Tuesday, 12 August 2014

5 Considerations for Overseas Property Investments

Many South East Asian countries have experienced a recent surge in property price. Many locals are finding it harder and harder to afford local properties. To make matters worse, various governments including Singapore and Malaysia had put in harsh anti-speculative measures to cool the property markets.

These factors contributed a rising interest in foreign property investments, which are viewed as affordable compared to local properties.

However, unlike local properties, purchasing an overseas properties entails many considerations which are absent when investing locally.

1. Local Knowledge

Familiarity and local knowledge goes very far in property investment. Know your goals and investment strategy – is this property a buy-and-hold or a buy-and-flip?

With your strategy in place, study the property market cycle in the respective country and area. What is the direction of the property market trend heading? What is your exit strategy?

Understand the local situation; is the country experiencing political unrest, strikes or anti-foreigner sentiments? What kind of natural disasters could occur in that area?

Research the location thoroughly. Ask for access to good quality maps of the surrounding area. Enquire about the accessibility – quality of public transports, access to major roads/highways, proximity to amenities, distance to commercial areas, is the location surrounded by good neighborhood.

Examine the track record and reputation of the developer. Has the developer completed projects of similar scale on time? Has the developer delivered on quality? Has the necessary permits for construction obtained?

Finally, understand the potential tenant and customer profiles. Who is willing to rent my unit? Who will buy my unit when I sell?

2. Rules and Restrictions

Some countries may impose limits on location, types, reselling restrictions, use or purpose of properties that foreigners may invest in. Check with a local authoritative source or read up on the regulations from government websites.

Prior to signing any documents, agreements or options, ensure that you have read and understood what the terms and conditions are. Ask for a translated copy if the document is written in a foreign language. When in doubt, seek advice from local lawyers, bankers or valuers.

Always do your homework!

3. Cost and Financing Limits

Property transaction cost and financing limits vary from country to country.

Find out the conveyancing fees, legal fees and mortgage legal cost. Obtain independent valuations on the property and find out the loan-to-value that you are eligible for. Study the interest rate situation in the respective country.

Be sure that you have properly understood and factored the taxation cost in the transaction. Some in some jurisdictions, foreigners are subjected to levies or taxes on property purchases. Additionally, there may be property related taxes such as income tax, property tax, stamp duties, capital gains, estate duties, state fees and withholding tax that may be imposed.

Overseas investments also exposed you to currency fluctuations and exchange rate risk, you may be affected by these currency movements.

4. Sales Pitches vs Reality

Always treat information from sales agents with a pinch of salt especially if the claims are too good to be true. Never trust artist impressions of the development which typically paint an unrealistic situation.

Don’t be mislead by cheap prices of the unit especially when they come heavily laden with discounts, waivers or freebies (eg free club membership, legal fee waiver, zero interest financing, rebates, furniture vouchers, flight tickets to visit the development). These “carrots” are usually priced-in. Check the terms and conditions of these offered. Ensure that all special incentives are written into the agreements. Finally, is the price offered something a local would pay?

Be cautious of investments that offer abnormally high returns or guarantee a minimum yield. These are usually capped, limited time frame or simply just projections! Obtain independent valuation reports, surveys and compare them against their peers.

5. After Sales

Find out the support that the developer provides to foreign investors. Ask for the frequency of progress reports and be clear of the payment milestones. Obtain contact information of the agents, bankers, valuers and lawyers.

Be aware of the legal and dispute resolution avenues available to you should things turn against you. What is the jurisdiction that the dispute is handled?

Who will assist you to run and maintain your unit? What assistance is available to advertise and seek tenants? Who execute your instructions in your absence?

Never rush into any overseas investments. Exercise due diligence and do not be pressured by sales agents. Carefully consider your strategy and financial commitments.

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