The case for buying foreign property
The stagnated local property market is forecasted to make a comeback, although not for several more quarters at the earliest. As local market conditions make it less desirable to owning property, and even more so in the case for commercial properties with high capital outlays, investors have increasingly been enticed by savvy marketers to take advantage of the situation with more economical renting options. While renting property has been gaining acceptance and contributing to the overall stability of the residential and retail sector, in the long-run, investors stand to lose out on plausible capital and equity gains.
With that in mind, investors have set their sights onto greener pastures, just a little further. The nearest one that has most recently garnered international attention with its enticing modern architecture, green conceptual layouts with stunning, coastal views are just across the border, the Iskandar region with particular interest from investors from China who have contributed heavily into the new billion-dollar development. Investors who bear this in mind have already begun setting their sights onto foreign economic markets, notwithstanding our nearest neighbours for financial diversification.
The security of a physical asset
Amongst the benefits of owning a property, one that stands out is that investors could benefit from the security of a physical asset. In today’s current volatile economy, assets remain the best investment, hedging against inflation while enjoying steady equity growth and capital gains. Although many investors would prefer to monitor their investments locally, having an asset in a different market proves to have other perks.
Owning a foreign property allows for international investment and currency diversification. In this double-pronged strategy, investors can take advantage of a strengthening alternative currency while enjoying capital gains of the property. While diversifying your risk with more than a single economy, investors balance out their risk in an alternative currency and economy. While taking advantage of the alternative economy, investors can also benefit from foreign rental income. Having a steady stream of income to offset monthly repayments is a welcome perk but a strengthening alternative currency against the home currency, is an added bonus for investors.
Consider the local market
When choosing to invest in a foreign property, it is important to consider the current market situation and implications in the location of the property whether in an emerging markets or a matured one. In an emerging market, as with the agricultural boom that occurred in late 2000s, investors created a surge in demand and scurried to profit from it. With a world population that is growing, the amount of available agriculture land grew scarcer, and more valuable. In a matured market, the demographics of the location would usually benefit largely from tourism, thus increasing the demand for rental properties. In both of these markets, different strategies of buying would be adopted to maximise benefits.
Primary or secondary market?
Another imperative point is the purpose of the property whether it be for rental or own occupancy. This strategy will then help you decide on either investing in the primary or secondary markets. The other point of consideration is the type of property for investment. While some markets such as our direct neighbor prefer high-rise buildings for rental properties, other markets prefer landed ones. Again, it is important to have local insight and investigative input while researching on local market demographics.
Other legal issues?
The next aspect to consider when owning foreign property is the legal implications of ownership. Some countries set a limit for foreigner owned real estate. This is to encumber false selling and ensure the investor has the legal rights to purchase real estate in that country. Investors would need to do thorough research that includes exchange rate and stability of the country before making a property commitment.
Only as recent as last year, expatriates were allowed to purchase freehold plots in Dubai South while other parts remain strictly for locals. While some countries are slowly opening their doors to foreign investment and ownerships, there are however locations where ownership of property remains solely restricted for locals, as in the case for Indonesia.
Albeit real estate transactions would not normally require the services of a legal counsel or professional purchase help, both are crucial to the successful purchase of a foreign property. Purchasing through a learned real estate agent can provide useful guidance and insider tips to avoid any snags or difficulties. Having an independent professional representing your intentions while advising you on local land law knowledge is an added bonus. This vital insight on the part of the legal attorney can weed out any potential legal issues for a smoother transaction process. In this scenario, it is in the best interest for all parties to successfully complete skills and services rendered for a successful purchase of the property.
Know your financing options
Another point of contention for investors is financing. Bank financing is typically sporadic depending on country and investors can be faced with various restrictions. However, it could also be the best solution, more so for under construction properties. If this option is available, investors will have to consider a lower loan-to-value ratio, tenure and variable interest rates.
When it comes to buying foreign property, cash remains the fastest option to secure existing properties without the hassle of involving a financial institution. What’s more, buyers could even get discount or upgrades for the property and are assured of the best price.
Buying foreign property has its perks; but it also comes with ramifications, particularly in currency fluctuations. These will affect the value of overseas properties while political and economical changes affect ownership laws. Tax laws are another concern that can be addressed. Taxes vary by country while some levy taxes are only exercised on legal residents. In most cases, foreigners would have to pay higher taxes. It is also important to research on the conditions that will make you accountable for capital gains tax and tax reciprocity, if applicable.
In an ideal situation, the purchased property and the cost to visit and manage the overseas property is tax deductible. In a less favorable situation, investors would need to pay double taxes if the property is located in a country without tax reciprocity. Either way, engaging the services of a legal counsel will benefit you in local land law rulings and taxation laws.