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When you buy abroad, you aren’t just buying a home. You are subscribing to a legal system that shapes the way you purchase, own, enjoy and ultimately dispose of your property. Ownership is the cornerstone of that system.
In common-law countries such as England, the highest form of ownership is called “fee simple”. When you buy property on this freehold basis you own the land and building into perpetuity and you are free ultimately to sell them or leave them to your heirs. In Australia and the US, fee-simple ownership may include the minerals beneath the surface of the property. Limited air rights above it are also usually included.
When you buy leasehold property, you are buying the exclusive right to occupy a property for an agreed period, such as 50, 75 or 99 years. At the end of this period, depending on the terms of the lease, the property is returned to the landowner along with any improvements made (such as building work). It is sometimes possible to extend the lease period. In Canada and England, property can be bought on a leasehold or freehold basis. In China, however, all property is leasehold, since all land belongs to the state or to collectives. Variations on freehold and leasehold ownership are found in other countries, and the extra rights provided by freehold ownership make it more valuable.
Citizenship can determine what you buy. In the US, for example, foreigners can own freehold land, while in the Philippines, non-citizens cannot own land, but they can buy condominiums. In Singapore, foreigners can only purchase landed property in one district. You can sometimes get around these restrictions with nominees and other techniques, but this can be expensive and may not fully protect your interests.
Sri Lanka is an example of a volatile policy environment. Starting in 1963, freehold property purchased by foreigners was subject to a 100 per cent transfer tax. The tax was then repealed in 2002 and reinstated in 2004. On January 1, 2013, foreigners were prohibited from buying freehold properties. They may now acquire a 99-year lease, subject to a 100 per cent tax on the property’s value. Changes like these tend to discourage buyers and depress prices.
In addition to stable policies, buyers want to know that sale agreements and other contracts will be enforced in a fair, efficient and transparent manner, and that the local legal system does not discriminate against foreigners.
Transferring a property’s title from a vendor to a buyer is called conveyancing. In Portugal, conveyancing can be done in a day; in Haiti, it averages 312 days. A solicitor or lawyer handles conveyancing in common-law countries, while in civil-law countries such as Germany, it is performed by a notary. In Sweden, conveyancing is handled by the real estate agent. While a lawyer or solicitor acts on behalf of his or her client, the notary and the Swedish real estate agent are impartial and represent both the buyer and the seller.
Representation can be an issue with real estate agents. In the US, agents represent and are paid by the vendor. A subagent handles the buyer’s side of the transaction, and their fee is paid from the commission that the vendor pays to his or her agent. The subagent has a fiduciary duty to the vendor, not the buyer.
If you are the buyer, for example, and make the vendor an offer of $200,000 but tell the subagent that you were prepared to pay $250,000, the subagent is obliged to share that information with the vendor. You can avoid this conflict of interest by retaining a buyer’s agent, who works directly for you.
Dual agency, on the other hand, occurs when one real estate agent represents both the buyer and seller. Agents look favourably upon these agreements because they earn higher commissions. Where dual agency is permitted, the agent is typically required to advise the buyer and seller in writing.
Consumer protection laws, like those banning dual agency in Singapore, vary from country to country and province to province. These regulations address many aspects of home ownership, such as providing a cooling-off period during which you can cancel a contract without paying a penalty, and specifying the items covered in new-home warranties.
Local laws can affect your ability to enjoy, redevelop or lease your property. Rent control and stabilisation measures – like those covering nearly half of the rental units in New York City – are common examples, while expropriation, which occurs when a government takes your property to build a road, school or other project, is another.
In addition to common legal considerations, every market has local quirks. For instance, in England and Wales you can be liable for the upkeep of your local church under an ancient right in local law known as chancel repair. By asking plenty of open-ended questions and being aware of your assumptions, you can avoid many of these traps.
Finally, if you buy property abroad, ensure that it is included in your will and that your will is valid in your home country and the jurisdiction in which the property is located. Your heirs and executor will thank you for it.
Where to look online
Findlaw provides information about US and UK real estate law (findlaw.com)
The International Bar Association’s website includes links to national associations around the world, many of which have local directories (ibanet.org)
The International Consumer Protection and Enforcement Network has an interest in cross-border commercial activities affecting consumers (icpen.org)
The International Union of Notaries’ website has links to national and regional notaries’ associations (uinl.org)
Christopher Dillon is the author of ‘Landed Global’, published by Dillon Communications, £27
Illustration by Neil Webb