|
MONEY & CURRENCY
Money matters more than almost any other aspect of the property-buying process. It is vitally important for the whole process that you have access to suffi cient funds in the appropriate currency, at a com¬petitive rate of interest. In countries in which fi nancial systems are ineffi cient, outdated or just plain corrupt, the transaction fees (that is, the expenses associated just with acquiring and moving money, even if it is your own funds, from one place to another) can add between 5 and 10% more to overall costs.
Financing is equally important when it comes to both handling the day-to-day expenses for items such as utilities and repairs and to moving income into the country in which you want access to it.
These matters may appear peculiar only to overseas buyers han¬dling international cross-border fi nancing, but that is not the case. If the locals, who are one of the most likely buyer groups when you come to sell up, have diffi culty in raising a mortgage, changing cur¬rency from their local money into euros, dollars, pounds or what evercurrency you, the seller, require, then the whole property buying and selling process can become torturously slow. In some countries, when selling properties costing over €150,000, it routinely takes over 18 months for the fi nancial arrangements to be concluded.
Any profi t made will be subject to local tax, probably tax in your home country and perhaps the value of your property will make you subject to a wealth tax (an inheritance tax should you or any co-owner die). There is also the possibility that you will need to make special arrangements to circumvent any local laws on inheritance rights of heirs, successors and any other family members who, due to a quirk of the rules, might be deemed entitled to a share of any estate.
All these fi nance and taxation matters need to be thoroughly in¬vestigated as part of your sizing up the world property market and identifying those countries acceptable to your needs.
Currency and exchanging money
Buying, selling or renting out a property abroad means handling money in at least two currencies: pounds sterling and the currency of the country in which you are buying property. You may even need to deal in euros, as many major transactions, including buying and sell¬ing property, are now conducted exclusively in that currency.
The amount you set aside in pounds can vary in its purchasing power in another currency by several percentage points over a few weeks or months – and perhaps by as much as 30–40% over 10 years or more. Any property purchase takes time and the longer it takes, the longer you are exposed to currency market forces which can make your payments unpredictable. The same potential for loss occurs when you sell a property or when you receive rent. Aside from the change in value of one currency against another, your bank or currency ex¬change service levies a transaction cost.
Many countries have their own currency, but not all currencies are equally stable. The less stable the currency, the more cost and risk are involved in any transaction.
The key factors to fi nd out about a currency are:
• Is it ‘not fully convertible’? This would mean that the government of the country concerned exercises political and economic control over the exchange rate and the amount of its currency that can be moved in or out. China and India are among many countries falling into this category. Such constraints can mean that a currency drops sharply in value periodically, as the Government of the day tries to hold back international pressures. It can also make it more diffi cult and complicated to take money out of a country under certain cir¬cumstances. In almost any event, in such countries you will need ‘permission’ to repatriate funds to the UK.
• Is the currency ‘pegged’? For the majority of countries who have been anxiously seeking ways to promote economic stability and their own prosperity, the most favourable way to obtain cur¬rency stability has been to ‘peg’ the local currency to a major convertible currency, such as the euro or the dollar. This means that while the local currency may move up and down against all other world currencies, it will remain (or at least attempt to remain) stable against the one to which it is pegged. In total, 22 state s and ter r itor ies h ave national cur rencies direct ly pegged to the euro (including 14 West African countries, three French Pacifi c territories, two African island countries and three Balkan countries).
• Is the currency ‘dollarised’? This is a slight misnomer, as the term is used to describe a country which abandons its own currency and adopts the exclusive use of the US dollar or another major inter¬national currency, such as the euro.The euro, for example, is the offi cial currency in 15 states and territories outside the European Union. In such cases the country in question takes on the risks and costs associated with the ‘host’ currency. Many of the economies opting for this approach already use the foreign currency infor¬mally, in private and public transactions, contracts, bank accounts, property transactions and even for more mundane events such as hotel accommodation, restaurant meals and shopping for electrical goods and other relatively expensive items. • Is the currency ‘fully convertible’? If so, it stands on its own two feet and fl uctuates as the country in questions succeeds or fails. Russia, for example, lifted currency controls in July 2006 as a sign of economic confi dence, making the rouble fully convertible. Now it is more attractive to invest in Russia while Russian businesses can freely, without worry and without any special permit or burden, participate in investments overseas. Barely 8 years earlier, the coun¬try defaulted on its massive domestic debt, devalued its currency and wiped out Russians’ savings. Russia’s macroeconomic situation had to become stable in order to allow this to happen, which has been achieved on the back of large gold reserves, a balanced budget and foreign investment that exceeded capital outfl ows, largely on the basis of oil and gas exploration activity. |
|