What risks should an investor consider when investing in foreign real estate

Interest in foreign real estate is rapidly growing. Citizens are expanding the boundaries of their portfolios by investing in residential and commercial properties in Europe, Asia, the UAE, and Latin America. The reasons are clear — stability, profitability, capital protection. However, attractiveness does not exclude dangers. Risks of investing in foreign real estate exist at every stage — from choosing a country to owning the asset. The market promises high returns but requires precise navigation. Without a systematic approach, capital can turn into frozen problems. The task is to understand the structure of threats, explain the mechanics of their emergence, and develop a scheme for minimizing them.

Legal risks of investing in foreign real estate

Risks of investing in foreign real estate often manifest themselves during the transaction process. In some countries, there is no centralized registry system, documents are stored fragmentarily, registration is declarative rather than verificatory. This creates the risk of double sales, arrests, and restrictions on rights.

Issues with documents and titles

Insufficient verification levels, lack of notarization, outdated cadastral data are common sources of legal conflicts. The formal owner may not have actual rights, and part of the property may be in dispute. To avoid risks when buying property abroad, start with checking the title, analyzing ownership history, and verifying registration validity.

Currency risks: income depreciation and exchange rate volatility

Risks of investing in foreign real estate include currency fluctuations. Even with stable rent, income in local currency depreciates when converted into the investor’s main accounting currency. A loss of 10–15% arises solely from exchange rate dynamics. Some countries impose conversion fees, transfer taxes, and require a mandatory local bank account. This creates additional losses, reducing the overall investment profitability.

Political risks: influence of authorities and unstable environment

In some countries, authorities suddenly impose moratoriums on transactions with foreigners, tighten registration conditions, cancel residency permits through investments. Political risks turn a simple investment into a non-performing asset. This is especially true for developing regions where the political course often changes independently of economic stability logic.

Geopolitics and international relations

Risks of investing in foreign real estate intensify with the imposition of sanctions, asset freezes, restrictions on bank transfers. Conflicts between countries, regional crises, worsening diplomatic relations all affect the liquidity and manageability of the asset.

Technical condition and hidden defects

Risks of investing in foreign real estate are exacerbated during the assessment of the actual condition of the property. Visual impressions often create an illusion of quality, while the internal engineering component reveals critical deviations. Such situations often occur in the secondary market and when buying under-construction housing with minimal readiness.

Lack of reliable expertise

Official documents in a foreign transaction do not always provide a complete picture of the real technical condition. Sellers often do not provide an independent assessment of the structure, wear and tear, safety. Technical defects are hidden under cosmetic repairs, fresh finishes, and marketing brochures.

Most common risks:

• wear of engineering networks (water supply, sewage, electrical);

• lack of waterproofing and traces of past flooding;

• mold behind wall panels;

• cracks in load-bearing structures;

• improper ventilation and insulation;

• presence of unauthorized alterations.

A buyer who does not order a technical inspection takes on the obligation to rectify these defects. In some countries, especially with low control over the construction sector, this can result in costly reconstruction or loss of investment attractiveness.

Overstated characteristics and developer manipulations

On the primary market, risks of investing in foreign real estate are exacerbated by the inability to assess the property “live.” Developers actively use visualizations, 3D models, photo editing, where reality takes a back seat. Information in brochures is rarely accompanied by legally binding guarantees.

Common distortions:

• overstating square footage by including balconies, terraces, walls;

• indicating infrastructure that does not actually exist;

• substitution of concepts: “sea view” may mean a patch of blue between buildings;

• promises of profitability without calculating maintenance costs, taxes, management;

• concealment of mandatory payments — from utility connections to annual association fees.

Legal documents in foreign languages, lack of accurate translation, and nuances of local legislation make the situation even more vulnerable. The buyer may not realize that they acquired something different from what they thought — in terms of area, quality, layout.

Secondary market: area of special attention

Acquiring secondary real estate requires particularly careful technical inspection. The seller may not have full information on the current state of the property or may consciously conceal defects.

Special risks:

• lack of technical passport or non-compliance of the property with the plan;

• violations of construction norms and standards in the country;

• unregistered extensions, terraces, attics;

• unauthorized engineering works;

• structures without proper thermal and sound insulation.

The lack of unified state control (often observed in countries with a rapidly growing market) leads to a high probability of purchasing legally “problematic” real estate. Such property may later become unsellable or unsuitable for rental.

Practice of reducing risks in foreign real estate investment

The task is not just to acquire a property but to preserve capital, ensure profitability, and eliminate legal, technical, and political pitfalls. Clear actions will help build a foundation.

Step-by-step strategy:

1. Legal due diligence of the property. Check ownership rights, encumbrances, data accuracy in the registry. Use the services of a licensed lawyer in the country of acquisition. Verify the identity of the seller or developer.

2. Financial modeling of the transaction. Prepare income and expense forecasts. Consider taxes, currency conversion, maintenance fees, management fees. Apply scenario analysis: optimistic, base, stress test.

3. Technical audit of the property. Engage an independent engineer or architect. Check wear and tear, layout, compliance with the project, possibility of reconstruction. Document the findings in a report, attach it to the contract.

4. Selection of a verified broker or representative. Sign a contract with an agent, specify the commission, responsibilities, limits of authority. Check accreditation, license, reputation in the professional environment.

5. Tax system verification. Calculate purchase tax, ownership tax, capital gains, rent. Explore tax deductions or preferences for foreign investors.

6. Assessment of the country’s political risks. Analyze legislative initiatives, local authorities’ positions on foreigners, geopolitical factors. Avoid unstable regions with high levels of government regulation.

7. Opening a bank account and monitoring transfers. Use only official channels. Coordinate currency conversion, tax reporting, investment registration. Check the right to repatriate profits.

8. Registration of the transaction in the state register. Ensure that the contract is officially registered, ownership has transferred into full control. Obtain all documents confirming ownership rights.

9. Contracting for management. Formalize a contract with a management company. Specify terms, responsibilities, reporting system, sanctions for non-performance. Establish regular audits.

   

10. Systematic documentation check. Engage a notary registered in the country. Verify seller’s passport data, cadastral numbers, legal grounds for ownership.

Conclusion

Risks of investing in foreign real estate cannot be completely eliminated but can be managed with a well-structured system. A savvy investor does not avoid dangers but acts one step ahead. Priority lies in verification, transparency, and planning. Each stage requires clear calculation and a professional approach. Only then does an investment become an asset rather than a burden.