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Economic trends

The real cost of international real estate

The buying, holding and selling costs for residential property in global cities

Paul Tostevin
Associate Director, Savills World Research

ptostevin@savills.com

November 2018

The costs associated with buying, holding and selling property across the world vary dramatically, particularly for foreign buyers. In some of the most globally invested cities, additional taxes have been levied in an attempt to cool outside demand.

We have compared 15 major world cities on a like-for-like basis in order to illustrate what the total costs of ownership and disposal might be over a period of five years (see note below).

 

Buying and selling a $2 million property

Source: Savills World Research. Note: Our scenario assumes a non-resident overseas buyer purchasing a $2 million property (which in the UK equates to £1.5 million). This is for use as a second home for less than nine months of the year over a five-year hold. No capital growth has been applied, avoiding the complication of having to forecast that for each city.

 

Vancouver overtakes Hong Kong for costs

Vancouver, Hong Kong and Singapore have the highest costs of the cities analysed here. All three levy additional stamp duties on foreigners.

Hong Kong first introduced an additional 15% duty for international buyers in 2012. Singapore followed with its own 15% Additional Buyer’s Stamp Duty for foreigners in 2013, increasing it to 20% in July 2018.

Vancouver, recently raised its own foreign buyer levy from 15% to 20%, overtaking Hong Kong for total costs in the process. On top of this, the city also introduced an annual speculation tax of 0.5%, payable annually on second homes that are unoccupied for nine months of the year (six months from 2019), pushing up holding costs significantly. From 2019, Canadians resident outside the state will pay a higher rate of 1%, while foreign investors will pay 2%.

Outside the top three, Sydney’s 4% Surcharge Purchaser Duty for foreign buyers, introduced in June 2016, was increased to 8% in July 2017.

Evidence suggests that such levies have limited impact on cooling markets. A short-term dip in transaction volumes is usually observed, after which the market absorbs the new costs and prices continue to rise.

Some major world cities, such as London, do not currently charge any additional taxes or duties on buyers from abroad. The UK, does, however, charge an additional 3% stamp duty for second homes (even if the main residence is in another country), payable by domestic and foreign buyers alike.

Agency fees

Taxes aren’t the only cost. In some cities, agency fees account for the bulk of transaction fees. US cities stand out, with broker fees of around 6% (paid by the vendor), as does Berlin, where 7% is paid by the buyer. In Tokyo, agency fees of around 3% are paid both by the buyer and the seller.

Holding periods

The length of time over which the property is owned can make a significant difference to the outlay, too. In the US, relatively high property taxes make longer holds more costly. In New York and San Francisco, for example, property taxes amount to 4.3% and 5.9% of the property’s purchase price, over a five year hold. In Tokyo, the figure is 6% at most, while some abatements are available based on land sizes and building types. These costs compare with just 0.7% in London, where only a fixed council tax sum applies.

In a bid to dissuade speculation in Hong Kong and Singapore, very short holds are penalised. A ‘Sellers Stamp Duty’ of between 10% and 20% is payable in Hong Kong on sales within three years of purchase (not applicable in the above scenario). A similar charge exists in Singapore, where selling a property within three years incurs fees from 4% to 12%, depending on the duration of hold.

Other taxes

Overall, the costs associated with property purchase, holding and sale can add considerably to the total outlay. Some cities appear better value than others by comparison at present. However, these calculations do not consider inheritance tax which can be applied to private individuals at a rate of up to 40% in the UK, for example. Additionally, Capital Gains Taxes, which exceed 30% in some markets, can add further to selling costs.