Neil Hamm just bought his third condo in Mexico, a 2,250-square-foot beachfront penthouse where he can sit on his covered porch in the mornings and drink coffee as he watches the sunrise. Because his primary home in California is just a short flight away, Hamm can hop on a plane at 9:30 a.m. and be on the golf course by 1:30 p.m. Mexico’s low cost of living and negligible property taxes (Hamm paid less than $800 a year in property taxes for his last condo, valued at $550,000) only add to the new residence’s appeal.
Hamm is one of many finding a place in the new international real estate landscape, where borders between continents are becoming less visible and more countries than ever are open to foreign ownership of property. “It’s part of the relentless pace of globalization,” explains Miriam Lowe, vice president of international operations for the National Association of Realtors. She says a recent NAR study found that nearly one in five Realtors sold a home to an international client in the past year, and one-third worked with international clients or prospects.
According to Lowe, three main groups of buyers are responsible for the worldwide surge in foreign ownership: foreign buyers in the United States and other markets; U.S. citizens buying outside the country; and foreign immigrants who now live in the United States buying property within U.S. borders. However, as anyone who has stared down the intimidating stack of papers at a closing knows, buying real estate even domestically can be complicated — and for some, downright scary. How does one negotiate the uncharted waters of a real estate transaction in another country, sometimes in an unfamiliar language?
With caution, says Lowe. “Keep in mind the general business climate, safety, and risk issues,” she says. “Also, tax consequences — either in that country or here in the U.S.”
Lay of the Land
“Let’s say you’re based in Chicago and you’re interested in buying property in the Mediterranean,” says Lowe. “You just contact a CIPS broker in Chicago, and they’ll put you in contact with the right person. Through CIPS, we have a strong network of agents around the world that work collaboratively.” As a buyer, you could deal directly with the international CIPS partner or with your local broker, who’d get a referral fee from the international liaison. Depending on the type of agreement reached, there may be no out-of-pocket cost for the buyer.
But before you actually plunk down cash or sign any papers for that dream house on the beach, Henda Salmeron, a CIPS Realtor with Ellen Terry Realtors in Dallas, suggests that you visit the property — as obvious as this sounds, many people don’t — and that you do your homework.
“Buyers need to understand that the way you buy it here isn’t the way you buy it there,” says Salmeron. “They need to know how real estate in that country is exchanged. In the U.S., the most common process is fee simple, or free hold — you buy it, and you own it forever, or until you sell it. In some countries, it’s leased from the government, which is called a lease-hold type of ownership. Also, here in the U.S., we protect buyers with seller’s disclosures and inspections. In France and Spain, and many other countries, it’s more likely to be a ‘buyer beware’ situation — you buy properties ‘as is.’”
In hot markets such as the United Kingdom, India, and Belgium, there are other factors to consider too. There’s no property tax per se in the United Kingdom, but often capital gains taxes are levied on nonresidents when they sell property. India has a fee simple system, similar to that in the United States, but if you’re planning on buying and renting, beware. The country’s tenancy laws favor tenants, not landlords, and the eviction of a nonpaying tenant, for example, is virtually impossible. Property in Belgium is transferred by deed, which must be registered, and security of title is achieved by researching 30 years of undisputed ownership, not through title insurance.
Financing is another aspect of the deal that may be quite different. In some countries, cash, not credit, is still king. Julie Kershner, a CIPS broker with Prudential California Realty, has been selling real estate in the booming Mexico market for seven years. Kershner says that besides learning about nuts-and-bolts issues — such as whether or not title insurance is available (many countries don’t have title insurance, which means that what you “bought” may legally belong to someone else), or if there’s a third-party escrow system in place (many countries don’t have this, either) — it’s important to know how the society works. There are numerous cultural nuances to consider.
“The Internet is great, but especially in relationship-based countries like Mexico, you still need a person on the ground to help you,” says Kershner. “In the U.S., we’re ‘business first’; we could care less about your personal life. In Mexico, even for something as small as getting a real estate permit, you need to know which office to go to and who to ask to make sure that your papers aren’t at the bottom of the stack. If you don’t have a relationship with that person, and say, haven’t taken cakes to him at Easter, your papers may sit around for months.”
— Ellise Pierce
International Real Estate 101
You don’t have to be Donald Trump to understand the art of the international deal. “The Internet is the biggest conduit in creating the perception of the borderless world,” says Mitch Creekmore, senior vice president and director of international business development for Stewart International. “It has also been the biggest catalyst in understanding the international real estate arena.” Here are a few Web sites that’ll give you what you need to know:
For solid information on real estate trends and ownership rules, go to the Web site of the University of Denver’s Franklin L. Burns School of Real Estate and Construction Management. burns.dcb.du.edu
The National Association of Realtors Web site offers country profiles, along with names of CIPS brokers and qualified agents across the globe. realtor.org/international/index.html
The Web site for the International Consortium of Real Estate Associations (ICREA), which represents more than 25 national real estate organizations and 2 million brokers and agents worldwide, allows you to click on a country for specific information about business practices in residential or commercial real estate, and tips on how to find property. worldproperties.com
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