Welcome to BuyAssociation.co.uk

General: Overseas Property Probelms: Lost Deposits - Simon Conn

Problem: lost deposits

The overseas property market has been a huge source of investment success for thousands of buyers in recent years, but for every success story, there is also a tale of misery. Quite often, this will involve someone who has put their money into a building project that seemed completely above board, only to find that the building work never actually started and that their deposit has disappeared into a black hole.

It’s very easy to get sucked in to what appears to be a fantastic deal, with promises of guaranteed rental yields and capital growth from sometimes pushy (but well-spoken) salespeople. However, many buyers who have fallen into this trap have simply been too trusting – especially when developments have been sold by British-based agents. And it’s not just the inexperienced would-be Donald Trump developers who have caused problems – we’ve also seen some high-profile companies running into trouble recently, including one which sold property in Eastern Europe, with hundreds of investors, mainly British and Irish, subsequently losing deposits worth several million pounds. It appears that prospective investors were given the impression that building projects were in full swing, when in fact the company had not even obtained planning permission and building work had therefore never even begun.

It’s not just Eastern Europe, however, where things have gone wrong. It’s been reported that hundreds of British investors have lost money in an alleged housing scam in Florida this year. There have also been some problematic developments in Italy, and of course, there’s Spain, where countless deposits have been lost due to collapsing property firms, illegal building or, in some cases, downright fraud. Many British buyers have recently lost deposits given to one Spanish developer which sold off-plan homes without obtaining the correct building licences, and another firm which sold off-plan properties which were never built due to planning irregularities.

Whilst many of these investors have set up action groups against developers who have taken their deposits with nothing in return, some have been frustrated at their lack of progress. It’s simply too expensive for them to fight their case through the courts.

Economic downturn
Whilst the boom years meant that overseas property became accessible to more than just the rich and famous, the subsequent credit crunch has reversed the fortunes of many buyers, who have seen their hoped-for capital gains turn into losses, as property prices fall and rental yields diminish. But the impact of the economic downturn has had an even more serious effect on the developers, many of whom have run out of money, leaving properties unbuilt, and developments not being built as originally specified. Some developers have been completely new to the game and have simply got in over their heads. Whatever the reason, honest buyers are losing money.

How to avoid this situation

Don’t fall for the hard-sell
Don’t let anyone push you into signing a contract or parting with any money under the promise of your property doubling in price, having guaranteed rental returns, or any other unfounded assurances. In some countries, inspection tours keep would-be buyers corralled within a tightly-controlled timetable of property visits designed to get them to sign on the line while they are out there. We’re not saying that you should avoid salespeople or tours – just don’t let yourself be talked into something you haven’t had time to seek independent professional advice about.

Give yourself a cooling-off period
Before making any commitment, try to give yourself a `cooling off` period if you see a dream property and are tempted to put down a deposit there and then. Some now compare the sales techniques in countries such as Spain with those rife in the timeshare market 20 years ago. The safeguard introduced for buyers then was the cooling-off period, giving people sufficient time to think about a contract they had signed. Even though this is not mandatory in the selling of overseas property, there’s no reason why you can’t apply it to yourself!

Take legal advice before agreeing to buy
Many of the people who have lost their deposits bitterly regret that fact that they failed to seek the advice of a good lawyer. Scrimping on independent legal advice at the very beginning can cost you so much more in the long run.

Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer. Ideally, they won’t be located in the same area as the property in question and it may be best to use a solicitor in the UK who has offices in the country where you’re planning to buy. Never take advice from a lawyer who is recommended to you by the developer, as they’ll be acting as much in the other party’s interests as your own.

Your lawyer will examine all the documentation thoroughly with a view to ensuring that a legal title to the property exists, that the seller has the legal right to sell it, and if there are any legal or financial burdens registered against the property for which you, the buyer, would be responsible. It’s also paramount that an independent valuation is carried out.

Track record of developer
If you’re buying from a developer, you need some information about their track record and how long have they been trading. Obtain some references from previous buyers and check comparable properties in the area. It’s also advisable to check that a ‘habitation certificate’ had been issued, which will tell you if full utilities are in place. It’s highly likely that a property has been built illegally if this certificate has not been granted and therefore it would be advisable to stay away until it has.

Simon Conn

Simon has over 25 years' experience in arranging overseas mortgages in over 45 countries. He is involved in a number of projects, especially those involved in consumer protection. Simon has a strong media profile and is an established industry expert on matters relating to the purchase or refinancing of overseas property.

More pages

Page 1: Problem: lost deposits

www.holidaylettings.co.uk online advertising for home owners abroad

Reserve your overseas currency online - for a high street beating rate!

Travel insurance from £2.99 - Columbus Direct for instant worldwide travel cover

The best villa holidays from James Villas with our hand-picked villas and all the support you need in resort, we're the number one choice