Tips investors investing in foreign real estate





26.11.2010 05:20
How many times asserted the world, or rather, investors, investing in overseas property: let`s not deceive yourself with beautiful pictures of booklets, promises fabulous prices and attractive guaranteed. Yes, just not all in store.

Beware of bubbles
One of the main components of success in such a complicated business investment - is the correct choice of the country. Typically, developers and all sorts of middlemen operating on already collapsed or unpromising market, trying to impose its property investors from Russia, sometimes less aware than their European counterparts - until the situation with the country does not become obvious and well known. Keep in mind: the most dangerous markets - those in which inflates the price bubble is unjustified price increases. Everyone has heard the story of Dubai, followed by Panama. The next was Egypt, where prices in the secondary real estate market fell for the year by 37% - a characteristic symptom. Difficult for the investment remains and the U.S. real estate market. The exception here may be real estate in Miami and New York, which still has the demand from foreigners.

The typical trick, which caught the gullible buyers - statements about the rapid growth of the market where you can easily earn. Statistics that they read on the Internet, promises fabulous prices in the country - 20, 30, 50%! And it really is: a property for the initial stages of construction costs, say, 100 thousand euros, is closer to completion - 200 thousand, and ready - all 300 thousand Is not it growing? Investor, anticipating high returns, buys square meters, and waiting for delivery of the house in operation, is trying to sell it. The moment of truth comes when it becomes clear that no buyers at this price apartment to anyone not interested. What`s the matter?

"Sometimes the prices reflected in the statistics - a tempting lure for investors, and focusing only on him, it is easy to fall into the trap. A person makes a decision, without thinking about where this statistic - says Igor Indriksons, director of overseas property investment company IntermarkSavills. - Most reports are formed on the basis of primary real estate market, and they show the figures reflecting the rise in prices is being built. Developer may raise prices in the price lists on a monthly basis as the addition of finished space, but it`s not a reason to think that the market is growing. " In civilized countries, experts calculate the indices of growth in property prices, based on a weighted analysis of primary and secondary market, with data from the secondary housing market in the index must be at least 70%, and the primary - only 30%.

For a good investment is not looking for a record or ultraboundary market growth, says I. Indriksons, fairly average - no more than 10% per year. At the elementary strategy when buying an object, the future owner contributes 30% of its value, while the remaining 70% takes a loan from the bank and pay it with the rent, he gets a 20% return on investment even with market growth of 5% per year. This is a good yield with minimal risk.

You have to understand that the faster prices rise, the market, the higher the risk the investor. "The pursuit of market growth of more than 10% a year could lead to a sad finale - warns I. Indriksons. - And if you invest money in the market, then adds 40% per year, you should be aware that the risks in this case is going wild. "

The main thing - liquidity
However, if you really want to make a quick profit on price increases, we must remember a few simple things. "The real estate market, as we know, tends to be cyclical: recessions are followed bubbles, and the regularity of these processes are fairly predictable," - said Romuald Shidlovsky, director Vita Special Estate. In short, the main thing - time to time to sell the house until the bubble does not burst. And for this it is necessary that the property was liquid. "We recommend that you pay attention to the wealth of infrastructure, the uniqueness of the project, particularly the development of the region, where it is. Say, the construction of the airport will always increase the investment attractiveness of real estate in the local market - said the expert. - One must also bear in mind that liquidity facilities are usually higher in large cities or very popular tourist centers.

Be sure to evaluate the demand for your property. To do this, firstly, make a portrait of a potential buyer and compare it with real people to buy housing in the desired place. Will the financial position of the public that you have made the future buyers of your property, make such a deal after a while? Now incomes of various strata of society in the West is changing, especially in Europe and America, so this prediction will not be superfluous. Second, think for the same thing with regard to potential tenants. Even if you`re not going to rent your property, it may want to make your customer, and for him this time will be very important. Investment brokers always use the rule: the more the object is suitable for renting, so it is liquid.

Find out and condition of the property. It may require major repairs or binding changes the building, which will involve major costs. Ideally, the seller must notify the buyer of such things or to assure his or her signature in the contract of sale the fact that there is no defects and encumbrances, but it happens in every ... No less of a problem may be a monument of architecture - in Europe, it requires mandatory rehabilitation, which the new owner must perform in accordance with the regulations and, possibly, restoration, in addition, he will constantly be under the control of government organizations. In these cases you want to think carefully and all the calculate, because such an object, in addition to that will require investment, may also prove to be illiquid.

Finally, do not forget to find out whether the apartment is free from the obligations of third parties - mortgages, liens, etc.

Firm whether the warranty?
Now many developers when selling their facilities, as a rule, resort, offer investors such an option, as guaranteed rental. This means that the developer or management company (MC) during a certain period (usually five years) assumes not only the entire service, but the surrender of property to rent, guaranteeing to pay the investor a certain percentage (usually 4-5 %). Property owner gets a stable income regardless of whether the company is able to pass his property. It happens that the rental income covers the mortgage payments and maintenance costs, and then the investment are particularly effective.

But, using the good reputation of this already proven in many countries of the scheme, developers are looking for ways to cheat and here. Especially dangerous is the situation where representation and warranty specifically created at the site of the CC. "You have to hand it turns into two contracts - a contract of sale with the developer and the contract with guarantees on the lease with the UK - says I. Indriksons. - Upon completion of construction with the developer, for example, everything is in order, and he complied with their obligations, and the Criminal Code by that time ceases to exist and dissolve in space. Even if it does not disappear, you are no better: it is always very low-budget organization, and take nothing from it. " Guarantee, the expert said, it should come from the builder, and he, in turn, must hire UK.

Can be trusted and the Criminal Code, if a large firm with the name and reputation, taking part in the management of various real estate developers. "The client should know how many years she has been on the market, get advice customers already use its services" - advises Stephen Buhchev, the owner of the Bulgarian Agency of CENTURY 21 Vision Properties. Thus it is desirable to ensure the company is also backed by a bank or insurance company, adds R. Shidlovsky.

In addition, not all markets and are not always guaranteed annuity at all possible. For example, tour operators in Scandinavia (in Sweden, Finland and Denmark) had two or three years ago to enter into contracts under the guaranteed filling residences, but now they have departed from this practice, and no guarantees in the treaties are not prescribed.

In some contracts the surrender of the object in rent is not an item on the return of the real estate owner in its original condition or its repair by the Criminal Code. Require its submission, otherwise the property may be returned to you in poor form and will require significant investment.

Finally, there is a rental pool - in this case the object is delivered in conjunction with others, and then proceeds added up and divided by the number of objects. And if your object was actually delivered with a yield of 10% per year, and next was not delivered at all, the yield of the pool is calculated by the arithmetic mean, and all investors get equal shares. In this case standing for the object does not amortized, and your, make money for everyone else, needs restoration. S. Buhchev believes that, without doubt, take your property must separately. If you have an attractive house or apartment, which are in demand, why should divide their income with 30 losers? In this case, you must refuse rental pool.

Back will not take
Another trick developers to attract buyers is called the buyback - redemption. The seller, trying to convince people of the benefits of buying can promise to buy your property back if it is the will of the investor. But we can not blindly trust such promises. So, usually in the contract states that the redemption is guaranteed by the investor under the condition "if he failed to implement it on the secondary market." But on the secondary market can always sell the house or apartment, if put it at a price significantly below market. The idea is that you need to write like this: "The developer agrees to buy real estate, if an investor is unable to implement it on the secondary market for the purchase price." However, such a contract, the seller would never sign, and if they sign, then an hour X declares that the object is not returned in proper condition, or invent other excuses.

"Ways to mislead investors everywhere and always the same. They migrate through the world and manifests itself at regular intervals every five - ten years - notes I. Indriksons. - They are all legally verified, and in the end the investor will not find fault with what. The task of the developer - to build and sell property, buy it not in his interest. Thus, the gullible investor can stay "happy" owner of unmarketable products.

The expert does not know the case to the developer, offering a buyback, fulfilled that promise. S. Buhchev working at the resort real estate market since 2003, also could not remember the builders buy their property back.

Read the laws
Investor must read the laws of the country in which to buy a house or apartment. The fact that practically in the regulatory area of each state has its own pitfalls, of which it is impossible to guess just like that. We give just two examples.

The Law on the coasts ", adopted in Spain in 1988, the shoreline within 100 m from the sea or the ocean is not subject to any building or acquisition of private property. Local authorities have the right to increase this distance by expanding the forbidden band of up to 400 meters from the surf line. Those buildings that were built before 1988, do not touch, because the law is not retroactive, but the new subject to merciless demolition. Treachery of the situation is that for the time being ignored by the law, banks and building continued until 2004, but one day the government thought about it, and many even very well-known personalities have lost their houses. I must say that in Spain, in this case does not help either bribe or connection or a big name, unlike a similar situation in Greece, for example, or us.

In addition, there is checked a building permit, and woe to you if purchased a house built illegally, without proper clearance of the land or not in accordance with the issued permit. You will bear its own expense. "To avoid falling into such a mess, you need to make sure that all building permits obtained in advance. In this case, if a document was listed two-storey house, built a five-story, consider that resolution no. And the concessions also will not be "- Andrey Kuchin, General Director of Prime Time Realty.

Market situation in Dubai is also very revealing. As is well known, many investors who invested in real estate of this country at the design stage or construction, are in an unenviable position. Construction arose, but, despite this, the contract requires them to regularly pay developers to unrealistically high pre-crisis prices. And do not pay too impossible, because the law number 13 of 2008 "On temporary registration of real estate in Dubai" protects the developer, allowing him in this case, select property back, which can then be re-sold.

Irina Bogatyrev
Property & Rates


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