February 15, 2013 7:32 pm

Global prime: the real costs

How much do outsiders really pay in world cities?
A townhouse in Brooklyn

A 4,000 sq ft townhouse in Brooklyn

The notion that a high net worth individual can swagger into any city in the world and buy a property with few obstacles to overcome has taken a knock recently.

Singapore has hit foreigners with higher duty, while those buying top-end London homes will soon face a hefty annual charge. Similar measures are in place or under debate elsewhere as governments try to deflate market bubbles or ensure everyone – yes, even the wealthy – pays more tax to pay off budget deficits.

World property liveability

World property liveability

We have analysed eight world cities where HNWIs congregate. Using data from property consultancy Savills, based on the purchase of notional £2m pieds-à-terre, it is clear that buying processes vary widely but one common denominator exists: ownership is less straightforward and more costly now than in the recent past.

Then we deserted rigorous research and instead blended subjective views on climate, lifestyle and reputation to award star ratings to our contenders.

1. SHANGHAI

Foreigners may buy only one home for personal use, so long as they have an employment contract or past tax record. One further property may be bought for investment.

A buyer pays a deposit of up to £52,000 for a home above £1.02m; after 15 days, 30 per cent of the agreed price is paid and a sale and purchase agreement signed. The buyer may then seek a mortgage from a Chinese bank but agents say most international deals are in cash. The purchase must be agreed by the Shanghai Real Estate Transaction Center. Buyers pay up to £60,000 stamp duty but have no ongoing ownership taxes.

“The Chinese growth story has helped push up prime residential prices 10.8 per cent in 2012 and 42 per cent over five years. This is despite government policies to cool the market,” says Nicholas Holt of Knight Frank.

2. HONG KONG

Residential prices are sky high and so are transaction costs. Legal fees on a £2m apartment would be £3,255 and the purchaser’s share of estate agency fees £20,000. Another big cost is 15 per cent stamp duty on foreign purchases – £300,000 on a £2m property.

Different taxes apply if properties are bought and sold rapidly: this can push stamp duty to 20 per cent. An annual tax is levied, calculated as 8 per cent of notional rental value, whether or not the property is occupied; for a £2m home this is £2,500.

The Index of Economic Freedom league table based on 10 free enterprise criteria puts Hong Kong at the top but the housing market has been hard to tame.

“Low interest rates, limited supply and abundant liquidity create perfect conditions for a bubble. It’s hoped buyers’ stamp duty will curtail rapid rises. Sought-after areas include the Peak and Southside on Hong Kong Island, parts of Kowloon and the New Territories,” says Savills’ Simon Smith.

3. SINGAPORE

Outsiders buy without restriction only on Sentosa Island but require consent, considered case-by-case, anywhere on mainland Singapore. Since December foreigners permitted to buy must pay an extra 10 per cent duty in addition to the sliding-scale purchase levy.

This means buying a £2m property incurs £359,000 in duty plus £1,900 in legal fees. If it’s sold within a year there is an extra 16 per cent seller’s stamp duty. The annual occupancy charge – whether you occupy the place or not – is £5,140.

Singapore has avoided recession, despite weak manufacturing performance. “Prices are expected to remain firm despite cooling measures [thanks to] high liquidity and savings, a low-interest environment, strong balance sheet of developers and a very stable social and investment climate,” says Darren Wang of Cushman & Wakefield real estate consultancy.

4. MELBOURNE

Overseas buyers wanting an existing home must win hard-fought consent from the Foreign Investment Review Board. But they can buy brand new homes with relatively few restrictions, or buy vacant land or an established property to demolish and replace with a new one subject to planning consent.

Stamp duty on a £2m home would be £110,000 and another £7,000 covers administrative, legal and survey fees. There are no ongoing occupancy taxes.

“Toorak, Hawthorn and Camberwell [affluent suburbs] are popular with foreigners. We’re seeing commercial sites demolished to make way for residential towers sold offshore, principally to Malaysian, Singaporean and Chinese,” says Clinton Baxter of Savills.

5. NEW YORK

Foreign buyers are often vetoed by some Manhattan co-ops, where each owner has a share in the building so can say no to purchasers. That apart, overseas ownership in the Big Apple is uncomplicated and relatively cheap.

A £2m-plus home incurs a 1 per cent New York state mansion tax and 1.8 per cent transaction tax. Buyers also pay £1,300 on legal fees and £19,000 or more on title insurance if buying a condominium. A managing agent may charge a one-off £250 to £500. But then the good news: no occupancy tax.

The Corcoran Group, an estate agency, says stock for sale is at a seven-year low after a 20 per cent spike in purchases in late 2012. “Prices are going up,” says Corcoran chief executive Pamela Liebman.

6. RIO DE JANEIRO

Overseas buyers and spouses must obtain a tax-status document (cadastro de pessoas físicas) from a Brazilian consulate, estate agent or developer. Hiring a Portuguese-speaking lawyer with local knowledge is also mandatory.

Charges include a transfer tax of 2.5 per cent of the home’s value, deed registration and bookkeeping fees of up to £1,050 each plus charges for bank administration, valuation and insurance. Finally, a 1 per cent urban land tax is charged annually.

Rio’s average prices have more than doubled since 2007 and rose 19.8 per cent in the year to July 2012. Capital Economics, a consultancy, says prices are overvalued by up to 50 per cent, even before speculative buying on the back of next year’s World Cup and 2016 Olympics.

7. LONDON

With no restrictions on foreign ownership and the UK’s political stability, good communications and top schools, this capital still pulls them in. Knight Frank says 73 per cent of prime central London’s new-build homes in 2012 were bought by foreigners, with Singaporeans up front.

For £2m-plus homes they pay 7 per cent stamp duty plus £4,000 for Land Registry, legal and survey costs. Annual council tax is £1,500 to £4,000. If a home is bought via an offshore company, stamp duty may rise to 15 per cent and a controversial annual residential property tax of £15,000 to £140,000 is applied from April.

The city’s economy has a post-Olympics glow with another 800,000 residents predicted to join the current 8.15m by 2020, according to government figures.

“Belgravia, Knightsbridge and Mayfair continue to be attractive. Newly refurbished properties achieve record prices and purchasers pay a premium for added security, concierges and parking,” says James Forbes of estate agency Strutt & Parker.

8. PARIS

France is discussing higher taxation levels but buying a £2m base in the capital is surprisingly low-cost.

There is a 5 per cent registration fee (£100,000 on a £2m purchase) while notary fees add £30,000 but it is still cheaper than buying in London or much of Asia. Occupancy taxes are £6,000 per year. There is the prospect of 75 per cent wealth tax for high earners.

“Classic style apartments in Saint-Germain-des-Prés, Le Marais and the Triangle d’Or in the 8th arrondissement” are most popular, says Susie Hollands of estate agency Vingt Paris.

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