Is buying a house the best choice for an expat?
March 8th, 2016
It is hard enough finding a house when you understand the real estate landscape around you. It is even harder for expats to nail down a place because they are constantly on the move, which makes it hard to understand the market as well as anyone else.
In 2012, the BBC reported that UK expats were finding it difficult to nail down houses to live in when they got back home. This was because of the levels of competition exhibited by those who actually live in the UK. Generally, most banks have strict guidelines governing expat mortgages and in the UK, this was compounded when a major lender, Lloyds banking group, decided to scrap its expat mortgage plan. Things were even worse for those trying to find homes away from home.
The situation in the UK mirrors pretty much what is happening in major economies (US, Australia and a large part of Europe) around the world. Expats want to snap up property, but do not know if it would be the right move. At the same time, there are barriers to entry in this market, and there exists fears that have for a long time gone unaddressed. For example, will lenders and banks treat the expat the same as just about anyone else? Are they willing to relax the rules for these professionals? And most importantly, is buying a house the best choice for expats?
To rent or to buy
Before you decide, whether you want to invest in a home in the country you have been posted, there are a lot of things to think about. The bulk of it is held in two wide-ranging categories; the personal element and the financial aspect. There are scenarios where it is better to buy than to rent, most especially if your expectations of renting are not met.
Have your finances in order
The choice between renting and buying is one of the toughest financial decisions any adult will have to make. Knowing where your stand in terms of your finances is the starting point to figuring it out. Once you have the scope of your abilities figured out from a financial standpoint, then making your decision will be a matter of doing the fiscally responsible thing. If reaching your goal of owning a property where you currently live is not attainable at the moment, then a saving plan is in order. But with this you have to consider how long you will be living abroad and evaluate whether it is worth it or not.
Are you staying for long?
The span of time that you have in your new home is one thing that can very easily tip the scales either way. For expats planning to stay for a long time, the best way to go is usually to buy their own home; because when you think about it, you get equity on your mortgage payments, but the rent you pay is gone.
Renting makes more sense when you're only sticking around for a short while then move back home. However, looking at the mortgage market in places like Switzerland, buying would look like a counter-intuitive thing to do. People there are not very fond of owning property as 60% pays rent for their residence. The places which have a high percentage of property ownership over there are in the rural areas.
In cities like Geneva, Basel and Zurich, the population has grown tremendously over the past 50 years, putting pressure on available housing. As with any commodity that experiences a rise in demand and fall in supply, the prices for mortgages have shot up. As such, getting permanent residence in the cities has become both difficult and expensive.
Potential risk of owning
Owning property requires you to be ready to take on the commitment it brings along. Any market fluctuations will affect the value of your home directly. A rise in interest rates will mean that the cost of mortgage repayments will also go up. Maintenance costs are also another thing that plays into the decision. If you need to do too much to get the house to your standards, then it's probably better to seek other options.
Think about flexibility. Will it be easy to sell and relocate when you want? Sometimes things like paying legal fees and/or a real estate agency may make the process unnecessarily tedious. Co-owning the property may also create a similar kind of hurdle. How do you split up the value of the property and decide who is worth what? It can be complicated and costly.
Think about the future
It is important to consider what the future holds for the prices of homes versus the cost of renting. The unfortunate thing is that these are very hard to predict. If for any reason the prices of housing should fall, then you definitely won't get back what you paid when you bought the house.
In addition, a fall in the cost of renting might be favorable for an expat who is only staying for a short time.
With the current global trend in terms of owning homes versus renting, homeowners stand to benefit. Urbanization is constantly pushing the cost of owning a home to higher levels. Give yours a number of years and it might have doubled if not tripled in value (that is if your motivations are financial).
Does the economic environment favor investment?
A home is always an investment, regardless of your motive for buying. Take the case of an expat from a developed country living in a developing country. The difference in currency exchange rates may make the whole difference. The biggest challenge for such expats is a volatile economy that sometimes may come too close to a meltdown to inspire any sort of investment (or even a recoup of losses). However, whenever the situation is ripe for an investment of such kind, the best thing to do is go for it because the value can only go higher.
In the Netherlands, buying-to-let is a viable option for expats. There are no restrictions against foreigners acquiring property such as homes. The prices for housing have reached the lowest in the market, but is said to be a phase and the prices are expected to start shooting up any time. As for now, it costs you 6% of the buying price to get through bureaucratic hurdles and have your property. It is such a good time to get a property in Netherlands that Amsterdam even made it to the list of the top 20 places to buy-to-let in the world.
Get a bank that can back you up
Going for a mortgage you need to have a bank that can support your mortgage plan. If your current bank does a good job at it, then it is lesser of an issue to worry about. In other cases, you might need to check around and see who has your best interests in mind. Given that you cannot go into this blindly, the first thing you may want to consider is opening an offshore account. Having a local account for your day-to-day needs is also a prudent thing to do. By looking for the best rates, you are guaranteed to get the most out of your financial position. Apart from the financial backing, you will also benefit from expert advice from the bank of your choice.
Different markets are influenced by different factors, which means that every market is unique. When deliberating on what to go for, you should first know the opportunities available and keep the fine print in mind. In many cases the process of acquiring a home in a new country can look like a booby trap if new procedures keep catching you off-guard.
Are you an expat? Let us know about your experiences with purchasing property abroad.