Home-Host Housing Options: What Makes Sense and Why

Housing at home and in the assignment location is not only a key cost component in the international assignment package, but also a matter of great concern to the relocating family. Depending on the provisions of the relocation policy, expatriates face two important decisions before going on assignment: whether to (a) sell or keep the family residence in the home country and (b) rent or buy a home in the host country (although most employers discourage the purchase of a home).

When expatriates face these sell/keep and rent/buy decisions, it is advantageous for them to consider the pros and cons within the parameters of the relocation policy.

Why Keep Property They Won't Use?

It's only logical to question the need to live on one continent and worry about a home and property on the other side of the world. But there are a number of good reasons why the expatriate may be better off keeping the family home and renting accommodations in the host country (as so many expatriate families do) during the course of the assignment. After all, owning a home in the assignment/host country may expose the family to a variety of risks and unnecessary costs. (See Chart 1, "Reasons Not to Buy a Host Residence.”)

Reasons Not to Buy a Host Residence

• If the country is undergoing a period of political or social instability, evacuation is possible. If so, they will worry not only about physical property in the host country but also the possibility of taking a financial loss – especially in a location where the government is known to take possession of personal property. 
• Unfamiliarity with local laws (e.g., zoning regulations, building restrictions, occupancy rules) may cause more trouble and effort than the expatriate might want to deal with in another country. Some nations restrict the accommodations that are available for purchase by non-citizens/residents. 
• Since most assignments represent temporary situations, selling the primary residence could be very costly when one considers miscellaneous real estate and legal fees. And if they sell the family residence with the intention of buying a home in the host location, some of those costs will arise again, along with other new ones from the purchaser's perspective. 
• If they have decided to sell the home-country residence, they face a potential financial risk should housing costs in the desired neighborhood experience a dramatic rise while they are on assignment. Repatriating only to find out that they may not be able to afford a similar home to the one sold some years earlier due to market changes can make for significant disappointment. 
• On the other hand, if the seller's market is suffering before they embark on assignment, and they sell at that point, they also potentially face a financial loss – sufficient, in some cases, to decide to maintain the property. The same argument holds true if they bought a residence in the host country and sell it upon repatriation – except that in a repatriating situation, one would not typically hold on to the property in the host location, but would be forced to sell the residence and get it off one's hands. 

The only compelling reason to sell the family residence is if they expect to go on assignment and repatriate elsewhere, thus, no longer needing to re-occupy the property. Others might welcome the chance to sell their home and live elsewhere in the home country upon repatriation, particularly if they are near retirement. If they do sell their homes, consider the points in Chart 2, "Housing Policy Considerations."

Housing Policy Considerations

When setting limits on what the company housing policy should cover, consider these points:

• Make it clear that the policy is an assistance policy and nothing else. The company should not be a participant in the purchase, at least with regards to the payment of the purchase price. It should limit assistance to reimbursement for or payment of ordinary and necessary costs involved in the act of buying the home (legal fees, title searches, and so on). If necessary, the policy might set a maximum in terms of percentage of annual base pay or an absolute amount. 
• The policy should delineate the degree of company help when the home in the assignment location is sold. Will the company assist if there is a loss? If so, on what basis? 
• The policy should not cover losses attributable to currency changes (in relation to home-country currency). It is a risk assumed by the expatriate family when they decided to buy a home. Besides, the assignee would not share with the employer any profit the family realized as a result of favorable currency changes. Again, the policy should limit assistance to reimbursement for or payment of ordinary and necessary costs involved in the act of selling the home (legal fees, agent commissions, documentary tax, and so on).

Because of all the considerations discussed in this article, many companies are including language in their policies that state something like:

“The Company believes it is the employee's personal decision to retain or sell his/her home-country principal residence. In making a decision, the employee should take into consideration local legislation and practices in the local housing market plus personal financial planning considerations.”

One further point: Tax laws in some home countries encourage the sale of the home. For example, if the home-country tax regulations consider expatriates as residents and liable for taxes if they continue to own a residence in the home country during the course of the assignment, they might rethink the decision to keep the house. In all cases, it is helpful to consult an expert in international tax law.

But Doesn't Keeping the House Mean Double Expenses?

Because of the reasons cited above, most homeowners continue to own their primary residence while they are on international assignment. What does this mean, financially? Under the balance sheet approach to international compensation, the company believes that expatriates should pay no more (or less) for housing while on assignment than they would have paid had they stayed at home – similar to the treatment of goods and services.

In other words, they are expected to contribute a portion of salary (often referred to as a housing norm) toward housing costs, since they typically spend a portion of income for housing in the home country. The appropriate housing norm is based on salary level and family size, representing what the expatriate would spend for those costs most directly related to the primary residence, such as:

• Mortgage interest or rent (see sidebar, "What If They Rent?") 
• Property taxes 
• General house maintenance and repairs 
• Homeowners' insurance Utilities

Under the balance sheet methodology, most employers consider one of two different approaches to application of a housing norm:

• Deduct the housing norm from salary and retain that amount, then pay the full amount of the assignment location housing cost; or 
• Calculate the host housing allowance, deduct the housing norm, and pay the balance to the expatriate as a differential.

Either way, while continuing to pay a mortgage, one might question this double cost. As a homeowner, is it fair to contribute for housing in both home and host countries? The logical solution to this dilemma, whenever possible and reasonable, is for the expatriate to rent the primary residence so they can replace all or much of the mortgage interest payment.

But bear in mind another consideration: If they decide to keep the family home and rent it out, it is important to research the tax impact, which varies by country. For example, tax laws in some locations may permit one to include losses from rental income in the home-country tax return if rental income does not equal mortgage payments. Legal and/or cultural considerations may also affect the decision, particularly if renting the primary residence may not be practical or advisable.

But What If…

Every expatriate's situation is different. Some may make serious good-faith attempts to rent the family home, but are still unable to do so for a variety of reasons and find themselves "stuck" with the home-country residence. For example:

• There are too few people interested in renting a house in the neighborhood (people may be more inclined to rent apartments and not have to deal with the extra burden of residential upkeep), or perhaps there are too many houses available for rental. 
• If the expatriate relocates to a dangerous, difficult, or remote location, it might be preferable or necessary to leave the family at home. 
• As happens more and more often, the spouse may not want to give up his or her job and promising career – or, maybe, cannot leave the job if the family heavily depends on that second income. 
• Suitable educational facilities may not be available in the host location, and children would fare better by continuing their education in the home country. If so, the children and guardian (or a parent) typically remain in the family home. 
• Often, it is important to maintain the home-country residence if the expatriate has children attending university or will start university during the assignment, and the university is located in the home state for the child to be considered eligible for in-state tuition.

What happens in these situations wherein the expatriate faces additional expenses over which they have no control (such as the need to pay a mortgage plus the housing norm, with no income to offset expenditures)? Very often, an employer might decide to waive the housing norm as long as the expatriate legitimately demonstrates that rental of the family residence is impractical or impossible.

So, Who Keeps an Eye on the House?

If employees choose to rent their home, then maintenance, repairs, and security are concerns. Some employers pay for the necessary services involved in home rental:

• Arranging for rentals (e.g., advertising, showing the property, renewing the lease) 
• Tending to renter demands and problems 
• Settling disputes involving neighbors and renters, and so on 
• Supervising appliance replacement and repair Paying bills (e.g. utilities) 
• Maintaining the property (e.g., lawn care, snow removal, structural repairs) 
• Updating the assignee on all issues that require attention

Assignees Should Do Their Homework

Whether the employee's final decision – to sell or keep the home-country residence – is dictated by family finances, career choices, or company policy, the employer should encourage the expatriate to consult experts who are knowledgeable about finance, tax, and legal matters. If they carefully consider the pros and cons, as well as the options available at home and in the assignment location – they will be better able to make the decision that best suits everyone.