Investors guide to buying second homes in off-shore markets

Quite a good number of Nigerians have invested in properties, especially in the residential segment, outside the shores of the country. Many of them have homes in the big real estate markets of the world, including Dubai, UK, US, and even South Africa, Kenya and Ghana.

But majority of them end up with their first homes in those countries. Some others have intention of buying their second homes in places like London and Dubai, which are the most preferred destinations for foreign buyers, according to market analysts.

They say there are a couple of things which those planning their second homes in London, particularly, should know as guides to buying not only profitably, but also safely in good locations.

“Whether you’re a UK resident looking for an investment opportunity or an expat from Hong Kong, the USA, Dubai or Nigeria, understanding what is involved, including legal, financial, and tax implications, is crucial,” Ugo Arinzeh, a London-based realtor and Team Lead at Onyx Property Team, explained to BusinessDay.

Unlike Nigeria, the London home market is relatively investor-friendly, such that with 60,000 Pounds cash deposit one can invest in homes with 119,500 Pounds starting prices, and he is sure of 14 percent rental yield with two years rental assurance.

Arinze informed that there are two property ownership structures in the London market which are leasehold and freehold. She explained that when one buys a freehold property, he owns both the building and the land it stands on outright.

“This type of ownership gives you full control with no ongoing lease payments or ground rent. Typically, houses—including mews houses and single-family homes—are sold as freehold properties,” she explained.

Leasehold, according to her, is where you own the property but not the land, which typically involves ground rent and service charges. Leaseholds can range from 99 to 999 years, but shorter leases can impact resale value. There is also an option called ‘Share of Freehold,’ where the buyer owns a share of the company that manages the building.

Arinze advises buyers to expect charges in respect of what she called ‘Stamp Duty Land Tax’ (SDLT), explaining that if one is buying his second home, he should expect to pay an additional 3 percent surcharge on top of standard rates.

“Foreign buyers who are classified as non-UK residents face an extra 2 percent surcharge, meaning that total SDLT can reach up to 17 percent on high-value properties. Additional considerations apply if you’re purchasing as a corporate entity, buying multiple properties, or dealing with shared ownership schemes,” she added.

The good news here, Arinze said, is that there are avenues through which buyers can finance their second homes and these include mortgage options.

UK residents can access standard mortgages with a deposit of 10-25 percent while expatriates typically need expat mortgages, which require a 25-40 percent deposit and often come with higher interest rates due to the perceived risk.

There is also what she called ‘Buy-to-Let (BTL) Mortgages’ which is available for those who intend to rent out their property. These require higher deposits and have stricter affordability tests.

But there are currency exchange risks. “For buyers purchasing from abroad, fluctuations in GBP exchange rates can significantly impact costs. Using forward contracts to lock in exchange rates can help mitigate this risk.

There is also ‘Tax Implications and Ongoing Costs’ as reflected in ‘Capital Gains Tax (CGT)’

She explained that if a buyer sells his second home, CGT applies at rates between 18-28 percent. Foreign owners must pay CGT on UK property gains even if they reside overseas.

Council Tax & Service Charges also apply, meaning that second homes are subject to full council tax, though some discounts may be available if the property remains unoccupied. Leasehold properties also incur service charges for maintenance of communal areas.