resale values, but also be able to run the numbers for you. Should you eventually decide to sell the property, agent fees will typically be about 6 percent in New York.
For domestic and overseas buyers in the United States, the buying process is very similar. The difference comes when looking to sell. Overseas buyers should consider purchasing their property through a Limited Liability corporate structure (“LLC”), advises Felix Nihamin, of NY-based real estate lawyers Felix Nihamin & Associates, PC. Selling as an LLC can offer substantial tax advantages that, coupled with asset protection, outweigh any initial legal costs. “Very few buyers are aware of the tax implications of buying personally versus through a corporate structure, but this something that has to be set up correctly from the inception”, Nihamin says.
Funding the Purchase
In the U.S., it is vendors who must pay the fees of real estate brokers. LG Fairmont’s Lee notes that a greater proportion of overseas purchases tend to be in cash. If not paying for the property outright, however, it can often be difficult for an overseas buyer to obtain a mortgage in the country where the property is situated. It is possible, but can take longer, and you may be limited to borrowing up to 50 percent to 60 percent of the property value, so seek specialist advice and start any conversations with brokers early in the process. In general, it is usually advised to borrow in the currency used to service repayments so that your asset (the property) matches your liability (the debt).
People who want to buy property in New York will have to understand the difference between condominiums and co-operatives. It is relatively straightforward to purchase the former, whereas the latter can be extremely complicated, as boards of co-operatives can impose vetting conditions, restrictions that affect building works, and renovations as well extra fees. Local taxes on New York single-family homes can be twice that on condominiums.
For the deposits and the final closing payment, the issue of foreign currency is crucial. Most people tend to use their banks for international money transfers, without realizing that they can get a significantly better deal from specialist currency brokers, often saving enough to pay for the furniture or the professional fees of the purchase. Such money transfer brokers not only offer better rates than banks, but they also charge no fees on transfers. Many also even offer the option of fixing exchange rates in advance as a way of avoiding the uncertainty of currency fluctuations. Comparison sites such as FXcompared can help you find the best broker for your needs. Once set up you can continue to benefit when you send money overseas for ongoing costs, as well as maximize any income or proceeds from a sale that you may choose to repatriate.
Jonathan Hyman is Chief Economist at FXcompared Intelligence, a money transfer comparison service focusing on international property.