Overseas property owners hit by credit crunch

LEGAL experts are reporting a surge in overseas property investors attempting to sue developers and agents as the market slumps.

Off-plan investors when they contracted to buy were hoping to turn a profit are now left with property that is difficult to sell.

Spain and Portugal have been hit worst as the over-supply of property has led to values decreasing over the last three years.

Earlier this year, Juan Carlos Sandoval, President of the Union de Créditos Inmobiliarios owned by the Santander and BNP Paribas banks, revealed the price of housing in Spain has fallen in some areas by 30%.

Delays in completion dates means values are below predictions as prices continue to fall.

Furthermore, some agents offered buyers 12 months guaranteed rental income for the first year as an incentive to buy. Now, the oversupply of property and change in market conditions means they can’t rent them out and so in some cases agents do not have money to pay the buyers this rent. This is causing buyers to look into suing the agents.

Adrian Taylor, residential and foreign property partner at national law firm, Lewis Hymanson Small, advises clients on Spanish and Portugese property. He said:

“A few years ago when the property market was flourishing, investors were being advised to buy overseas properties off plan rather than make traditional investments. The theory was people would pay a deposit for the property and sell it on at a profit prior to formally completing.

“However, the market has changed dramatically. Supply outstrips demand and investors are now finding they have to complete, something which they were not necessarily anticipating they would have to do.”

In addition, the Euro is stronger than it was so people now have to find more sterling to buy overseas property. Usually this would be done by remortgaging a UK property but many people are finding themselves unable to do this due to the current UK property market.

Taylor continued:

“Those trying to get out of their contracts must take legal advice and get their legal representative to go over contracts with a fine tooth comb to see if there’s a way out. Contracts can be ambiguous and involve foreign jurisdictions which can put people off. However, in some cases, depending on the wording in the contract, it may be possible to issue proceedings for recovery in the UK.

“If you’re planning to buy a property, speak to an independent legal advisor as some overseas developers and agents offer the services of lawyers who are very closely connected to the developer.”