Don't get burned in the rush to buy that dream getaway in the sun
Unexpected taxes and off-plan builds that don’t materialise are just some of the pitfalls
If you buy a property to rent out, this may mean you will only get to stay there out of season, so make sure you like the idea of being there in the off-season
The holiday season is well under way, and with it the annual pilgrimage to foreign shores for rest and relaxation. While it’s a time to escape the usual preoccupations with finances and property, practically every popular resort or village has a phalanx of estate agents waiting to take advantage of unsuspecting visitors. Excess alcohol, sunshine and a holiday mindset will trigger a surge of endorphins, the natural feel-good chemical of the brain, and agents are poised to take advantage.
On the surface, buying a foreign property while on holiday may make perfect sense. You are after all, there, where the property is (or, if you are buying off the plans, where it supposedly will be). What often gets overlooked is the prior research that would typically be applied to a property purchase back home.
In general, resort properties are not great investments
Months can be spent looking into the area and future regional and infrastructure plans, transport links, schools, neighbours, sporting and recreational facilities and internet access to name but a few. If buying an overseas property didn’t seem like a good idea before you left, it probably still isn’t a good idea during the holiday.
Of course there are times when it might make sense to buy abroad, but prospective buyers should take some precautions.
Before you get too excited about a property remember any advice received should be filtered on the basis of the financial reward available to the person giving that advice. Sales agents are great for providing information on a property but that advice is not always independent and impartial.
In general, resort properties are not great investments. If it’s a rental property you are after, then buy one at home where you understand the market. Quite often though buyers want rental income to offset the property ownership expenses. Be sure to base these figures on reliable data.
Visit a letting agent unrelated to the sales agent and ask some questions. Find out which are good rental areas, and over what period a property can realistically be let, for how much and, importantly, how much of this will go to expenses and local taxes.
If you buy a property to rent out, the period in which it will generate most income is during peak season, which generally lasts no more than three months. This may mean you will only get to stay there out of season, so make sure you like the idea of being there in the off-season.
Independent legal advice is paramount when buying a property anywhere
Give yourself some time. For research purposes, it would probably help to rent a property in that area during the winter. Resort areas tend to be very different out of season, facilities and services disappear when there is nobody there to avail of them. Shops and bars close down and they can often become ghost towns.
Even if you have fallen in love with an area, it is generally a good idea to visit it at least two more times to ensure the love lasts and that it’s not unrequited. A lot of property owners become jaded with an area after a few visits, and then simply feel compelled to visit because of the property burden when they would much rather go elsewhere.
Independent legal advice is paramount when buying a property anywhere, but it especially applies to overseas purchases.
It is common in some countries for the same legal firm to represent both buyer and seller. This can be presented as beneficial because it eases access to necessary information, speeds up contract delivery and lowers costs due to searches having already been conducted. It is certainly more convenient, but it can also be a very bad idea for the buyer. It’s strongly advisable to seek out independent legal representation even if it takes longer and costs more.
Buying a property off-plan is, and always has been, risky. There is no guarantee what may happen between making the first payment and when the property is due for completion. Off-plan purchases went off the boil once the recession hit, but there seems to have been a resurgence. The southeast corner of Spain, in particular, is experiencing a huge selling and building boom. It is very possible that not all of the properties sold off-plan will be built. There is also a strong possibility given what has gone before, that a number of them are being built without proper planning permission.
A bank guarantee is an essential part of any off-plan contract. Don’t purchase anything without one. The bank guarantee specifies that the bank has verified that the developer has proper planning permission and sufficient funds to complete the scheme. If the project doesn’t materialise you can call on the bank to return your funds.
These guarantees are the basis for many of the Ley 57/68 compensation cases currently being taken in Spain for properties that were not built during the financial crisis. They have shown their value time and time again – don’t dream of being without one.
If the worst case scenario does materialise and following the purchase you change your mind, remember that within the EU there is a 14 day cooling-off period in which to cancel the contract.
Diarmaid Condon is a property writer and independent overseas property consultant. diarmaidcondon.com