New to International Real Estate? Real Estate Attorney Explains How to Navigate These Markets
While most of us believe that there is nothing more stable than US real estate when it comes to investing internationally, let’s put the differences into perspective by focusing on the three gorillas in this area.
I would like to focus on three key differences in investing in real estate in New York City versus cities like Hong Kong and London. When we look at transfer taxes, ownership and currency risk, we begin to see discrepancies. Another thing to keep in mind is that New York City, London, and Hong Kong all have slightly different legal systems and transaction processes.
- Transfer taxes
It is very important to be aware of transfer taxes and other costs of doing business in any market. Real estate transfer taxes are particularly high in London. For example, on properties over £ 1,500,000 they can exceed 17%. In addition, Hong Kong has 15% transfer tax on real estate and an additional 15% on foreigners. Hong Kong is one of the worst markets for foreigners due to the high foreign transfer tax surcharge. Alternatively, New York City has fairly low transfer taxes compared to London and Hong Kong. - Property type
Always be aware of whether you are buying simple (full ownership) interest or just the rent (property only, no land). There are many differences between these two forms of ownership. For a long lease participation in a property, you have to pay a fee every year, even if it is a minimal amount, in order to lease the land from the lessee. In London, some of the tenants are private individuals in addition to the government. In Hong Kong, on the other hand, the entire land is leased by the government and the leases all expire in 2047. This creates a high purchase risk in Hong Kong because of the possibility, albeit small, that the government will not renew the leases. Much of the home ownership in New York City is on a royalty-free structure and not leasehold. - Currency risk
Buying property abroad can expose you to significant currency risk. If you own an asset that is denominated in a foreign currency, you are exposed to local currency fluctuations. For example, when you buy property in Hong Kong, you have a high exposure to HKG dollars. This is in contrast to the USD, which is considered by many to be the most stable currency in the world. To reduce the risk of international purchases, you should orient yourself to markets with very stable currencies. A knowledgeable attorney is essential to run your transaction efficiently and will assist you in navigating the markets due to the differences described above. An experienced attorney will ensure that all of your records are properly filed. In addition, a lawyer is responsible for drafting and reviewing contracts from an international point of view, taking immigration, tax and inheritance issues into account. This is not the place a person would ever try to save money. After doing this job for 25 years, oh the war stories I can tell of local lawyers who have never dealt with an international buyer.
When navigating various international markets, you should try to use knowledgeable brokers in the respective markets to help you find a suitable property. Well-connected brokers are experts who have access to off-market real estate and have expert insight into the real value of the real estate. In addition, the leading brokers often have special connections to top lawyers, tax specialists and other service professionals with experience in serving international clients.
It is important that you buy a property from a reputable seller, especially if it is a new build. When you buy a project that was built by a questionable developer, you run the risk of not only losing money, but also spending extra funds to fix their bugs. There is the possibility of sub-par construction and other problems such as: B. a delayed delivery of the project. In addition, the developer cannot deliver a product that matches what was promised at the time of purchase. A top realtor can guide you on projects that will be built by quality developers in the specific city, and an experienced attorney should cover most of the other due diligence associated with the seller.
In the course of the globalization of society, wealthy families are expanding their international real estate portfolio. In addition, given the political instability in many developing countries, many of these families are expanding their international holdings by buying real estate in London, Hong Kong and NYC. Investing in real estate in these markets is much safer than keeping your investments in your home country.
Real estate investments in New York City, London and Hong Kong all have advantages and disadvantages. When investing globally, the key differences are transfer taxes and other closing costs, form of ownership, and currency risk. Because of these differences, New York City is likely to be the most stable investment of the three cities. Lower transfer taxes, stricter building codes, and higher prevalence of simple ownership are key aspects of the New York market that add value to the city’s real estate and indicate a market resurgence.
Written by Edward Alexander Mermelstein.
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