Purchasing property in foreign lands

There's nothing like a little experience, which is what reader Harry Pope of Long Beach, Calif., brings to the table concerning my recent answer regarding purchasing property in foreign lands. See previous Realty Q&A.

       

           

While living in Panama, first as a technical consultant with Booz, Allen and then starting up an import-export company, Hope was taken by a real estate developer for several thousand dollars. So he learned the hard way that the process isn't nearly as easy as it sometimes seems.

           

After seven years in Panama, Pope earned his M.B.A. from Harvard and spent the next 30 years in financial management jobs that required him to negotiate leases as well contracts for the purchase and sale of commercial property, both in the states and in Wales and France. He also got into several of his own "successful" real estate deals, including one narrow scrape in which "I got out of only by the skin of my teeth."

           

            
Here's Pope's advice:        

           

"You left out several critical factors in your response to the reader who inquired about purchasing property in foreign lands, the primary one being holding title. In many (maybe all) Latin American countries, there is no central title registry, so it is practically impossible to verify who holds title on land you are interested in. Deeds may be written on parchment and hidden under the bed. Dealing with a knowledgeable, and well-connected (politically) local lawyer is absolutely mandatory.

Registering your ownership after the deal is finalized is difficult and requires follow-up by the lawyer.

           

"The "well-connected" can work for you and against you. If the lawyer is connected to today's government (remember, many foreign governments tend to come and go frequently), he can do no wrong in the eyes of the government, so he can cheat you blind and there is no legal system that will get you recourse. If he is connected with yesterday's government (as was mine in Panama), he can get nothing done. It is a fine line and worth a lot of checking around and local recommendations.

           

"The same goes for the connections of the developer, of your property or a future developer. Promises mean nothing. Written promises also mean nothing. Nothing is permanent. Just because you buy on the oceanfront does not mean someone better connected can not come along later and build a high-rise right in front of you by getting a permit to dredge up land from the ocean floor where there was none before. This is currently happening in Baja California.

           

"Shoddy construction is the norm. Earthquakes routinely cause buildings to collapse because the builder bribed the inspector to allow using half as much rebar (for example) or using sand right from the beach in the cement, instead of rinsing out the salt.

           

"Completion can never be guaranteed. Developers in Spain and throughout Latin America frequently start construction with half the capital needed, hoping that early sales will bring in enough cash to complete the building. Sometimes this works, sometimes it does not. But if you are left holding the bag having bought a unit in an incomplete building, your property is worse than worthless because it is very, very difficult for another developer to get a loan to finish it after the original developer walks away...with your money.

           

"Even if everything goes well and the building is completed and your property purchase takes place, many of these idealistic-appearing developments are in "spring break" party locations and rentals to drunken college kids can drive you nuts -- and any tenants you try to rent to. It is hard to know in advance where this craze will move next, but it can wreck your investment for years.

           

"Then there is the foreign-exchange risk. Your condo cannot be Fed-Ex'ed back to Miami so you are stuck with the local currency and economy when you want to sell. Many times the local currency is a highflier when you buy and turns into an anvil afterwards because of all the crazy spending by the banana-republic government during good times. Of course, it can work in your favor, as it did for my associate who bought property in Canada 6 years ago, only to watch the Canadian Loonie rise vs. the U.S. dollar. It all depends. Luck is better than smarts any day.

           

"People get lulled into a false sense of security because of all the laws and regulations and title registration processes in the U.S. Many other countries, especially outside of northern Europe, don't have any where near this level of protection. And the U.S. Embassy can only wring their hands and tell you that you should have checked into all this before you bought. You are subject to their laws and customs and politics and currency, like it on not."