Risks of investing in overseas property
The risks associated with buying real estate multiply when you invest in an overseas project compared to a local one.
Once you pay the initial amount to a foreign property developer and commit to the purchase, it is difficult to back out.
You will be heavily reliant on this foreign-based entity for the most basic information and updates.
Even if you do happen to get any progress reports on the status of the project that you have bought into, you will have little way of verifying the authenticity of the details that you are getting your hands on.
So, why do some investors from Singapore purchase properties in other countries when it is obvious that monitoring the activities of a foreign developer or real estate agent can be difficult?
Often, they get taken in by advertisements that provide an impression of easy gains to be made.
Of course, sometimes, investors do also buy overseas property bearing in mind that they want to send their children overseas for higher education. Either way, as an investor in overseas property, here are some important things to know.
Can you trust the property agent you are dealing with?
The Council of Estate Agencies (CEA), which is a body under the Ministry of National Development of the government of Singapore, recently fined a local real estate agency in connection with selling a property in Auckland, New Zealand, to a Singapore investor.
The CEA’s disciplinary committee imposed a fine on the Singapore-based real estate agency because the agency’s employee had provided incorrect information to the investor.
The employee had assured the investor that the sum of NZ$65,000 being paid would be held in a trust account which the developer would be able to access only for construction purposes.
But the developer withdrew the money from the trust account even though construction had not started. Subsequently, the project went into liquidation.
Overseas investors are at a disadvantage
If you are located in Singapore and are buying a property in Australia or New Zealand, or even in Malaysia, you will have less information about the project than investors in those countries. Government rules in those countries may also prove unhelpful.
Australian regulations allow foreigners to purchase only newly constructed properties. Foreigners can also buy vacant land and property that is to be redeveloped.
But all these purchases are subject to the prior approval of the Foreign Investment Review Board.
Not being permitted to buy resale properties restricts your choices to a great extent. It also means that the property you own in Australia can only be sold to a local resident and not to a foreigner.
Some precautions that you can take
Although buying foreign property carries additional risks, it is definitely possible to make a successful overseas investment in real estate.
But before you sign on the dotted line, you may want to ask the foreign developer or agent some of these questions:
What if contractual terms are not adhered to?
The developer would commit to the date by which the property would be ready. If it is a new construction, the timeframe may exceed a year. For ready flats, the delivery date would be much earlier.
If the property is not handed over to you by the targeted date, what can you do? Which is the agency that you will need to approach for redressal?
Are there any restrictions on the use of the property?
Can you rent out the property? Will the developer help you find a tenant? Managing a property located in another country is not easy. You will need to find out if a property management service is available and how much it will cost.
Does the developer have an established track record?
A developer with a history of successful projects is your best bet. But don’t make the mistake of relying only on the developer’s reputation. Carry out your own checks too.
Ascertain whether all the government approvals are in place for the project that you propose to invest in. Familiarise yourself with the real estate laws and practices of the country where the project is located. If the property is located on leasehold land, ask about the remaining lease period.
A foreign country’s tax rules will be very different from those of Singapore. What is the stamp duty that you will have to pay? You will need to ask about the legal charges and other additional expenses involved in the transaction.
When you calculate your projected return on investment, don’t forget to consider the tax that you would have to bear. The rent you receive may also be subject to tax.
Anticipate the pitfalls
Investing in overseas real estate is a complex proposition. Buying property in Singapore is relatively simpler.
But with property prices in the country showing no signs of recovery, an investment in Australia or even in the US or the UK could be a better option. Your decision to acquire foreign real estate could be very rewarding as long as you carry out an extensive due diligence exercise prior to finalising the transaction.