Singapore, 28 May 2016 –
The imposition of the Additional Buyer’s Stamp Duty (ABSD) shifted the attention of property investors to overseas properties. Popular destinations among Singaporean investors include Melbourne, Iskandar, London and New York. Last year, Singaporean investment in Australian properties reached $3.8 billion, just behind investors from China and the United States.
In recent months, with the weakening of some regional currencies, such as the Malaysian ringgit and Australian dollar, against the Singapore dollar, the idea of purchasing foreign properties may seem attractive to investors.
Key objectives
First, be clear on your purchase intentions. Whether as an investment, holiday home, accommodation for children studying overseas or a retirement home, knowing your objective will help you in selecting a country and type of property to invest in.
Be aware of any restrictions on foreign property ownership in the country they want to invest in. For instance, foreigners generally are not allowed to buy properties below RM1 million in Malaysia. In Australia, foreigner purchases are restricted to developer sales. While these restrictions may not seem to affect buyers much, problems arise when foreign owners want to exit the market. Due to these restrictions, they find their buyer pool much smaller and that the sale of the property could take longer to complete.
When obtaining financing for an overseas property, buyers can either take a loan from a local or overseas bank. They should take note of interest rates, the loan currency and financing limits. Buyers should also be mindful that the Total Debt Servicing Ratio will apply to loans originating from local banks.
Like any investment, buying an overseas property is not without risk. Buyers should be aware that ruling parties can change overnight. With the change in government, there is a possibility that foreign property investment rules might be tightened, and this poses a risk to foreign property investors. Overseas properties are also exposed to currency risk. As a property’s value is tied to the currency of the country it is in, any appreciation or depreciation of the currency will have an impact on property values.
Buying an overseas property is not a decision to be made in an instant. Buyers should only decide after careful thinking.
5 tips for first-time buyers of foreign property
- Enlist the aid of a qualified salesperson
Are you unfamiliar with the rules and regulations surrounding a country’s properties? Consult a real estate salesperson who is experienced with overseas property transactions. There are some who specialise in certain countries. Benefit from their expertise. - Know your risk appetite
This will help you shortlist the countries which you want to invest in. Generally, developed economies tend to be safer choices due to their transparency. However, the property returns will also tend to be lower. Conversely, investing in a developing country may reap high rewards, but there may be a higher amount of risk. - Location, location, location
Be familiar with the location of the property they are purchasing. If you are not, arrange for a visit prior to the purchase. See the development’s actual location and knows the surrounding area to get a “feel”. - Have an exit plan
Don’t make the mistake of thinking a property can simply be sold off anytime. Properties are “lumpy” and illiquid. Before you purchase any property, consider if it will be easy to sell. Some factors to consider include the level of resale demand and whether most people can afford the property. - Know the dispute resolution avenues
Find out what legal rights you have under the relevant laws in the event of any dispute. You should know the dispute resolution mechanisms available. It could be useful to be aware of the jurisdiction which handles disputes.
This article was contributed by Eugene Lim and Seah Yao Hui. Eugene Lim is the key executive officer and Seah Yao Hui is a research analyst at ERA Realty Network.
