Fools rush in to buying overseas

Snapping up an overseas property when it is nothing more than a drawing is a strategy favoured by Irish investors. And certainly over the past few years, buying off-plan in the latest hotspot has proved a very lucrative tactic.

By buying in at the earliest stages of a development, investors often pay substantially less than the market value of the completed property and can therefore bag a handsome profit when they sell.

However, the potential financial rewards of buying off-plan must be weighed up against the risk of the foreign property developer going bust, in which case the investor is unlikely to see any trace of their deposit again. Can investors do anything to limit their exposure to this risk?

"The bad news is, it doesn't matter what you're doing in this world - if you give money to a company that goes bust, you've lost it," says Paul Owen, chief executive of the Association of International Property Professionals. "You can go to creditors meetings and so on, but effectively you've lost it.

"So how do you avoid that? Well, it is undoubtedly a question you should be putting to every agent or developer from whom you're buying off-plan - what happens if the developer goes bust?" says Owen.

"That might sound really obvious, but people don't ask it."

Getting a lawyer on board before you sign a binding contract is also vital, he advises. "There's not a great deal a lawyer can do once you've said 'I agree to x, y and z' and signed it.

"We always advise clients they need to be sure who they're dealing with as best they can, have [ the developer] checked out legally and so on," says Dublin solicitor Tom McGrath, who specialises in overseas property investment. "In different countries there are different standards."

For example in Spain, developers are legally obliged to provide a bank guarantee, which means that any money paid over by the investor during the course of the transaction is secure.

However, in eastern Europe you take your chances, he says, because property developers are not legally obliged to provide bank guarantees.

"There are other instances where you can take out your own insurance so that if the company becomes insolvent, your money will be returned," says McGrath.

Another alternative is to insist that your money is held in an escrow account, for example the joint account of both parties' solicitors. The money should then be secure and the developer can raise finance from its lenders based on the fact that money sits in escrow.

However, this is not always an option, as the developer may not agree to this approach.

McGrath adds that investors should be wary of overly pushy agents.

"There are a lot of aggressive agents out there who just want you to sign on the dotted line as quickly as possible. There are good agents out there but a lot of them are very pushy."