Real Estate Knowledge

7 HIDDEN FEES When Purchasing Overseas Property

Buying a property overseas comes with many hidden costs that may come as a surprise to new investors. Even if you are familiar with the locations market – which should always be the case – here are the big fees to bear in mind.

1. Stamp Duty

Anywhere from 0% to 15%

Stamp duty as we know it began in Spain in the 1600’s and quickly became a  standard practice for most governments. It requires a significant amount of administration to transfer a piece of land to an individual, and the charges involved are collectively known as stamp duty.

The tax is dependent on the property’s price and location and under certain prices, and can sometimes be waived. In most cases, the rate is higher for foreigners compared to the locals, though there are ways to reduce or avoid it.  Government’s support home buyers by reducing or eliminating stamp duty for first time buyers, or by offering a stamp duty holiday, which recently happened in the UK and gave buyers up to £15,000 in savings. 

A stamp duty calculator from HK based IP Global.

2. Agent fees

Roughly 5%, though varies on service

If you don’t decide to use an online portal, a good agent is crucial for a smooth investment journey. But their services do come with significant cost. Most of the time it is commission base, and the percentage can go as high as 6%. However, it does ultimately depend on the service. A boutique, overseas realtor will charge astronomically higher than a local real estate agent.

Agents and brokers are essential personnel to any property transaction.

Whether you are the buyer or the seller, you will have to deal with these fees. But, you can avoid these with online aggregators. Portal listings can help promote your own listing or streamline your property search, cutting out reliance on the middle man.

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3. Exchange Rate, the “Stealth Premium”

Another major consideration while investing overseas is the currency exchange rate. How strong is the currency in the country of purchase? Moving to a more developed market with a stronger currency from a weaker currency can mean a large loss of value. A weakened US dollar is currently disrupting global investment practice.

Example Case:

For example, a house costing €100,000 will cost US$133,000 at an exchange rate of US$1.33 per euro. However, with an exchange rate of US$1.05 per euro, the same house would cost US$105,000. That is massive difference of nearly $30,000 and can make or break a transaction.

4. PST ( Provincial Sales Tax)

Provincial Sales Tax is another fee that can be levied depending on where you purchase your property. However, PST does not always fall on the home buyer, and it varies radically between regions.

Toronto – one of Canada’s most energetic property markets.

In Canada, for example, the province of Alberta has no sales tax (relying instead on oil profits), but British Columbia and most other regions specify that “various services connected with tangible personal property” are subject to tax. The provinces of Ontario, Nova Scotia, New Brunswick and Newfoundland & Labrador are all underneath a “Harmonized Sales Tax” plan.

5. Conveyance fees

£500 to £1,300

Before title transfer, a licensed conveyer will be checking the entire transaction cycle for any red flags, and organize the documents required by the lender.

Should you apply for a mortgage, the bank will evaluate the risk of it’s investment in you through a property evaluation. As part of the diligence process, they will conduct a survey of the property and due diligence into its records.

Running a property evaluation is a wise decision in deciding the property price, and while it is not as high as the other fees, it should definitely be on the radar.

6. Property Insurance

Highly varied depending on amount protected

Property insurance is not always a legal requirement, especially for residential investments, although is may be required by the lender.

With that said, it is typically better safe than sorry, and insurance does enable more secure and promising investment by covering potential losses. With that said, he insurance itself is also very costly, given the fact that property investment comes with many types of insurance.

If you seek to purchase as a landlord, consider both building insurance and loss of rent insurance to further protect your asset.

7. Loan Administration Fees

If you take out a loan for your purchase, there are associated smaller fees that handle the cost of administrative work for your account. The loan application and ongoing loan fee are relatively small, but can add on a few extra hundred pounds per year.

In summary, policies and tax systems vary widely across jurisdictions, but buyers in an unfamiliar market can ease the process by following the following steps.

  1. Establish your goal (location, property use, rate of return, management)
  2. Identify your price range
  3. Carry out real estate research online
  4. Run due diligence on documents, taxes, and policies
  5. Contact the agency or owner in charge of the listing
  6. Come to an arrangement and prepare the necessary documents
  7. Organize a mortgage agreement with a lender – if necessary
  8. Get the lease/agreement
  9. Make the purchase

Whether its carrying out proper market research to get the best deal, getting a loan to have a good budget, or running a due diligence check, understanding the fees above and more intricacies about property purchasing are crucial for any investor.

This just the beginning of the conversation

At Denzity, we publish personal finance and investment articles for the young professional. If you have any questions and comments, write them below or reach out to our team here. Stay tuned for more investor focused content, financial advice, and industry updates.