The foreign property dream now turns nasty

Independent today … 61366.html

As many on the pin predicted:

Not sure where they got the “market value” from. Surely they market value is the price it sells…not some notional hypothetical figure.

Also I think I read somewhere before that alot of these foreign properties come with local taxes which have steadily increased over the last year as the recession bites. So it’s bad enough that the properties have falling in value, factor in falling rents, maintenance costs and increased taxes and it now turns into a nightmare.

Why didn’t these investors do some research before they threw themselves in at the deep end?

I’ve been thinking about this a lot. I resisted pressure to run with the herd. I knew enough to realise that property is a very complex investment especially if you have little knowledge of the local economy. But I take no satisfaction in the difficulties facing so many small investors.

Although there is a big difference between buying a home and buying an investment property in a foreign country, ultimately all markets are balanced by fear and greed. In this case, Irish buyers were easily conned into believing foreign property was a safe investment (guaranteed rents, bricks and mortar etc.) while their greed was stoked by the vast wealth accruing to speculators in Ireland.

So, buyers didn’t want to “do research”, they wanted a share of the easy money. If they can wriggle out of their obligations, will NAMA (i.e. the rest of us) be left carrying the can?

The worst part of this sorry joke is that at the time this was seen as diversification to protect yourself. Must be stomach turning for those souls who released equity to buy these units. This carry on was laid bare on house hunters in the sun when the couple from Dublin bought the place near Sunny Beach and were so thrilled with the capital appreciation that the wife bought another place in the small town nearby.I think the figure of 150K properties is skewed though. One developer owning a few buildings could account for a couple of hundred of these alone. Still a bloodbath though when you are paying a mortgage on your home for an extra 10 years for a holiday home that is now worth a fraction of what you wasted on it.

Pop question for Louise McBride, Independent News Media journalist.

What is the market value of a property in Alicante that is currently advertised for sale at €210,000

a) €335,000
b) €210,000
c) What a buyer is actually willing to pay for it

Answers to

That’s not all they are getting nailed on, you’ve also got currency exchange rate differences into the equation.
Losses are compounded when that property in Budapest falls in value in the Forint and so too does that currency vs the Euro.
Then there is the local tax system for instance every owner of property in Bulgaria pays an annual property tax and local communal tax.
Property is a depreciating asset it must be maintained or it will loose it’s value rapidly.
Not all foreign countries have a tax treaty with Ireland, so you may find yourself having to pay tax to the local authority on capital gains and again to the Irish revenue.

The lesson: property is a long term investment and only suitable if you are well capitalised. It is not suitable as a leveraged bet as like every asset it is subject to wild fluctuations in value. It is also not a very liquid asset (i.e. cannot be converted to cash readily like equities) in that it can take months or years to sell.

how about also the LTV stuff in the small print, where the buyer has to stump up a lump sum to restore the original LTV ratio?


d) €42,376 no more and no less :laughing: