With the cooling measures in place and additional buyer stamp duty, some Singaporeans may consider investing in overseas property to avoid the tight regulations here. Just like all investments, investing into an overseas property does carry some investment risks.
Here I will share the 10 things to take note of before you buy a foreign property:
1. Current Property Market Direction
As property markets go up and down, before you invest in any foreign property, do understand what the country’s property market direction or market trend at the moment is.
Which part of the cycle is it on now?
Is it on the up or down cycle?
Investing at the right time do make a big difference in the profit or loss when you sell the property.
2. Restriction on Foreign Ownership
Different countries may have different restrictions on foreigners owning a property in the country.
Some countries may require the buyer to obtain permit or consent before he can buy a property there. Some may impose a minimum price that a foreigner can buy or on the location he can buy. If you are not clear about the rules, you can check with the agent who knows the details, contact a real estate attorney who knows how to execute foreign transactions or contact the relevant authority.
Do note that some countries do have restrictions on the reselling of the property in the secondary market. For example, you can only resell it to local citizen or permanent residents.
3. Know the Developer
Do make the effort to examine the track record of the developer. Do some research on:
- Who is constructing the building?
- What are their experience in that country?
- What kind of projects have they completed?
- Do they have a good track record of completing the projects there?
4. Know Your Financing Options and Interest Rates
If you do not want to get any financing, you can use cash to fully pay for your overseas property purchase. If not, one of the most important aspects of buying a property overseas is getting the financing. Do check if your local banks are willing to finance your overseas purchase. You may also consider getting the financing from international mortgage brokers.
For both instances, do also check out the financing limits that the banks can loan to you. (E.g. Loan up to 60% -80% of the property value). Do note that sometimes the financing can only be done nearing the completing of the project when the valuation of the property can be ascertain. If there is a difference in the valuation and the purchase price, you may be expected to top up some cash.
Do remember to consider the financing interest rate. If the interest rate is too high, it may not make sense to invest after all.
5. Is the property you are intending to buy rentable?
Do some research on the location of the property that you are intending to buy.
- Will there be tenants around that area that will be renting from you?
For example, are expats staying around the locality? What are the amenities surrounding the area (Shopping, Train station, International schools, University, financial district, manufacturing etc). Do consider what kind of tenants that will be renting from you also (e.g. bankers, IT professionals, students etc).
- What is the expected kind of tenant renting your place?
- How much rent are the tenants are willing to pay?
- What are the features that they may want in the apartment?
6. Rental Management
If you are intending to buy the property to generate rental income, who is going to manage your tenant? Who is going to help you find the tenant, check the tenant’s back ground, draft the rental agreement, ensure the prompt rental payment and assist you if there are any maintenance on the apartment? You can engage rental management companies/ agencies to help you manage all these issues. Do consider the fees that such management companies / agencies charge for their services.
Some countries may impose Capital Gain Tax if you were to sell your property. Therefore do find out the amount as it will affect the profit you will get after you sell the property.
Do take note also on the tax payable on the rental income you will be receiving. In this case, is there an accountant or someone that can help you out in reporting the taxes? If not, is it easy for you to do it by yourself?
8. Understand the Transaction Process
You may want to find out the procedures and the transaction timeline. For example, when do you need to make the downpayment, when you need to take the loan (if any), the payment schedule after the initial downpayment, how to get approval from local government, etc. Knowing the transaction process will allow you to plan in advance the items required for the transaction or prepare for any cash amount that is required.
9. Exchange Rate
After you purchase a property, the exchange rate of that country may turn unfavourable to you. This may affect the returns that you will be getting when you sell the property. Especially if you are using local financing for a foreign property. Therefore buyers should seek markets where the local currency has been proven to be stable over time.
10. Visit the Foreign Property Before You Buy
Looking at marketing brochure or just attend a property seminar may not give you full picture of exactly how the property and its surrounding is like. If you are really serious about buying overseas property, do consider visiting the property site. By visiting the property site you can have a clear idea of what is the property’s surroundings (neighbourhood, amenities, safety, transportation network etc).
Investing in foreign property may sometimes be more risky than investing in a local property. Therefore it is important to do your own due diligence checks to ensure that the property purchase is a right decision.
Lastly the 10 points highlighted above can serve as a good guide, but the list is not exhaustive. Do send in your queries if you have any question on overseas property investments.
Whether you are investing in local or foreign market, if you are serious and wish to have more in-depth knowledge and insights; you may be interested in this free ebook I have written, download it here now.