Buying Property Overseas: Risks and Opportunities

The newly completed Perth Stadium can be seen near the Crown Casino and central business district (CBD) of Perth in Australia, December 19, 2017. REUTERS/David Gray

SINGAPORE: For Singaporeans seeking to diversify their portfolios, investing in a property overseas might be an enticing option.

The relative strength of the Singapore dollar compared to regional currencies means you might get more bang for your buck elsewhere.

Ismail Gafoore, co-founder, Executive Chairman and CEO of property firm PropNex, gave this example on the Asia Business First Podcast this week. “In Singapore, if we want to invest in a property, if you do not have a million dollars, you are not going to get something that is decent enough.

"Even at a million dollars, today we are only talking about something slightly bigger than a shoebox … Imagine you paying an additional stamp duty – assuming if that is your second or third property – even as a Singaporean, you may end up… having to pay a 16 per cent stamp duty on a million dollars. It is S$160,000. And that pure stamp duty can give you a free home in Cambodia.

“I think an average earning Singaporean can invest overseas. I think it is one way to grow your nest (egg) towards retirement. One of the key concepts I want to share with people is “other people’s money”... If you are able to buy a property and let’s say put down 30 per cent and you take a 70 per cent loan over a period of 10, 15 years. And if you can rent (it) out for the next 15 years and if your rental can cover and pay out the loan, you would have got a property actually (for) free."

Still, Mr Ismail conceded that such investments are not without risks. After all, the value of the property and the rental yield could decrease depending on currency swings. “The concern here will be capital appreciation. People are always torn between entering a market that is cheap, and whether are you taking a risk on the currency stability and whether it will appreciate.” He also warned against getting carried away without first finding out about rules on foreign ownership.

The Sydney Opera House and Harbour Bridge can be seen behind real estate agent and a potential buyer from Shanghai, during an inspection of a property for sale in the Sydney suburb of Vaucluse, Australia, July 11, 2015. REUTERS/David Gray

“In Australia, foreigners can buy only properties that are under construction. When you own the property – because it is completed, you cannot sell your property to another foreigner. You are forced to sell to a local. For example, some of us – when we see a townhouse with a big piece of land, we are so excited because in Singapore it is so expensive. And we dive in and we say, ‘This is what I want!’ But when you want to sell – and you cannot sell to another foreigner – by Australian standards, they say, ‘This land is small. I can buy acres for this!’ And you might get trapped in that situation. So you have to understand each country’s specifics and your objective.”

Dr Davin Wang, Chief Data Officer at property data company StreetSine Technology Group, advised potential buyers always to do their homework.

“Having stayed in a place doesn’t mean that you have very good property knowledge … It is very important that we have access to professionals who can really arm us with knowledge, market intelligence, understanding of where the property cycle is, what are the risk factors in that environment, specific to that country or even specific to that city that might make that investment outstanding…

"A lot of online resources and information are much more readily available now in what was traditionally seen as a very opaque industry… But that does not replace quality advice from a professional. Property is always seen as a local game. So it is very good to actually find a person that specialises in property in the locale that you’re intending to invest in to get good advice…

“When we make a property investment, it is important to choose quality over quantity. And it is better to have one key quality property that is in a very stable market, predictable and reliable regulatory reform or regulatory standards and nothing that will really surprise you in terms of investment property than to pick a market that is still in a state of flux, that you carry a lot more risk.”

To find out what the experts advise when it comes to investing in emerging markets, listen to the Asia Business First podcast here.

Source: CNA, published on December 29, 2018