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Too Good To Be True?

Over the many years I have been involved in the overseas property market, I have seen some very slick marketing ploys to encourage clients to purchase an overseas property. These are the top three examples that I have come across and they still seem to be active today. Amazingly, they often seem to be the main reason a sale is made WITH NO FURTHER RESEARCH UNDERTAKEN, such as independent legal and valuation advice:

Buying via a Pension Plan
UK investors are often encouraged by a developer or agent to invest in a new overseas property development by using either a Self Invested Pension Plan (SIPP) or even more sophisticated pension schemes (where available).

However, the danger is that no other checks are undertaken on the strength of the project by the purchasers. For example, checking where it is built, whether all planning permissions etc have been received and other important legal matters have been covered.

It is often assumed by prospective purchasers that the Pension Trustees would have carried out their own research before becoming involved, but sometimes this is not the case and is not necessarily their responsibility.

Seeking attractive returns through alternative asset classes always poses dangers if the market is unregulated and there is no consumer redress.

Overseas investment property is one of those asset classes where you need to go in with your eyes open. I am increasingly aware of off-plan overseas hotel rooms being offered with promises of fantastic potential returns. However, this can be fraught with potential pitfalls without further research.

The TV or Sports Personality
How often do you pick up the newspaper, or see on TV, the involvement of a ‘personality’ or Company involved in an overseas project? It’s a fairly common occurrence in fact, but of course there is no guarantee that the celebrity or company mentioned has vetted the project. It’s more likely that their Agent has signed the promotion contract, without carrying out the necessary research similar to that mentioned above. They probably have never even been there, so why should you be swayed by their endorsement just because they are famous?

Without pointing the finger at anyone specific, there are examples of where personalities have had their name used in the past as an endorsement and developments have failed. Although they were not personally involved, the celebrity would have no doubt increased the number of purchasers, leading eventually to more potential ‘victims’ when the project finally fails.

The Repossession
Unfortunately due to the recent world economic crisis, a number of individual properties and developments have been repossessed by Banks. These properties are then promoted back to the general market either by the Bank directly or via nominated Estate Agents.

However, it is important to understand and research why the property was repossessed in the first place.

Is it because there was genuine hardship and the property was legally built with all the relevant planning permissions/building licences? Alternatively is it because it was not a finished property, that the requirements were not met, that it was in a poor sales/rental area or even that rentals were not allowed due to local planning rules?

If something is too good to be true, then as the saying goes, it normally is. My advice is, don’t let slick marketing cloud your judgement – take a deep breath and do your research first.

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Details correct when this article was originally posted on November 2, 2012.