Thinking of investing in overseas property? Here’s what you should know
Singapore’s real estate market has displayed a lacklustre performance for the past three years and there are no signs of a turnaround in sight.
With limited opportunities for capital appreciation available in the local property market, many investors have started looking overseas.
A significant number of Singaporeans have already bought real estate assets in international locations and this trend is increasingly becoming commonplace. The investment destinations that are especially popular are Australia, Malaysia, the UK, Japan and Thailand.
Why would a prudent investor allocate funds into a residential property located thousands of miles away in another country?
There are many difficulties involved in monitoring an overseas investment. You would need to keep up with local laws and regulations and also ensure that your property remains well-maintained.
Furthermore, finding and keeping tabs on tenants would present you with its own set of problems.
But despite these issues, overseas real estate investments are still highly sought after.
Scope for capital appreciation
Take the example of the Australian property market. Prices in the country’s main cities have registered a sharp appreciation over the last decade and show no signs of slowing down.
Prices in Sydney and Melbourne, the country’s largest cities, have climbed the most. But other cities like Adelaide, Darwin, and Brisbane haven’t done too badly either. At a national level, real estate prices have chalked up 52 continuous months of price growth according to CoreLogic data.
Australian residential properties attract large numbers of overseas investors. The country is a favourite with Chinese buyers. Three Australian cities feature on the Economist’s 2016 list of the 10 most liveable cities in the world. Melbourne tops the list.
The Singaporeans who had the foresight to buy into the Australian real estate market have seen their investments register a steady rate of appreciation.
The resilience of Australia’s property sector is now well-established. It has successfully withstood the impact of the slowing Chinese economy. Even though the country is heavily dependent on the export of commodities, the decrease in oil, coal, and metal prices has not had an effect on home values.
With the growing level of interest in Australian properties, several real estate agents in Singapore offer a range of services that simplify the process of acquiring properties there.
How will you finance your purchase?
Singapore’s biggest banks have developed various schemes specifically for individuals who want to buy property in overseas markets. The DBS Overseas Property Financing package is structured to help Singaporeans finance residential properties in London and Australia.
The facilities that DBS Bank offers include:
The freedom to select a completed property or a property under construction.
Loans are available for investments in London, Melbourne, Sydney, and Perth.
Finance can be taken in Singapore dollars or in Sterling Pound for residences in London. Loans for Australian properties are available in SGD or Australian dollars.
A maximum of 75% of the price of the property is financed. There is a minimum loan requirement of S$300,000 or its equivalent.
An opportunity to diversify your portfolio
Real estate investors in Singapore have had to contend with extremely low or even negative returns for the past three years.
Since the end of 2013, the property market across all segments has been in decline. Prices have fallen for residential properties, office space, retail space and even for industrial properties.
But overseas locations provide an attractive option. The markets of New York, London and Sydney can give you stable returns in the form of rents from the property that you invest in and the opportunity for capital appreciation as well.
Investors should remember that a diversification into overseas property helps you derisk in two ways. You get the opportunity to make a return if the value of your property increases. You also benefit from currency diversity.
Keeping all your money in Singapore dollars may not be a prudent strategy. There are possible gains to be made from currency swings both on the rents you receive and the capital value of the flat that you own abroad.
An investment worth considering
Although investing in overseas property is a complex exercise, the efforts that you put into locating and buying a residential unit in Australia or London can lead to large financial gains.
As a real estate investor, you will have the satisfaction of knowing that you own a tangible asset. The value of a property cannot fall to zero. In fact, it is likely that you will make a steady income as well as enjoy the prospect of capital appreciation in the long run.