Economic risk in International Real Estate

Other Economic Issues

While currency fluctuations are probably the major economic consideration in a cross-border transaction, there are quite a few other considerations.

Repatriation of Funds: Most countries allow foreign investors to “repatriate” or take their money back home. Some do not. Some only allow a certain amount to be carried out of the country. Other countries allow for repatriations but “hard currency” may not be available. Planning for any investment should include an “exit strategy”. This is extremely important in international transactions.

Allowable Foreign Ownership: In most of the industrialized countries there are no or very few restrictions on foreign ownership. These are usually matters of reporting and paying taxes. Some countries, such as Mexico, have restrictions on properties within a certain distance of the borders or the coast. Other countries either do not allow foreign ownership or require participation by a national of that country. Frequently the restrictions can be avoided by using a domestic artificial entity such as a corporation, anonymous society, LLC, trust or partnership. The artificial entity may need a portion of foreign ownership as well.

In certain cases, like China, no one can actually own the land. They can only lease it from the government. This is true in specific situations in other countries. In Russia the land outside the cities can be owned by a domestic entity. Land inside the cities is owned by and leased from the city. In Israel, a lot of the land is owned by the Israel Land Agency and leased from them. In these cases the individual only owns the improvements.

Taxation: This can be an extremely complicated issue. Buyers should always talk to a local tax attorney specializing in working with nationals of their own county. Frequently there are special permits required for foreign buyers or sellers. A foreign buyer potentially becomes a foreign seller. The time to examine taxes is before purchase. Tax treaties are also extremely important in the treatment of foreign buyers, sellers and owners. Occasionally governments offer special incentives to foreign companies and individuals to stimulate investment. This possibility should be examined as a standard part of the planning process.
Transfer expenses: Taxes are a major transfer expense in many places; but they are not the only transfer expense. In some countries the cost of buying or selling a property are very low. In other places they are quite expensive. Often it is good to have an artificial entity that owns each property. It may be cheaper to sell the entity than the property.

Possibility of Nationalization: This threat is not limited to the developing world. Eminent domain is the law in most countries. In some countries taking is subject to due process in other cases it is not. Australia has a reputation for not paying fair value. Venezuela takes land that the president considers to be “under-utilized”. In Zimbabwe all the land owned by whites was just taken. These are only a few examples. In the USA in Connecticut, land was taken for homeowners to sell to a commercial developer.

Tomorrow, I will travel. If a post is made it will concern other risks of owning foreign real estate and how to deal with them. If not the next post will deal with the future of international real estate. Your comments and thoughts on this subject would be appreciated.



David Segrest is a REALTOR in Charlotte, NC

David S. Segrest, CIPS, CCIM, TRC, CEA
david@segrestrealty.com
http://www.segrestrealty.com
Serving the world in the Carolinas, Serving the Carolinas in the World