With the appreciation of our Singapore Dollar and our local property is still pricey despite market correction, many Singaporeans may look to the property market overseas as an alternative investment.
Unless one is permanently migrating overseas, the main reason of buying an overseas property is to make money, either for the purpose of capital appreciation, rental income or both.
Given that property is an illiquid asset and is a huge investment, one would have to consider carefully before committing.
Here are four factors which I have listed first among others to consider when buying a foreign piece of property.
The world is our oyster. However, the playing fields are different when it comes to investing in foreign property.
Factor 1: Currency Fluctuation
Generally, purchasing foreign property will be transacted using the country’s currency. This could work either of 2 ways to the Singaporean buyer.
If the currency were to strengthen against our Singapore dollar, one’s profit would be larger if one managed to sell the property at a price higher than the purchase price at the buyer’s advantage.
If one is still servicing the monthly mortgage and the currency strengthens against the Singapore dollar, the monthly repayments in SGD will go up to the buyer’s disadvantage.
Given that there are many factors that affect the strength of a currency and that it is way beyond the control of the typical citizen, one has to bear in mind that currency is one of the main factors whether one makes money in the overall investment.
Foreign exchange – one of the key factors that makes or breaks an investment in foreign property.
Factor 2: Foreign Laws
Like our Additional Buyer Stamp Duty (ABSD) imposed on foreigners buying Singaporean property, foreign governments also have regulations for buyers of their land to protect the interest of their people.
Across the Causeway, Singaporeans are only eligible to purchase properties above a million ringgit. Additionally, there are also capital gains tax in Malaysia as well as other places such as the United Kingdom upon the sale of the property, which will erode your profit margin.
Other than that, contracts can also be worded in another non-English language. One must have the capacity and meticulousness to ensure that such contracts are well-understood before making the commitment.
Factor 3: Managing The Property
As a Singaporean with an investment property, I shared in my first article my frustrations of being a landlord.
With a foreign property, I guarantee you that the frustrations faced as an owner would be much worse when there is a significant distance between you and your property.
For one, what would the recourse be if the tenant defaults on the rent?
Even if one does not intend to rent out the property, one still has to check on the physical condition from time to time. Unless one does a regular sojourn at the place of purchase, one will have to factor in the travel expenses and time just to check on the property.
In the developing world, the local gangs may loot from homes that appear vacant for long periods.
Is there such thing as stress free property management, especially for a foreign property?
Factor 4: Geopolitical Stability Of The Country
One must also be mindful of the geopolitical climate which varies from country to country. In this uncertain world, the peace and prosperity that Singaporeans enjoy is often taken for granted.
It would be naïve for Singaporeans to expect a Singapore system in a foreign land. Even within the civilised Western world, local conditions would also vary from one region from another due to political differences.
In fact, our late founding father Mr Lee Kuan Yew cautioned in 2013 about the risks in investing in a our neighbouring country as “at a stroke of a pen, they can take it over.”
Buying a foreign property is no simple task.
It entails a deep pocket as over time, one has to pay the loan installments, property tax, management fees and so on.
While there are many restrictions in Singapore imposed in the property market, the foreign market does offer the Singaporean a wider selection and even a better value in terms of per square feet price.
One can be a successful investor of foreign if one has made careful considerations prior to the purchase.