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Staying informed is crucial to succeeding in the world of Los Angeles luxury real estate. However, this entails more than reading about markets in the U.S. Researching international markets is an effective way to understand how current events are contributing to the rise and fall of real estate prices in your area.
Preparing to Purchase Overseas
The New York Times urges buyers to seek serious, and experienced counsel before entering into transactions overseas. Due to the differing laws, cultures, and political climates of each country, it is important for buyers to be informed about how real estate is purchased and sold around the world. Whether you’re looking to stay informed about trends in international markets, or you’re thinking about purchasing property overseas, Mercer Vine’s 2017 guide to the top international real estate markets is a must-read.
As President Trump attends meetings for constructing a wall between the U.S. and Mexico, many question the future of Mexican real estate. Forecasts of Mexico’s real estate market, however, predict that the country will likely not suffer. Due to its plethora of international tourist attractions in areas such as Los Cabos and Playa Del Carmen, Mexico’s real estate is more likely to retain its value over the coming years. In Los Cabos, demands for luxury homes are not cooling down. High-end homes in Los Cabos can run anywhere from $3 million to $16 million. In Playa Del Carmen, profitability comes from the fact that it is the fastest growing city in Latin America. Playa Del Carmen’s price per square meter is a little over $3,000. Yield from Playa Del Carmen’s properties is still high, nevertheless, since the area is in such high demand for tourist, residential, and commercial properties.
Buying Property in Mexico
In Mexico, most real estate transactions with foreigners are conducted in cash. This is especially attractive to American buyers since the Mexican peso is currently at a record-low compared to the U.S. dollar. Local banks will offer financing to foreign buyers, however, their terms will likely be less alluring than what U.S. banks would offer. Foreign buyers should be aware that if the land they are purchasing is 50 kilometers (31 miles) from the coastline, they must legally conduct the transaction through a fideicomiso (bank trust). This means that “the bank holds the trust deed for the buyer who becomes the beneficiary and retains full ownership rights and responsibilities.”
2. New Zealand
New Zealand’s booming market from 2016 shows no signs of slowing down in 2017. In areas such as Auckland, New Zealand is experiencing exponential growth in their construction sector. According to the New York Times, factors such as a growing economy, stable government, low interest rates and an influx of expatriates from Australia all contribute to New Zealand’s thriving real estate market. The feeling that the country is a “safe haven well away from the Northern Hemisphere issues” also adds to the country’s allure to international buyers. The median home price in Auckland is currently $830,000, which has been on a steady increase since 2016. In Auckland’s luxury market, properties above 3 million New Zealand dollars have significantly appreciated over the last two years. While most foreign buyers hail from the U.S., Austrailia, and Canada, buyers from Britain, China, and Germany are quickly entering the New Zealand market as well.
Buying Property in New Zealand
Overall, the process of buying real estate in New Zealand is fairly relaxed. If foreign buyers want a mortgage, the country’s local banks will require a deposit of 20 to 30 percent. New Zealand requires overseas buyers to register with the county tax department and to demonstrate how the transaction “may benefit New Zealand” in a “substantial and identifiable” way. It should also be noted that although some homes are sold through agent listings, 75 to 78 percent of properties are sold via auction in New Zealand.
3. United Kingdom
Another country likely to thrive despite recent controversy is the United Kingdom. Even though the country has voted to exit the European Union, and factors such as rising prices and stamp taxes have caused a drop in sales, luxury properties in London are still thriving and profitable. In areas such as Kensington and Chelsea, the average home costs approximately £1,379,484, or $1.66 million. London’s Holland Park is an area especially in high demand among English and international buyers alike, reports the New York Times. Holland Park’s residents are comprised of wealthy families, celebrities, and international buyers looking to acquire valuable British real estate. Foreign buyers in Holland Park mostly come from the U.S., China, and the Middle East.
Buying Property in the U.K.
Since there is currently no restriction on foreign buyers, purchasing property in England is generally straightforward. The British market is especially appealing to Americans now because of the British pound’s low exchange rate against the American dollar. The only potential hurdle that foreign buyers may face is the stamp-duty tax. The tax requires that “buyers must pay a 12 percent tax on any portion of sale above £1.3 million ($1.8 million).” Any additional homes will be subject to “an additional 3 percent tax on second homes above that price.” A possible loophole around this tax, however, is for wealthy parents to purchase homes in their children’s names.
Another Latin American country displaying market resilience is Colombia. In areas such as Medellin and Cali, real estate sales thrived during the international financial crisis and only recently began to slow down in 2013. Luxury properties, nonetheless, have appreciated more than 10 percent in 2016. American buyers are especially at an advantage in the Colombian market since the conversion rate currently favors the U.S. dollar. One factor contributing to the Colombian peso’s drop is the falling price of oil, which is one of the country’s prime products and exports. Colombia’s luxury market is full of many listings for sale or lease. Due to the scarcity of land in the area, many developers are replacing older buildings with newer units.
Buying in Colombia
In Colombia, there are no special restrictions for overseas buyers. Most real estate transactions with foreigners are conducted in cash. However, since real estate scams are common in Colombia, experts suggest seeking experienced counsel before finalizing transactions. Foreign buyers should be aware that when they purchase property, they are legally entitled to residency rights or a residency visa.
5. The United States
Investing in coastal state properties is always lucrative in the United States. Similar to New York, the Los Angeles luxury real estate market has always been a competitive one, and 2017 will be no exception. Mortgage rates have slowed and do not show signs of suddenly jumping as has been the trend in previous years. The median home price in Los Angeles is $700,000, while more affluent Los Angeles neighborhoods are pushing upwards of $1 million. Although buying a home in L.A. can be difficult, experts are definitely deeming 2017 as a seller’s market. Research also reveals that millennials will begin to enter the market as young couples begin to search for family-friendly homes.
Buying in the U.S.
Although the Los Angeles luxury market currently favors sellers, there are a few strategies buyers can use to gain advantage. CBS News suggests “buying down the interest rate” from the seller by paying the seller a fee upfront to permanently lower the property’s interest rate. Adjustable-rate mortgages are another option for buyers to have low, fixed-interest rate up to 10 years. After that period, the mortgage rate will adjust to a higher one. Another tactic is to negotiate for the seller to pay the buyer’s closing costs. This would allow the buyer to better handle higher borrowing costs from the bank. Additionally, offering to buy in cash is another way for buyers to close in on a transaction.
Consider International Markets
Although buying luxury real estate in Los Angeles is always a lucrative choice, buying properties overseas is another option for expanding buyers’ profitability. Investing in international properties that are natural tourist or business centers is a surefire way for buyers to earn quick returns on their property prices. Scoping out up-and-coming neighborhoods around the world before they gain international attention is another tactic for buyers to gain an edge in the international real estate market.