Matvey Levant: British intuition enjoy people’s confidence, but even it may be wrong

Matvey Levant: British intuition enjoy people’s confidence, but even it may be wrong                                                                                                                                                                                             Questions on actual problems of foreign real property purchase answered Matvey Levant, managing partner Levant & Partners Law Firm. 

It is known that in some European countries the mechanism of real property purchase is proceeded not so easy. What difficulties with documents could occur?

In most other countries, a real estate purchase normally requires the following steps (some of which may be omitted, depending on the size of the transaction): letter of intent, due diligence, negotiation of purchase contract, signing, closing (asset deals are usually closed at signing) and registration with the Land Registry. This process is rather a problem of countries where the land register system does not (yet) work appropriately. The more strict conditions when we are buying property are set by the tax authorities and the money laundry regulation, who oblige to prove the origin of the funds used for the purchase of the property.

What are different conditions of real estate purchase connected with? For example, why is it easier to buy real property in Spain then in Austria?

Non-EU/EEA investors (individual or corporate entities or Austrian corporate entities whose majority shareholder is not an Austrian or an EU/EEA citizen/corporate entity) are subject to restrictions. They must obtain approval from the authority for the acquisition of real estate by foreigners (“Grundverkehrsbehörde”). Agricultural property may only be transferred with the consent of this authority. In specific circumstances linked to the legal capacity of the seller, certain consents may be required (e.g. if the seller is a minor, the approval of both parents and the court is required). The acquisition of real estate for secondary residence purposes is restricted in several parts of Austria. Each Austrian province has its own law and its own authority regulating the transfer of real estate to non EU/EEA investors. There are also very formal countries, like for example Germany, where it is not possible to buy real estate property through a private contract. However, I would say that in general terms the conditions in different countries tend to be similar.

There is information that it is forbidden for foreigners to buy real estate in Switzerland. How can you explain this fact?

This information is not absolutely correct. Generally speaking, resident foreigners are free to purchase real estate in Switzerland. The acquisition of real estate in Switzerland by persons abroad however is restricted and requires an authorization unless the real estate is used for commercial purposes.

It is noticed, that where the British start investing in real property, soon will be the very attractive place for investment. What do you think about it?

In my opinion there is a general belief in the British intuition to invest in real estate. This makes others to follow their traces, what obviously creates an attractive scenario due to the increase of the demand. But Spain has seen an immense amount of (British) real estate investment throughout the last years. However, the last two years have seen real estate investment in Spain coming to an end with up to 60% loss in value. The same applies e.g. for Dubai.

 Does it make any sense to buy real property for the further rent? In what countries it is allowed / forbidden? How much can you earn?

This depends very much on the project, its location, size, infrastructure etc.In general, the annual rate of return amounts to 3-7%.

How can you describe the situation with uncompleted construction and construction without license?   

In Croatia there is Land Register system where all real estate, land and buildings are registered.  Only registered owners are considered as legally valid owners and are legally protected. Without proper registration of the ownership it is not possible to obtain building permit for the construction. Planning must be checked because it affects the value of the land as construction site, or agricultural land. Upon completion of the construction ‘’utilisation permit’’ is granted by authorities and it enable registration of the building in the Land Register. It is very risky to purchase improperly registered real estate, to enter into construction without building permit or not to follow project as per building permit.

How should you act in this situation? Can you go out of the project? What is the legal backing?

it is very risky to acquire or enter in such construction because in some cases authorities may order demolition on owners expenses. in principal one should not enter into such projects because he will be exposed to huge losses. In some cases it is possible to obtain subsequent registrations and licences, but if possible it is always connected with uncertainty, high expenses and long lasting procedures. 

Where is collected the profits tax from real estate? To what other taxes or fees may be subjected your transaction? 

The tax situation in Switzerland varies from canton to canton. Usually, there is a profit tax when real estate is sold and a transfer tax that is only minimal.In Austria if real property is sold within 10 years as from purchase tax on the profits occur. A 3.5 % real estate transfer tax and a 1 % registration fee are due. Real estate transactions are generally exempt from VAT (it’s rate in Austria is 20%).In Spain the buyer bears the taxes and fees, however both parties are jointly and separately liable for tax payments.Also do not forget about the commission which is paid to real estate broker in any country.

Matvey Levant thanks sincerely for information Manuela Maurer-Kollenz (Fiebinger, Polak, Leon & Partners), Eduardo González Fernández (ILAGOSON Lawyersoffice), Miroljub Macesic (Macesic & Partners, Odvjetnicko drustvo – Law Offices – Studio Legale).