From todays indo
The hills are green far away, but overseas investments might not match the hype
WANNABE 'property millionaires' have been warned to watch out - the overseas property investment sector is rife with scammers.
Along with the dodgy scams, the sector is also awash with perfectly legal ploys designed to extra large sums from investors who stand to gain little if anything.
And the Irish are gaining an international reputation as 'property patsies'.
One property market expert told Your Money this week: "There are three prices for overseas property - the price for the locals, the price for overseas buyers, and the price for the Paddies."
The selling of apartments for investment is unregulated. So little wonder that supposedly high-yielding properties have often turned into loss-making properties when unrealistic claims about rental yields, capital appreciation and the likes of vandalism and maintenance are factored in. Consumer activist and founder of the consumer advice website, www.askaboutmoney.com Brendan Burgess, maintains the overseas property investment market is exhibiting signs of a bubble. "There is a buying frenzy going on out there, and it is a bubble - just like the dotcom or tulip bubbles. People think they should go off and borrow money to buy property. "But just like any bubble, people at the moment are not looking at the yield and how it relates to the asset. And when that happens, they will be scammed." Mr Burgess added that some people were breaking every rule in the book. They are buying properties without going to the location, and they are seeking advice from those selling the property instead of independent counsel.
One property expert conceded: "A lot of people are being taken to the cleaners and they don't know it. The chickens will come home to roost when they find out the rents are not up to it, or that they paid too much." He said people were trusting selling agents when they make fairytale promises about the rents that can be commanded.
Often Irish people are borrowing money to buy abroad by remortgaging their Irish home. They are then taking out interest-only mortgages to pay for the foreign investment venture. Prospective buyers overseas are strongly advised to talk to a variety of estate agents in the area they are considering buying in, and checking out the likes of cost per square metre in the area. The following are some of the ways property buyers are finding themselves shortchanged.
Hidden margin for property seller:
Investors are being sold apartments at inflated prices. What happens is the property company approaches the developer of an apartment block. The property company offers to sell the entire block. The property company buys up the apartment units for say €220,000 each and gives the developer between €22,000 per unit upfront. Developers find it attractive as they get rid of the entire block at a stroke, albeit at a heavy discount. The apartments are then sold off to Irish investors at a profit of €51,000 per apartment for the selling company. This profit margin for the selling agent is hidden from the buyer. Property adviser Diamuid Condon warned: "These people are ot breaking any laws. They are using their bulk buying power to take a cut on the price, but this type of thing is inflating the British apartment market, which means the apartments will not be that saleable."
Rent guarantee ploy:
Another twist on the buy-to-let phenomenon is the way 'guaranteed rents' are used to lure in investors. Investors are typically offered a guaranteed rental income for two years. But this 'rent guarantee' has been built into the purchase price of the apartment. In other words, people are paying for the rent guarantee with their own money. And the rental income is taxable. Again, it is not illegal, but poor value.
Advertising apartments at a 25pc discount:
An old favourite of property sellers in an overheated market is to offer overseas properties at a huge discount, usually 25pc. "The launch price of €300,000 represents a 25pc discount to market value of €400,000," is a fairly typical sales pitch. Remember: if it sounds too good to be true, it probably is too good to be true.
Landbanking:
Landbanking involves buying land on the promise or hope that it will be rezoned. Plots are sold for around €10,000. But only later does the investor find out that the land can never be rezoned as it is on the side of a mountain or it is green-belt (protected) land.
Property education seminars:
This involves spending €3,700 and going off to a seminar on property buying. After that, you are offered discounts on properties that have been bulk bought. Commissions of 20pc per unit for the sellers are not untypical.
Syndicated buying:
This is where prospective property investors pay to join a syndicate. Typical upfront payments are between €12,000 and €15,000. In return, the buy-to-let syndicate then offers 'discounts' on properties.
Property advisers say the best way to avoid being scammed and get good value is to source your own property, do plenty of homework, and seek independent advice
The hills are green far away, but overseas investments might not match the hype
WANNABE 'property millionaires' have been warned to watch out - the overseas property investment sector is rife with scammers.
Along with the dodgy scams, the sector is also awash with perfectly legal ploys designed to extra large sums from investors who stand to gain little if anything.
And the Irish are gaining an international reputation as 'property patsies'.
One property market expert told Your Money this week: "There are three prices for overseas property - the price for the locals, the price for overseas buyers, and the price for the Paddies."
The selling of apartments for investment is unregulated. So little wonder that supposedly high-yielding properties have often turned into loss-making properties when unrealistic claims about rental yields, capital appreciation and the likes of vandalism and maintenance are factored in. Consumer activist and founder of the consumer advice website, www.askaboutmoney.com Brendan Burgess, maintains the overseas property investment market is exhibiting signs of a bubble. "There is a buying frenzy going on out there, and it is a bubble - just like the dotcom or tulip bubbles. People think they should go off and borrow money to buy property. "But just like any bubble, people at the moment are not looking at the yield and how it relates to the asset. And when that happens, they will be scammed." Mr Burgess added that some people were breaking every rule in the book. They are buying properties without going to the location, and they are seeking advice from those selling the property instead of independent counsel.
One property expert conceded: "A lot of people are being taken to the cleaners and they don't know it. The chickens will come home to roost when they find out the rents are not up to it, or that they paid too much." He said people were trusting selling agents when they make fairytale promises about the rents that can be commanded.
Often Irish people are borrowing money to buy abroad by remortgaging their Irish home. They are then taking out interest-only mortgages to pay for the foreign investment venture. Prospective buyers overseas are strongly advised to talk to a variety of estate agents in the area they are considering buying in, and checking out the likes of cost per square metre in the area. The following are some of the ways property buyers are finding themselves shortchanged.
Hidden margin for property seller:
Investors are being sold apartments at inflated prices. What happens is the property company approaches the developer of an apartment block. The property company offers to sell the entire block. The property company buys up the apartment units for say €220,000 each and gives the developer between €22,000 per unit upfront. Developers find it attractive as they get rid of the entire block at a stroke, albeit at a heavy discount. The apartments are then sold off to Irish investors at a profit of €51,000 per apartment for the selling company. This profit margin for the selling agent is hidden from the buyer. Property adviser Diamuid Condon warned: "These people are ot breaking any laws. They are using their bulk buying power to take a cut on the price, but this type of thing is inflating the British apartment market, which means the apartments will not be that saleable."
Rent guarantee ploy:
Another twist on the buy-to-let phenomenon is the way 'guaranteed rents' are used to lure in investors. Investors are typically offered a guaranteed rental income for two years. But this 'rent guarantee' has been built into the purchase price of the apartment. In other words, people are paying for the rent guarantee with their own money. And the rental income is taxable. Again, it is not illegal, but poor value.
Advertising apartments at a 25pc discount:
An old favourite of property sellers in an overheated market is to offer overseas properties at a huge discount, usually 25pc. "The launch price of €300,000 represents a 25pc discount to market value of €400,000," is a fairly typical sales pitch. Remember: if it sounds too good to be true, it probably is too good to be true.
Landbanking:
Landbanking involves buying land on the promise or hope that it will be rezoned. Plots are sold for around €10,000. But only later does the investor find out that the land can never be rezoned as it is on the side of a mountain or it is green-belt (protected) land.
Property education seminars:
This involves spending €3,700 and going off to a seminar on property buying. After that, you are offered discounts on properties that have been bulk bought. Commissions of 20pc per unit for the sellers are not untypical.
Syndicated buying:
This is where prospective property investors pay to join a syndicate. Typical upfront payments are between €12,000 and €15,000. In return, the buy-to-let syndicate then offers 'discounts' on properties.
Property advisers say the best way to avoid being scammed and get good value is to source your own property, do plenty of homework, and seek independent advice
