Tuesday, April 2, 2013

Purchasing property overseas: An Australia-Britain experience

As I have mentioned, one of our significant 2012 events was the purchase of a flat in south-east London. Purchasing property anywhere is a big milestone, and doing it from the other side of the world was quite an adventure. I have wanted to blog about our experiences because we struggled to find much online to guide the process. There was plenty on the process of buying in Britain, but nothing on buying in Britain when you don't actually live there. Some of my points are going to be UK specific, but some should generalise to other countries too. I do understand that this post may be irrelevant to many of you, so if it's outside your area of interest I won't be offended if you skip over it and wait for a return to normal broadcasting tomorrow.

Before I get to the process of our purchase, let me put in context why we wanted to buy in London at all. Although we are hoping to move there in 12 months or so, that was only one factor in the decision. Instead, we focused on London because it was actually cheaper than Perth.

Let me explain.

If we go back 4 years from the time of our purchase, to April 2008, we were just moving in to the Global Financial Crisis. The 'credit crunch' contributing to it started in mid-2007, but the worst of the stock market plunges happened in September 2008. Australia weathered the aftermath of this fairly well by world standards, but Europe, as we know, did not. The UK entered a recession in mid-2008 and has pretty much stayed there since.

In the London area where we bought, the average price for a flat in April 2008, based on UK land registry data, was £237,715. In April 2012 it was £227,327, a 4% decrease.

In Perth in 2008, the median price for a flat was $470,000. In 2012 the median was $472,500, a modest increase of 0.5%.

(For those of you noticing my switch from mean to median, I am drawing on data available and the UK reports means while Australia reports medians. Statistically speaking, it shouldn't matter greatly for this example.)

Changes in property prices are only a small part of the picture. In April 2008, one Australian dollar bought 46 British pence (or conversely, £1 bought AUD $2.17). In April 2012, one Australian dollar bought 65 British pence (£1 bought AUD $1.55).

Exchange rates for the Australian Dollar to the British Pound, from April 2008 to April 2012.
Higher points on the graph equate to better exchange rates for the Australian dollar

When we apply the above to convert average London property prices into Australian dollars, we move from an average cost of $515,841 for a London flat in April 2008, to an average cost of $352,357 for a London flat in April 2012. Now we have a 32% decrease! What is more, the cost of purchasing in London (in the borough we bought in at least) is now less than the average price of a flat ($472,500) in Perth.

So.

That is the background. What about the logistics? In an attempt to summarise our experiences, here are 10 points I would describe as key if you are looking to purchase property overseas. Of course, I am not a financial expert or a property expert and these are based purely on our one-off experience. I would encourage you to read widely, get advice from as many people as you can, and factor in your own personal circumstances when interpreting our experiences. Any decisions you make must be made according to your own needs and circumstances, and this is not intended to be taken as one size fits all advice.

Tenuously relevant London photo #1 (Canary Wharf)

These are not in order of importance, simply in the order I have recalled them.

1. Get a bank account in the country you plan to buy in. 
This will simplify things when the time comes to actually purchase your property, and will also save on international transaction fees in the longer term. If you are going to move to the country you're buying in, establishing a bank account early will be beneficial even aside from the property purchasing. If you aren't moving to the country you're buying in, presumably you will be renting the property out, in which case you need an account for your rental income to go in to.

We started off looking at English bank accounts that were marketed towards overseas / non-British residents. This tended to equate to an account held in the Channel Islands (exempt from British tax). These accounts had a number of limitations as well as opening and ongoing fees and costs. Opening a regular account with one of the English banks isn't easy to do if you're based outside of the country without an English address.

Our solution came from HSBC, which has offices in 84 countries, including Britain (where the headquarters are) and Australia. Fortunately for us, we already had a joint bank account with Australian HSBC. This meant that opening a British HSBC account was straightforward: an application form (although we did have to call to find out which one), a visit to an Australian branch, and a one-off fee to process our application and open the account. We had to take an hour out of work to get to a branch together during working hours, but that was about as difficult as it got. I can't speak to the process in other countries, but the international nature of HSBC facilitated things for us.

2. Decide on a budget and whether you need finance.
This will be a personal step, and will obviously depend on your own circumstances and situation. I can say that the big banks in Australia don't make it easy to borrow money to purchase overseas, and British banks are (understandably) reluctant to give a mortgage to someone not living in the country. We managed to move some things around with our Australian finances to avoid getting a mortgage for the London purchase, and, as such, kept our budget under a tight rein. If you do want to borrow money, smaller credit societies and building unions are reportedly easier to deal with for loans for overseas purchases.

3. Decide what you are buying for.
To rent? To live in? To rent and later live in? To sell in the short term, or to keep for the long term?

This sounds like an easy step, but it was a hold up for us for some time. Originally, we were looking to find somewhere we could rent for 2 years or so and then live in when we moved to London. The problem with this is that the things that are desirable in a rental property (no work needed on the property, minimal maintenance, well furnished, excellent transport links) may or may not be the same as the things that are desirable in a property you plan to buy and live in over the longer term (where you may be prepared to put some DIY effort in to painting, or converting certain features).

One of the barriers for us was the belief that we needed 2 bedrooms if we were to live somewhere ourselves. With our budget, getting 2 bedrooms was a challenge, and there was a definite trade off in quality when moving from 1 bedroom options to 2 bedroom options. In the end, we decided to focus on something that would rent easily, and we bought 1 bedroom with that in mind. Having seen the place last September, we now think we could probably fit in it despite the single bedroom, which also shows that what you think you need may not match what you do need!

4. Research property in the city you are buying, and try to narrow down possible areas.
This is a big step. We spent a lot of time on it in the lead up to "seriously" looking at property. Over that time, we changed our mind about where to buy on multiple occasions. Amusingly, where we ended up buying (south-east London) is where we started looking, but we were then put off by various things and moved to just about every other corner of London before returning to the south-east.

There is no foolproof way to go through this process, but some starting points are searching online for articles or opinion pieces on 'up and coming' areas; looking at rental yields and crime rates by area (available on property websites, some of which I link to at the end); and looking at current and planned transport links by area. In London, easy access to the centre is obviously important, and looking beyond tube lines to the overland and light rail systems opens things up beyond the established, tube-serviced regions.

Tenuously relevant London photo #2 (St Pancras train station)

5. If you're buying to rent, think in terms of rental yield.
This is the proportion of rent you receive each year relative to the purchase price of the property. If you buy somewhere for $100,000 and you rent it for $1000 per month, you would receive $12,000 rent per year and your rental yield would be a very impressive 12%.

What you can expect to receive in rental yield varies by area and economy. We found it helpful to think of the rental yield in comparison to what you could get in a high interest bank account. If you can get 4% interest on savings, a rental yield above that is great. Comparing across properties and areas also helps, and highlights that more expensive properties aren't necessarily better when it comes to rental returns. One bedroom places usually give a higher percentage return than two bedroom places, for example.

6. Learn about leasehold and freehold.
When I discovered this quirk of the British property system I was somewhat astonished. Freehold is what you would associate with owning a property in Australia: you own it, end of story. This usually applies to houses in Britain. In contrast, leasehold means that you own a property for as long as it is specified in the lease. At the end of the lease, the property would revert to being the property of the freeholder, unless a lease extension had been arranged. You would think this would make things cheaper, but leasehold and freehold properties are generally about the same to buy, if the lease is long. By 'long', I mean anything from 100 to 999 years. Anything shorter than 90 years or so can make it difficult to get a mortgage on the property and thus tends to be associated with a sharp drop in price.

Leaseholds are the norm for flats, units, townhouses and any other properties with some sort of shared land or infrastructure. In somewhere like London, most properties are leasehold. The freeholder only receives a token rent each year (generally <$100), and arranging lease extensions is relatively easy and not too costly if you organise it well in advance of the lease running low (so, say, at 80 or 90 years plus). Buying the freehold, or a share of the freehold, is also possible if you have held the lease for several years or longer. We bought leasehold but hope to buy the freehold in the future.

7. Know your tax implications.
If you buy a property and rent it out, you pay tax on the income if your other earnings place you above the tax-free-threshold. For Australians buying in Britain, you can consult this PDF guide. For anyone anywhere, I'd recommend speaking to an accountant about if and how a property purchase would impact your tax. They could also advise on what costs could be offset against rental income.

You don't need to pay tax to two countries, so if you live in Australia you would pay any tax on rental income to the Australian government, not the British government. However, this requires you to register for tax exemption in the UK. Details are in the PDF guide I link to above.

8. Start transferring money into your overseas bank account early.
Most banks don't allow you to transfer very large amounts of money in one go. Thus, it is unlikely that you will be able to move the finances for a property purchase in one transaction. We moved money from our Australian HSBC account to our UK HSBC account over a number of days.

For this step, you will also need to decide how to transfer the money. If you transfer through your bank, you will pay for the privilege of an international exchange. This can significantly reduce how much money you end up with after the transfer. We used Ozforex, which gives rates that are very close to the listed exchange rate if you are transferring large sums. You need to register to use the site, but it is free and offers a number of exchange possibilities (including scheduling transfers to happen when the exchange rate hits a certain point).

You may also want to consider the timing of your money transfer, in terms of how the exchange rate is tracking. However, this becomes a bit speculative because it is difficult to accurately predict the exchange rate. We were fortunate in transferring when it was beneficial to us, but when the situation is less clear cut external financial advice may be worthwhile.

9. Decide how you will choose the property, and who will look at it on your behalf.
We decided to go with a property buying firm, The Buying Agents, to help us with this step. We would recommend this approach without hesitation, even if you have family or friends in the area you are buying. If you do rely on family or friends, they will need to be sufficiently flexible to look at properties at short notice, and you will need to be prepared to take their advice on the property's quality and appearance.

Property buying companies usually offer a range of services, from doing everything (searching for possible properties for you to consider; looking at properties you're interested in on your behalf; arranging building surveys; liaising with the estate agent; and liaising with your solicitor [see next step] if you move to purchasing), to simply managing the sale of a property you have already identified as the one you want. We pretty much went for the 'everything' option. Although we were able to find properties online that we liked the look of, evaluating them in person was out of the question for us. Having someone who could see the properties from a neutral and experienced position, and give us detailed feedback on pros/cons, was invaluable.

10. Find a solicitor, and make an offer.
There seems to be more legal and administrative work involved in the buying and selling of property in Britain than there is in Australia. A solicitor or licensed conveyancer is the norm for creating a contract for the sale; exchanging the contract with the other party and providing the deposit on your behalf; managing any requirements of the sale (such as things the seller has said they'll do before you buy) and checking that everything is in good standing with the property's registration and titles; and then processing title deeds and organizing stamp duty payment on the purchase.

If you make an offer and the seller accepts it, there is no binding agreement to your offer and purchase until contracts have been exchanged. This is different to in Australia, where acceptance of an offer usually means that the house is yours unless something interferes with your ability to pay what you have offered, or if the offer is made contingent on something that doesn't eventuate. In England (but not Scotland), someone could offer a higher amount on the property a week later and the seller is free to take that offer instead of yours. This 'gazumping' option means that it is sensible to have a solicitor lined up, so that if you make an offer and have it accepted, the legal side of the purchase can commence straight away.

Tenuously relevant London photo #3 (City, near the Inns of Court)

Some other useful links for British purchases:
Crime rates UK - compares crime rates across two areas.
Home.co.uk - information on buying, selling, renting and financing properties in Britain.
London property watch - provides average rental yields and other information by London area.
Rightmove - property for sale and rent, recent and historical house prices.
Zoopla - property for sale and rent, recent and historical house prices, and property news.

Note: Ozforex kindly commented on this post (see below) and offered to give readers two fee-free international transfers if they reference this post. To receive this, quote “bitesizedthoughts” when registering on the site to claim your first Fee Free International Transfer.

I have turned comments off on this post because it received a high volume of spam.

Do you have any experience in this area? Anything you would add to the above?

53 comments:

  1. Congratulations- What exciting news :)
    Those photos make me miss England! Not that I don't love Australia but England will always be home. Still, the weather and beaches are pretty good for keeping me here!
    We're not in a position to buy any time soon but this is great to know- thanks xxx

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    1. Thanks Claire - and sorry to make you miss home! This is a nice time of year to be enjoying the weather and beaches though :)

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  2. This is very helpful to anyone wanting to purchase overseas. I know Perth real estate has increased significantly in the last decade or so but it still comes as a shock that it could be more than London real estate xx

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    1. I know, it is indeed! The exchange rate just makes such a difference.

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  3. One of my coworkers is moving to London soon and is planning on getting an apartment while living in the US! I'm definitely sending this post over to her! So useful.

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    1. Oh, I'm so glad - I hope she finds it helpful!

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  4. I can't see myself buying property in the UK any time in the near future but who knows! Great post with lots of good info. Some thoughts - in point 10, is there a cooling off period after the offer - I think I remember that being the case when we looked at houses in Australia. I also remember in Scotland that auctions were a lot less common, which might account for the guzumping being more popular (some people just like competition!!!) And I haven't come across the term property buying firm (point 9) I assume it is the same as the buyer's advocate in Australia (I think it is an Australian term - might be American). Congratulations again on your purchase - sounds like lots of work but a great achievement.

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    1. They are great points / questions - re. the 'cool off' period, I think once contracts are exchanged things are binding for both parties, buyer and seller. However, in the period between making an offer and signing contracts, the person who made the offer can change their mind just like the seller can. I suppose that constitutes a cooling off period.

      I hadn't heard of Buyer's Advocate but on searching for it, I think they are the same, or pretty much, as a property buying firm. They seem to have a greater emphasis on getting 'good deals' and helping with things like auctions whereas the company we used placed more emphasis on just helping you find and buy a property, but they seem to do the same things in a general sense at least.

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  5. Those are great tips for people even if they aren't buying in a different country. Home buying can be really confusing if you haven't done your research. My husband is pretty savvy in those terms so I am lucky. We own the house we live in as well as rental properties. We have never used a real estate agent for any of our purchases.

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    1. That's such a fantastic position to be in. Congratulations! I'd love to reach that stage eventually (I have lofty dreams of not working at all and just developing properties :P ).

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  6. Hoooooly smokes. You (and Mr) are amazing. Even the thought of this makes me feel nauseous at how out of my depth I would be! And you are so, so lucky with the HSBC. I cannot even tell you how problematic it still is for me here, trying to navigate between my Aus bank and Canadian bank, and everyone I know in different countries has had the same issue. With banks, it keeps seeming like they all think the world ends at their own borders. Shudder.

    So excited that you have your own place. What utter, utter magic. I can't wait to visit (yeah. I said it.) ;) xoxo

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    1. Consider yourself invited :-)

      I do find it bizarre that banks are so opposed to any collaborative cross-country banking. Our Australian and UK HSBC accounts are still completely separate, but HSBC definitely made things a lot easier than any other bank we looked in to. When we had to get our ATM cards activated in London, we also discovered a branch open at 5pm on a Sunday. I don't think I've ever felt love towards a bank before, but that came close. I hope your own banking dramas reach some sort of equilibrium soon, having to do it constantly must be exhausting.

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  7. Congratulations!!! What a huge step, buying property overseas seems like a steep learning curve, well done to you both for navigating it and sharing the experience :)

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  8. Hello there, how interesting. I have a wee yen to buy in Scotland again, near where my mum lives. My hubby and I both sold our flats when we moved here about 15 years ago. He kept his for a bit but the agents were appalling, had barely heard of email, and we found it very frustrating, so used the sale proceeds to buy a bigger place here.

    Anyway, great points, maybe I'll get a wee place near Mum in the countryside outside Edinburgh one day. Hubby says a big 'no' though!

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    1. I'm glad this was helpful - and maybe you will convince your husband one day too! A place in the countryside outside Edinburgh sounds lovely. I have heard similar horror stories with letting agents when overseas which makes me think I should have touched on that aspect in this post too, but that would probably require a whole post of its own!

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  9. I can't even think about buying in Sydney. Apparently it is one of the most expensive cities in the world. Sounds like if you are buying from another country, it can either be amazing or awesome. Strike while you can I suppose. Which reminds me. . . I need to get my British passport!

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  10. Thanks, this was very interesting. Getting a British bank account is a nightmare, so I have kept mine open despite not having lived there, like a mad trophy. I also found the leasehold thing weird, but I figure in 99 years I won't be around to care. I thought about buying property when I lived over there (which surprisingly was about the same price then as it is now), but then my world caved in and I had to come home, so it never happened.

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    1. Oops, meant not having lived there in the last 10 years.

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    2. Keeping your bank account sounds really sensible - it is definitely a tough thing to manage if you aren't in the country anymore. My parents did the same and they still have a UK account from when they lived there over 20 years ago!

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  11. I really enjoyed this post and hope that some day the NutriWife and I can put some of the very useful information into practice! I can only imagine how much time, effort and occasional frustrations went into the whole process. Once again, congrats on the purchase!

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    1. Thank you so much! I'm so glad the post seemed of interest to you too.

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  12. please keep on posting such articles as this is a rare thing to find these days. I am always searching online for articles that can help me. Looking forward to another great blog. Good luck to the author! all the best.

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    1. Thanks Sharon, I really appreciate that!

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  13. Thanks...good article...we're thinking of buying or renting in 6 yrs. but for only 12 months and then eturning home...any thoughts on that senario?

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    1. I'm so sorry - I just saw this as I think your comment got filtered into my spam section due to your Anonymous name! I'm sure you've reached a decision by now but could only have commented that I don't have any direct experience with your scenario and would have to defer to people with more expertise. Best wishes for your search and purchase though.

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  14. We had been planning to purchase a house in the UK while living in Australia but were very nervous about the process. This information has been extremely helpful and has give us new confidence.

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    1. I'm really glad - thank you for taking the time to let me know. You are exactly the sort of people I wanted to find this and hope it can be of help as you go through the process :-)

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  15. Great article - thanks so much for the info

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  16. Thank you for all the great information! I'm looking to purchase in the London suburbs sometime in the future however I find that the Australian banks will not give out loans to invest overseas. I'm wondering if there is a way around this? I am also a Citizen of Cyprus (which is part of the EU) so maybe it is possible to take out a loan from there to help, however it would be easier for me to take one from Australia. Does anyone have any information in regards to this? Thanks!

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    1. Hi there, we didn't need to borrow money so I am afraid I can't help you directly, but we were told that smaller credit unions in Australia would lend money to buy overseas. It might be worth talking to them? Otherwise I wonder if Cyprus would be a good option for you.

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  17. Thanks for this post! We are at the beginning of this journey and information has been hard to find. Although not specifically looking at the UK, you've raised some great points to help get us on our way. With limited funds to invest, buying in overseas markets where the impact of the GF Crisis has been bigger is a good option for us. Lots to learn before we take the plunge though.

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    1. I'm really glad we could be of help - I remember how hard it was to find information when we started looking! All the best for your planning and, hopefully, purchasing.

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  18. Thanks so much for this post Kari!
    I'm in the middle of buying a property in England and got serious problem with the solicitor. Do you have any suggetion on choosing a solicitor? Another thing, "7. Know your tax implications.
    If you buy a property and rent it out, you pay tax on the income if your other earnings place you above the tax-free-threshold. For Australians buying in Britain, you can consult this PDF guide.' that PDF guide link came up as error 404-file has been deleted I guess? Do you have a new link for that tax guide,please?
    Thanks in advance for any help.

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    1. My name is Andy James currently living in california USA Am writing this letter because am really grateful for what Elvin Morrison did for me and my family when I thought there was no hope he came and make a way for me and my family by lending us loan at a very low interest rate of 2%. I never thought that there are still God sent and genuine loan lenders on the web but to my greatest surprise i got my loan without wasting much time so if you are out there looking for a loan of any amount i would like to recommend you to Elvin Morrison the Managing director of Elvin Loan Company because he is a God sent man that can change your life forever, So if you really want to make a better life without any fund scarcity I would advise you to get in touch with him through this e-mail below elvinloancompany@yahoo.com or call on +13072132540 or on our web page http://elvinloancompanys.bravesites.com

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  19. (Con'd) further to earlier post, I'm an Aussie by the way. :)

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  20. To find the Tax Guide, just look under "Downloads" and its at the bottom of the list

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  21. My partner and I are also working towards buying a property in the UK (for very similar reasons) so thanks for sharing such an informative article on the process - it has been extremely helpful. Cheers

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    1. Thanks so much for taking the time to let me know - I'm really glad it could be helpful. All the best for your house hunting!

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  22. Hi I am looking at buying off the plan in Peterborough its 40 mins to kings Cross central London, but the prices are so much better. I can buy for under £100,000 and the positive yield is over 7%! without factoring in any potential capital gains, you simply can't get that in Australia (the developers even offer a rental guarantee) its an existing office block being converted into apartments which I feel takes away some of the risks of buying off-plan. The deal is that after reservation fees the contracts are exchanged, and a notice put on the title with completion occurring once the property is ready to rent out. I pay in 30% of the purchase price in monthly instalments over the 2 year development time (the developers say that the plan is set up in this fashion to allow investors to purchase through excess monthly income) you can pay a 10% deposit up front but you don't get any advantage for this so I am paying monthly and "drip feeding" the money in from other investments each month (I normally invest in Shares rather than property). The balance is then payable upon completion and the developers say that with the 30% deposit being paid in they can source a UK mortgage as the mortgage payments and property management costs are more than covered by the expected rental (the property management costs are 8% of rent which seems ok?). I am thinking of buying a few of these as the developers have similar options around the UK, I have actually visited the site and seen that it really exists for another of their similar developments which is much further along. I can't see any major issues here apart from the normal risks of buying off plan?
    Thoughts anyone?

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  23. Hi Kari,

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    It has touched on a number of key topics that even websites solely based around relocation have missed. Keep up the great work and open to discuss working with you to spread your blog posts further.

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    If you have any questions regarding international payments, please email me on edwardwiley@ozforex.com.au

    Regards,

    Ed

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    1. Hi Ed,

      Thanks so much for your comment. I'm glad you liked the mention and am glad to have promoted your excellent services. Your offer of two fee free transfers to my readers is really kind and I'm updating the main post to add that detail.

      Best wishes,
      Kari

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