Far-flung opportunity
Global lending opens up more overseas property buying

MarketWatch:  By Lew Sichelman
Last update: 7:31 p.m. EDT Oct. 16, 2008

WASHINGTON (MarketWatch) -- Question: I have been inundated of late with emails regarding purchasing property overseas, particularly Costa Rica. Can you tell me about the pitfalls of buying homes in foreign lands? I know each country has its own set of laws that foreigners have to live by. But how can I find out about them before rather than after-the-fact?

Answer: Much has been made about the increasing number of foreigners who are buying real estate in the states, and with good reason. But there's another, albeit smaller trend that hasn't received much attention -- that of Americans buying property in prime vacation and retirement spots outside the United States.

We have always been able to buy property in other countries at a fraction of what it would cost for a similar place in the states, especially in the Caribbean and Latin America. With the sagging dollar, our money doesn't go as far anymore and the overseas action just isn't what it used to be.
However, when currency exchange rates return to normal, if they ever do, U.S. citizens looking to cast their lot in another country are likely to find it a far less adventurous task than it was just a few years back.

"Right now, most international activity is from foreigners buying in America, but soon it will begin going the other way," says David Michonski of Coldwell Banker Kennedy Hunt in New York and the National Association of Realtors' liaison for international operations. "All the infrastructure is in place for (buying real estate overseas) to be a huge megatrend. The world is getting flatter."

One thing that stands to help buyers overseas is that real estate brokers in 32 countries now belong to the International Consortium of Real Estate Associations, which has adopted a code of ethics that members in all countries have agreed to follow. ICREA also has created a transactional referral system that Michonski says "helps grease the wheels."
There also are numerous Web sites where would-be buyers can search for property in far-flung places from the comfort of their own homes. One of the better ones, www.GlobalPropertyGuide.com, offers research and information on buying residential property in 131 countries.
 
"It's important for a residential investor be able to see what his likely return on investment will be, what his taxes will be, to be able quickly to check whether the laws are landlord-friendly, to survey the inheritance laws," says publisher Matthew Montagu-Pollock. "All this is now available, for almost every country in the world, on our site, without any marketing material or any attempt to sell you anything -- just the facts."

You may be able to obtain similar information from the various U.S. State Department offices and consulates in the particularly country you are considering. But the data available from our own government is spotty at best.

For what it's worth, Michonski, the Realtors' go-to guy on international matters, and others believe the final piece of the cross-border puzzle is in place, now that several lending institutions offer American-style financing for people who want to own a villa on a Belize beach or a house in Honduras. "This is clearly the trend of the future," says Michonski, who has been working globally since 1984.

Changing lending landscape International buying has always been severely limited by the inability to secure the kind of terms most buyers are familiar with. "The No. 1 reason people don't pull the trigger," says Nicholas Farina, business development manager in Deutsche Bank's cross-border lending department, "is they can't find the friendly financing they are used to getting here in the states."

For the most part, American citizens pay all cash when they buy property in another country. In those relatively few instances when they are able to secure funding from a local lender, loans are largely un-American. Loan amounts are often limited, 50% down payments are the norm, the term of the loan is sometimes tied to the borrower's age, and life insurance is often a requirement.

American banks will sometimes put up the money on behalf of their clients, but only if the borrower agrees to open an account in roughly the same amount. But Deutsche Bank, among others, has created a cross-border lending program under which people who are citizens of one country can obtain permanent and construction-to-permanent financing for properties in another country. Loans are available through DB's American mortgage banking subsidiary, MortgageIT, in New York.

Currently, the program is limited to buyers who are citizens of the United States, Canada and the United Kingdom and few Caribbean countries. But Costa Rica, the Dominican Republic, Mexico, Grenada and Nicaragua are on the German bank's radar screen, as are the United Arab Emirates and Turkey. "We are expanding," says Farina. "This is a global lending program."
Under the cross-border program, DB is providing end-loan commitments to developers in much the same way U.S. home builders used to line up financing on behalf of their buyers. In the Dominican Republic, for example, the bank has agreed to make available $500 million in permanent financing over a five-year period to buyers at Cap Cana, a 3,300-acre, high-end resort on the island nation's eastern shore.

MortgageIT will lend on single-family houses (often called villas in other countries), condominiums and townhouses, and promises to approve applications within 72 hours and close within 30 days. All processing and underwriting is handled in the states. And get a load of these terms: 30-year amortization with no balloon payments, competitive rates based on country risk and loan amounts up to $6 million per borrower. Still, hefty 30% down payments are required, and rates are fixed for only five years and then are reset annually thereafter. But no life insurance is required, there is no limit on the borrower's age, there is no need to pledge other assets and no collateral is encumbered by the loan other than the subject property.

Plenty of action: Farina admits to more than a little trepidation when he was first sent to the Dominican Republic, if only because it is located next door to Haiti, an unstable country at best. But what he discovered there and elsewhere throughout Latin and South America is that real estate is going great guns.

"What is going on in these countries is mind-blowing," he says. "Everywhere you go, properties are going up. It's absolutely incredible what's going on, and we're Americanizing the process."
Farina's "discovery" is confirmed in a new report from the Urban Land Institute, which recommends that American real estate interests, especially those specializing in retirement and work-force housing, turn their sights globally. The ability to offer the kind of financing American buyers are familiar with should hasten the move.

Nationally syndicated columnist Lew Sichelman has been covering the housing market for 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. E-mail lsichelman@aol.com