Our world is becoming increasingly globalised. As a result, traditional employment for many people has become less reliable and more people are looking to other countries for opportunities.
A 2010 report by the Asia Pacific Foundation of Canada (the most recent date for which data is available) found there were 2.8 million Canadians living abroad, a higher population than exists in six of the country’s provinces. With so many Canadians deciding to live abroad we decided to look at some of the differences in real estate markets and processes in the world’s biggest markets.
Buying properties in different countries has a number of benefits. If you have the capital, it can be a good way to diversify and protect your investments. Richard Silver says it's both:
I think people who are high-net-worth like to have properties all over the world for a couple of reasons. Both for investment, but also to diversify their portfolio. I think they're often nervous about having all of their property and investments in one country.
Most Canadians who leave the country live in the United States. Luckily for anyone looking to buy property while living there, the processes are remarkably similar.
Canadians base their mortgages on a 25-30 year amortization rate, with the contract renegotiation every five years, adds Silver. Whereas in the United States, the mortgage lasts for 30 years without a renegotiation.
There's also a thing in the States where you can deduct your mortgage interest payments but you cannot in Canada.
Applying for a mortgage as a Canadian will likely be more tedious. To apply for and secure a mortgage in the U.S. can take up to 45 days. Still, buying property south of the border may be a good investment. Particularly when you look at data released by BMO last year showing Canadian homes were 41 percent more expensive than in the U.S.
Over the Pond
For anyone thinking about hopping the pond to the United Kingdom, it’s advised to do your homework as the process there is quite different.
As Silver points out, one of the biggest differences is that they don’t use a multiple listings system in the U.K.
If you're working with an agent in the United States and Canada, they can basically show you a whole myriad of properties that are listed with Sotheby's, they're listed with Royal Lepage, they're listed with Bosley. They're listed with all different companies. But then in the UK, if you see a sign you have to go to that agent. And if you want to buy that property you have to buy it through the agent.
Sherille Layton is originally from England, so she’s intimately aware of the differences between the two countries. Layton says on a recent trip to London, she and Richard gave some presentations on Toronto and the market there and the people at the London branch were impressed.
Layton calls the U.K. system "archaic" as she talks about the differences.
It's not as organized at all. Because the difference is, to do real estate there you don't pass any exams, you can just come out of school at 16, walk into an estate agency and get a job and then start showing houses.
The buying process is entirely different as well according to Layton. In Canada, a client usually needs to sign a ‘buyer representation agreement.’ When they find a house they want to put an offer on, they have to sign an ‘agreement of purchase and sale,’ which gives them a finite closing date.
In England, an agreement can be made verbally, which makes things much less clear.
So if you put an offer in and they accept it, one month later they can turn around and say someone else came and they're giving 5 thousand pounds more. You just never know when you're going to close until you close. It's crazy.
Richard Silver agrees with Sherille and adds how much more comfortable the process is in Canada thanks to formal agreements.
[In Canada], once you've signed an agreement a contract is a contract. But in the UK they have what they call ‘Gazumping'.
Gazumping is when the seller raises the contracted price of a property after having informally accepted a lower offer from a potential buyer.
Commission structure for agents is also very different. According to Layton, Agents in Britain think our commission structure is outrageous. The commission in Canada is often five percent, split between the selling agent and buying agent. In the UK, a seller will typically pay their agent 1 to 1.5 percent. Another difference, according to Layton, is that most salespeople are paid by salary.
Realtors in Canada are mostly on a hundred percent commission. They're "independent contractors".
China recently relaxed restrictions on foreigners buying property in the country. The move enables "qualified foreign institutional and individual investors to buy more properties on the Chinese mainland," according to ChinaDaily.com.
Previously, foreigners were restricted to buying one property in mainland China and needed to have worked or studied in the country for at least a year.
But as Richard Silver points out, no one actually owns property in the country.
The problem with China is the government owns the property, so you only get a leasehold. You don't actually buy the property. So even the property owners, as they call them, are really either a 50-year leaseholder or a 70-year leaseholder.
After the lease ends the property reverts back to government ownership.
In larger cities like Beijing and Shanghai there are also limits on the number of properties an individual can buy. These were put in place to prevent wild speculation after an incident in 2009. A high-end property was launched in central Shanghai, bringing a wave of foreign investors. According to a report by Xinhua, one extended family purchased 48 units at one time. Properties are most sought after in gateway cities like Beijing and Shanghai, but these limits will put the brakes on speculation.
These new rules don’t mean it will necessarily be easier to buy property, though. The usual process is to pay for a property in full. Mortgages can be obtained by foreigners from Chinese banks, but the documentation process is more arduous. In order for a foreign buyer to qualify, you must:
- Have worked or studied in the city you wish to buy in for at least one year.
- Must have a Chinese sponsor who will guarantee you earn enough to repay the loan. Usually an employer.
- Provide many documents for the approval process.
That said while buying property in China might be possible as a foreigner, in might not be a wise investment. As Silver points out, many people in China are parking their money elsewhere in the world.
You have to remember, China's a communist country. It's totally autocratic, So that's one of the reasons people would move their money out of China. Because they're nervous that the government can come in and just automatically change the rules.
Buying property in different countries can be a very effective way to diversify your investments. It also leaves you free to travel and can offer you extra income. But whether it’s a country like the United States–where the system is relatively similar to Canada–or a country like Britain or China–where the system can be much different–, it’s important to know the facts.