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Have You Done Your Homework Before Investing Overseas?

Imagine owning a house in Queensland’s Gold Coast, Australia situated right next to the iconic shores of Surfers Paradise. And, world-class theme parks such as Warner Bros. Movie World and Sea World in Gold Coast which are located just a short drive down the street. Or, how about owning an apartment right next to the Manchester United Football Club’s home stadium in Old Trafford, England? You could practically walk over to the stadium to catch the next football match. Wouldn’t that be awesome?

Given a choice, many people would love to own a property overseas. However, there are many reasons holding them back from deciding to invest in properties overseas. Here are some of the reasons:-

 

Insufficient Research

One of the biggest risks when it comes to investing overseas is that you may not have enough knowledge of another country’s property market to make the right judgement.

Property Financing

Property financing policy differs from country to country.

Hidden Costs

You’ll need to be wary of extra fees. “Some countries have certain regulations that are compulsory which need to be paid and this may end up costing one more money than initially expected.

Consider the Distance

Managing your investment property from a distance can be a challenge. Finding the right property manager and suitable tenants on the other side of the world can be difficult.

Exchange rates

If you are financing your property from a foreign bank, always be wary of the currency fluctuation affecting your repayments. 

One of the most crucial questions you need to ask yourself is the reason for wanting to purchase properties overseas. 

REASON FOR PURCHASE

This is arguably your most important consideration when buying a property overseas as it will have a direct influence on everything – from your budget to the type of property that you invest in.

If you are buying a property for the purpose of investing for example, you may want to decide what type of tenant you would want. If you select properties near educational districts, you would probably end up with tenants comprising students or occasionally, teachers.

Alternatively, if your property is located in financial or commercial districts, you may possibly attract more working class tenants. If you choose to invest in the suburbs, you would likely end up with small or medium-size family tenants.

If your property is located nearby public amenity catchment areas such as train stations, schools or shopping malls, it will also likely score higher points in the tenant market.

Should you be planning to purchase a home because you are migrating, your selection criteria will increase because you will need to find someplace that you would be comfortable living in for a long time. Convenience is a priority when you select the location of your future home.

Here are some questions and pointers you may ask and consider:-

How far is the suburb from the city?

Are there any shopping malls or grocery stores nearby?

Is the suburb located nearby any schools/colleges/universities?

Are there any public transportation services nearby?

HERD MENTALITY

If you are considering buying a property in Australia, you will need to know that under the Australian Government’s Foreign Investment Review Board (FIRB) ruling [GN3] for foreigners purchasing properties in Australia, it is stated, “Foreign non-residents cannot purchase established dwellings as homes, for use as a holiday home or to rent out”.

However, foreign non-residents are allowed to purchase new dwellings in Australia without being subject to any conditions. There is no limit on the number of new dwellings foreign non-residents may buy but approval is needed before each acquisition.

With the FIRB ruling above, you will also understand that when you decide to sell your property in the future, you can only sell it to Australian Permanent Residents (PR) or Australian local citizens. You are not allowed to sell your property to non-Australian residents.

So let me ask you this, would you purchase your property in a location where local Australians and permanent residents prefer to stay or would you go for locations that other foreign investors choose? If you are not sure how to answer this, let me give you a scenario.

A double-storey link house in BU1, Bandar Utama in Selangor has a sub-sell price of approximately RM1.2 million today. Hypothetically speaking, if a developer decides to launch a double-storey link house in Bandar Utama for RM700,000, would you rush to buy it if you could afford it?

My guess is you would, because I would definitely be the first in the queue. The reason is simple because as locals, we know the value of Bandar Utama. We also know that if we decide to sell the house in Bandar Utama in the future, the likelihood of it being sold is high.

Malaysian Government rulings aside, even if foreigners are allowed to buy houses in Bandar Utama, they may not know of its existence because no property agent would market it to foreigners as they simply don’t need to. What is being marketed to foreign investors in Malaysia are mostly properties in the city centre around KLCC. That’s where foreign investors tend to flock to for property purchases.

Coming back to the discussion of Australian property, if you are looking to buy a property Down Under that would have strong resale value in the future, search for the “Bandar Utamas” of Australia. Go to the suburbs where local Australians love to live at and locations where there are good local schools.

Having said that, properties in city centres are not necessarily the bad buys. After all, there are many high-rise residential developments that fetch good rental yields too. The subject of resale value is a different topic altogether.

TIMING

Is there ever a good time to buy property overseas? When is the best time to enter the market?” There are no specific rules but there are indicators. For Australian properties, there are good research sources to consider.

For instance, the National Property Clock is a monthly chart produced by Herron Todd White, one of the largest independent property valuation and advisory groups in Australia.

The National Property Clock chart functions like a clock. Properties at 12 o’clock are at the peak of the market while properties at 6 o’clock are at the bottom of the market. The idea is that when the property is at the peak of the market, the price is at its all-time high. So, if you are looking for a good deal, come back at 5 o’clock. That’s when we will wait for the property prices to bounce back up theoretically speaking.

Other indicators are usually general information that is easily availalble such as economic conditions or events. A good example would be the 2018 Commonwealth Games that will be held in Queensland’s Gold Coast. Since this major event was announced a few years ago, property prices in the Gold Coast has been skyrocketing ever since.

Properties prices in Perth, Australia is a little on the softer side now however. This works out well for investors and homebuyers in getting pretty good deals as property developers launch more “price corrected” properties.

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