This post is taken from a recent Globe and Mail article  “Don’t let the lure of recessionary bargains blind you to the risks” by MARLENE HABIB

February 11, 2009

Whether it’s for a vacation refuge, retirement spot or business dream, buying property in a foreign land has an exotic appeal. But while some experts say the current economic downturn is a choice time to buy, financial and tax advisers warn that venturing outside your home country can involve dizzying financial, legal and other problems.

“There’s a romanticism about having something in some other place – some exotic foreign jurisdiction. Or it may be related to an area of convenience for the family, where everyone can come together for certain occasions,” says Brett Simpson, a certified financial planner (CFP) with Rogers Group Financial in Vancouver.

Buyers may find bargains, but dollar signs shouldn’t cloud reason or reality, says Tina Tehranchian, a CFP and branch manager at Assante Capital Management Ltd. in Richmond Hill, Ont.

“I have clients who have been buying property anywhere from Florida to Dubai. You also have property bubbles forming in Spain and Panama,” Ms. Tehranchian says. “Some are looking for vacation properties and some are looking for investment properties.

 ”But you have to make sure you’re willing to make the commitment to go down there, do the due diligence, do your homework beforehand, take into account all the maintenance costs and hassles, [and] figure out who’s going to look after your investment when you’re not there,” she says.

The National Association of Realtors in the United States has reported a dramatic increase in buying by foreign customers in the past five years. Some real estate agencies are reported to be wooing foreign investors by paying their travel expenses and providing agents who speak foreign languages.

Despite the “buy now” message, Canadian investors must assess whether a foreign property investment  – fits into their futures.  “Your investment decisions should be evaluated in the context of an overall financial plan, not independent of it,” he says.  It would appear that too many people end up with a plan that is just a collection of stuff – their plan comes by default instead of, ‘Here’s what I want to have, here’s what I need to accomplish my objectives.’ ”

In the case of Sharon Hobin, a school trustee in Mississauga, Ont., buying a home in Florida wasn’t a snap decision. Ms. Hobin, 56, and her family took more than four years to find and buy their dream retirement home in Sarasota when the Canadian dollar was riding high over the greenback last spring.

“For years we would go to Florida on vacation and loved it in Sarasota, and we would say, ‘This would be the nicest place to retire.’ ”

Ms. Hobin says one of the smartest moves she and her family made was to consult a real estate agent who found exactly what they were looking for: a two-bedroom home with all the furnishings, in a gated community, for $300,000 (U.S.). Ms. Hobin recommends finding an agent with links to other legal and financial experts who can conduct title searches or find an insurer, for example. For a mortgage, she consulted her Canadian bank, Royal Bank of Canada, which directed her to RBC Centura in the U.S.

“We learned a lot about owning a place in Florida – for pest control, the home is sprayed outside and inside once a year because of the bugs in that area, and sand fleas. There’s a lot of research you need to do. For us, though, we probably had a little less to worry about because this is not a rental property for us: This is where we’re going to retire,” she says.

Whether you’re buying a property for retirement or vacation or as an income-producer, one of the biggest considerations for investing abroad is taxes, experts say.

For example, many countries levy a form of capital gains tax against property sellers, and buyers can end up paying more if they are non-residents. Some countries, such as Canada and the United States, share a double-taxation treaty that prevents foreign owners from paying taxes twice.

“Check the tax rules: Speak to a tax expert in that particular jurisdiction because there are withholding taxes for non-residents not just in the U.S. but in many countries,” Ms. Tehranchian says.  “There are also complicated tax rules when it comes to U.S. estate taxes,” she adds.

Those in the know stress that it’s important to have someone in the community  – be it a management company, a partner or someone you trust – looking after your property you’ve purchased.

Ms. Hobin’s experience with one aspect of her new Florida home serves as a warning that no matter how careful a foreign purchaser is, unpleasant things can happen.

For three months, she was unaware that cheques sent to the Florida power company for her water and electricity were not being accepted. The utilities “sent us notes to say your cheques are bouncing, and threatening to cut off water and electricity,” she recalls.

Her Canadian banker told her that other clients were in the same boat: U.S. banks were growing more cautious because of the economic downturn and suddenly began turning away cheques from foreigners.

“Now they just take the amount directly out of our bank account in the U.S.,” Ms. Hobin says. “That’s why it’s so important to have a U.S. bank account in these situations.”

The Tucson real-estate market has held up better than other recreational areas in the USA in general and Phoenix in particular which has been hit harder.    As of October 2008 the number of homes for sale in the Tucson area has actually dropped from year ago levels.   In September, 2008 there were 8.6 months of inventory down 16% from September 2007.    As a rule of thumb, a market is considered balanced when months of inventory is around 6.   As well, different areas within Tucson show varying levels of inventory from over 12 months in the North-West to less than 5 months in other areas.  If you’re thinking of buying,  consult a local realtor who can provide you specific market information.

September median home price of $180k represents a 16% drop from a year earlier.  In the last 2 or 3 months prices have dropped significantly impacted by short sales (a sale priced at the outstanding mortgage value) and foreclosures.  Sales charts show a significant downward tred since July and could expect this trend to contiue for the foreseeable future.  This may be a good time to buy but do your own research.  And, if you’ve bought property in the Tucson area recently, tell us your story.

If you’ve read our take on the Oro Valley area of Tucson, Arizona, you’ll know I’ve picked this area for its many amenities including shopping, restaurants, hiking trails and golf courses.  My objective was to find a condo or townhouse in the $150 – $180k range.   Within this price range I found a host of condo – townhouses that feature  2 bedrooms, 2 baths with  between 900 and 1000 square feet most in a one story configuration  and a few townhouses in a two story set up.  A few 1 and 3 bedroom units were available but the condo market is predominantly 2 bedroom.

Doing a bit of math with properties (in the condo – townhouse category) recently sold,  the difference between selling and asking price varies from asking price to over 20% discount.  It seems that properties with higher asking prices (in the $190,00 range)  exhibit the highest discounts from asking price.   Of 45 condo-townhouses sold within a 3 month period in Oro Valley and North Tucson, the average selling price was approximately $155,000 at the low end and 170,000. at the higher end of the scale.  Also noted that homes in the more desireable neighborhoods (Catalina Foothills) did not discount as much as others.  As well, prices will vary depending on property features and inclusions, the views and  security in gated communities.

Other costs to get a handle on if you’re considering buying a property  include condo fees and taxes.  Haveing shopped around in Florida for the last two years, I’ve discovered that municipal taxes arehow Florida finances its services.  Arizona seems to have a lower tax structure and condo fees also are somewhat less than Florida possibly due to the absence of hurricanes.  Taxes look to average around $1700/annum and condo fees around $160./month but increasing for higher end properties.

If we can ignore the drop in the Canadian $, I conclude this to be the time to buy if you’re in a buying mood.  Since 2006 the median house price has dropped almost 20% and will likely drop further.  Do your own research and let us know what you come up with.

Tony A!