The Costs Of Acquiring A Home Of Your Own Overseas
Dear Student,
If and when you decide you want to invest in purchasing a home of your own in your haven of choice overseas, you’ll need to budget for the acquisition. An important part of this budget will be transaction costs.
If you’re coming from North America, you may be surprised to discover the many various additional costs that can be associated with buying real estate in another country. Not planning for these costs can put your entire transaction (including your deposit) in jeopardy, as, in some jurisdictions, they can amount to significant added expense—so much that, if you aren’t prepared, you could find yourself without enough cash to close.
The biggest cost of acquisition is what’s typically called a transfer fee (or tax) or stamp duty. This is a straightforward tax on real estate transactions and it’s charged in most countries. In Europe, transfer fees can be as much as 12.5% (Belgium) or as little as 0% (several countries), depending on the price of the property being purchased. In places like Croatia or Slovenia, where no property taxes are imposed, you can view the transfer tax as pre-paying the property tax if you like. No matter how you look at it, though, this tax helps keep speculation down in countries where it is charged.
A true transfer tax isn’t recoverable. However, some countries, including Nicaragua, charge a tax at the time of closing that is really a capital gains withholding tax. This fee, when charged, is a way for the country to make sure it gets paid at least some of the income tax due on the capital gains from the sale of a piece of property. In reality, it works as a transfer tax, as most foreign buyers aren’t going to file tax returns when selling a real estate holding in a foreign country unless they are forced to. If by some chance the withholding tax is more than what the capital gains tax would be, you can file a tax return to try to get a refund of the difference. In most cases, it won’t be.
Other expenses to consider include attorney, notary, and registration fees. In most cases these costs are nominal, but, again, you want to make sure you know what they are before you start shopping so you can factor them into your overall capital budget. Belgium, again, is at the high end for these transaction costs; notary costs in this country can run as high as 4% of the purchase price.
Unlike a notary in the United States, a notary in a civil law country is a licensed attorney with an additional license (specific for performing the duties of a notary) or title granted by the government. These are semi-governmental agents who are the gatekeepers for official documents, including property titles. In France, for example, your notaire manages the entire real estate purchase process (meaning you don’t need a regular attorney, as well), including the title check and the transfer of title. In other countries, the notary is simply the official registration agent.
Attorney costs should run from 0.5% to 1% of the transaction cost, with the percentage decreasing as the value of the transaction increases.
Unfortunately, in some Latin American countries, some attorneys notice how much real estate agents make from property transactions and start to think they should make more. The result is that attorney fees in this part of the world can be all over the board. Confirm the fee for a particular transaction with your attorney before you begin to process any paperwork with him.
Registration fees should amount to less than 0.5% but are typically charged as a set fee, rather than as a percentage of the purchase price.
The final cost to remember when figuring your capital requirement budget for the purchase of real estate in another country is the real estate agent’s fee. In many countries, the seller pays this; however, in some markets, this cost is shared, and you, as the buyer, will be expected to pay part (perhaps half). Argentina, Italy, and Croatia are three examples where this is the case.
Of course, the reality is that, as the buyer, you’re really always paying all of the real estate agent’s fee. It’s just that in most places it’s included in the list price, rather than charged as a separate and additional cost.
There are always anomalies. In France, for example, the agent’s fee is included in the list price by some agencies and not included by others. In this country, agencies should note on their listing sheets if the fee isn’t included in the list price or not. This difference should be by agency…not by property among the same agency’s listings.
One good example of how the associated costs of acquisition can accumulate to become a significant part of the total acquisition budget is Belize. In this country, the standard stamp duty for the purchase of real estate is 5%. You get an exemption on the first US$10,000 (saving you US$500). In addition, though, if you’re buying a piece of property from a developer, then you must also pay 12.5% sales tax (GST/VAT/IVA). (Note that this additional fee does not apply to resale purchases.) Most developers don’t include this tax in their list prices, but some do. You should ask the developer at the start of the negotiating process, so you know exactly what you’ll be liable for at closing. These two fees alone amount to 17.5%. In addition, you’ll have an attorney’s fees.
The most comprehensive resource I know for getting a quick idea of “round-trip real estate costs” (the total fees and costs associated with buying and then eventually re-selling a piece of property) for most countries around the world is www.globalpropertyguide.com. This is where I’d recommend you start your research when the time comes.
However, studying the information on this site today, I notice that some of it is inaccurate or misleading. For example, the chart for agency fees in France shows 1.5% to 5% and indicates that both the buyer and seller pay that amount. This isn’t the case. It would be one or the other (the seller or the buyer, but not both), as I’ve explained, depending on the agency.
Use the Global Property Guide website as a starting point to get general information. Then, when you’ve decided on the place where you’re interested in purchasing, contact a real estate attorney or agent in the country to get the most current and up-to-date details on associated costs.
Governments can change fee structures at any time… and often do. During the seven years we lived in Ireland, the government changed the stamp duty structure at least five times. It was their attempt to cool the speculation going on in that country’s real estate market at that time. At one point, the top rate of Irish stamp duty was 9%!
Kathleen Peddicord
Your New Life Overseas Coach