Buying property abroad to rent remains one of the most effective strategies to obtain foreign currency yields — especially at a time when Deposit rates for dollars and euros in large banks tend to zero, according to the international financial Advisor FCP Isaac Becker. Delivery of the purchased apartment according to his estimates, can bring to the investor in some cases up to 4-5% a year, compared with less than 2% per annum on foreign currency deposits in large Russian banks.
According to managing partner of an international broker of real estate Tranio George Kachmazov, domestic investors perceive foreign real estate as a long-term asset protection. “As Russia in economic terms is not still stable, our customers are investing abroad in the hope that everything will be fine. But we must realize that the price of peace — low yield”, — says the expert.
His notes that the profitability of rental apartments is calculated as a percentage of the annual rent revenue to value of the property. Thus if an investor bought a flat for €100 thousand and rents it out for €5 thousand per year, he receives annual yield of 5%. However, this is a hypothetical example. The average property owner earns rent of apartments less, according to Kachmazova, approximately 2-3% per year.
This is more than for deposits, but less than, for example, on a number of issues of Eurobonds, which allow the investor to get 5-6% per annum. However, the debt securities will eventually be paid off, and the apartment may remain in the possession of the investor indefinitely, continuing to generate income.
The Director of the Department of real estate UFG Wealth Management Andrei Rozov added that the purchase of an apartment abroad is a good investment option for wealthy clients ready to spend on the investment in square meters not more than $3 million But investors with larger amounts of money, often buy a commercial property, the yield of which is 1.5 times higher than residential, total financier.
The choice of location
It is most advantageous to buy overseas properties in popular places for recreation and international business centers, experts say. The first includes France, Spain, USA and other countries with developed tourism infrastructures on the shore of a sea or ocean. In such regions, high demand for rental and expensive villas, and modest apartments; business centers with the most liquid real estate are primarily new York, London, Frankfurt and Geneva, indicates Becker.
His of Tranio recommends that when choosing an apartment to focus on criteria such as city size (the bigger the better), the level of economic development, logistics, availability of real estate, and the area (either historical, or relating to respectable). As an example the expert cites the Budapest and Barcelona. “In Budapest, a good apartment can be bought for €100 thousand, in Barcelona, where is located the seaside resort area, — at least €300 thousand,” he says. But from buying property in the province, the expert advises to refrain with regard to its low liquidity.
One of the best investment ideas on foreign property market is buying microapertures, puts his. We are talking about small apartments-studios with an area of 30-sq-meter bed, bathroom, shower room, Desk and kitchenette. The cost is about €100-120 thousand According Tranio, the yield from the rental of such housing to rent higher than apartments with more footage — an average of 4-5%, though the rent is quite low (€400-600 per month). In addition, the tenant usually is not a long-term contract, and the landlord may at any time to change the tenant or to index his rent. The main advantage of microapertures is their location: they are commonly popular among youth areas. “The number of people willing to sacrifice square footage in favor of the right places and a good company will only increase”, — predicts Kachmazov.
According to Tranio, in Berlin presents the most wide range of offers in the segment of micronetworks: small studios are relatively small (from €100 million), with rental per square meter is quite high — €25. In comparison with microparameter two – and three-bedroom apartments give a much lower yield, because there the rent is much lower — €9 for 1 sq. m. In Budapest, one of the most popular tourist cities, the rental price up to €40 per 1 sq m of leases and the yield can reach 11% per year.
How to buy
The transaction on purchase of the apartment is through a Bank in the country in which the property is located. To put the money to a foreign Bank, the investor will need to explain how these funds were earned. The buyer may require help 2-NDFL, 3-NDFL, documentary evidence that the money raised from the sale of some other object. In addition, in most countries there are both tax and immigration restrictions on the acquisition of real estate. In some cases, the local person without citizenship or a residence permit and are not able to buy an apartment. According to a partner and specialist in the field of international tax planning PwC Michael Filinova, with such restrictions will face Russians wishing to invest in real estate in Switzerland, Greece, Denmark and Canada.
For example, in Switzerland, according to the law “Lex Koller” (Lex Koller), as well as cantonal and communal legislation, citizens of countries outside the EU and EFTA (European free trade Association), not in possession of a Swiss residence permit type C (“permanent residence permit”), forbidden to buy houses for investment. However, investors have a workaround to make the purchase of an apartment to a company in which a controlling stake in and shares owned by a Swiss legal entities and individuals. In this case, the non-resident must be no more than 33% of the share capital.
Also owls from PwC notes that in the context of a General “trend for transparency” a number of States have begun to require companies buying residential property, disclosure of the ultimate beneficiary of the transaction. So, for example, enters the UK. In General, this does not negate the convenience of this method of purchase of real estate. “For example, a large number of French property issued through SCI, a special type of legal entity, which is intended for purchase and maintenance of property,” — emphasizes the expert.
The main risks
The main disadvantage of real estate investments are high costs: determine how many earned on the lease of 4-5% will go into the pocket of the investor, is quite difficult. A large part of the costs associated with taxation. With many countries Russia has agreements to avoid double taxation. According to them, as noted by owls, PwC, income from rental property is almost always taxed in the country where the purchase was made. “But since the tax abroad is usually less than in Russia, between Russian tax authorities require to pay to the Russian budget,” commented owls.
Thus, if in a foreign jurisdiction tax rate is higher than in Russia, it will have to pay for it, says partner Paragon Advice Group Alexander Zakharov. In any case, the nuances of taxation (they are separate when buying property through a legal entity) need to be specified in each particular country and each case, experts say.
Financial consultant Isaac Becker notes that, over time, the profitability of investment property decrease in residential infrastructure wears out and starts to require additional investments. Investors often have to solve problems with the management company, paying for the services of intermediaries — Trustees abroad — with the aim of reducing overhead costs of overseas travel. However, if the apartment is bought in liquid area, it can be sold after some time and to income from property value growth, however, the payment of taxes from the proceeds of sale sums up Becker.
With the participation of Danila Sedlova