Singapore investors are considered savvy and globalised in terms of their investment appetite. Media have reported that investments were made in UK, Australia, Cambodia, Thailand, Vietnam, Myanmar and in some cases, Brazil and Germany. However there is always risk involved in foreign markets. Eager buyers can fall prey to promises of big discounts and guaranteed returns.
We look at the potential pitfalls when investing in overseas properties.
Different markets have different rules, and they can change
The Monetary Authority of Singapore (MAS) has warned potential buyers to take note of the risks before taking the plunge into real estate overseas.
The Council for Estate Agencies also recently published an online guide highlighting the main pitfalls.
And probably your friend and family cautioned the same too. Indeed, there are pitfalls in every step of the property-buying process if you are dabbling in an unfamiliar market. The first rule is you cannot ASSUME the process, procedure, working style, culture, fees and EVERYTHING will be the same as Singapore.
Budgeting
Many Singaporeans who have turned overseas for real estate investments are doing so because cooling measures introduced over the past few years have made it more expensive to buy properties here. However Singapore market also remained quite resilient.
Buyers can be easy prey to the glitzy adverts and marketing material that promise big discounts, fee waivers and high or guaranteed returns. Such advertisements are quite common in Singapore national newspapers (The Straits Times, The Sunday Times). One must be wary that these discounts in the purchase price and guaranteed returns or rental rates have already been factored into the final price. In turn, these costs are passed onto the buyer.
Buyers should ask for evidence of high returns, such as investment reports from independent and credible sources. One can easily google in the local country property portals. For example, researching more on market asking prices, rental and demand can be easily done on domain.com.au and realestate.com.au.
One should also ensure that these guaranteed returns and any fee waivers or financial incentives are included in the final sale and purchase agreement or similar agreements in black and white.
Some buyers forget to take into account other miscellaneous costs – taxes, accounting, conveyancing, translation, property management, remittance, etc.
Choosing the right agent and developer
Marketing material and showrooms are designed to attract buyers but they may not reveal much about the developers behind the project. Study the project, research on the agent, read up about the developer. Remember everyone is selling something and it’s their job to sell. One must take their words with a pinch of salt.
An agent might have not visited Melbourne CBD or the Queen Victoria Market yet they could be asking you to buy a 1 bedroom apartment along Collins Street, Melbourne. You should do your research and not rely on their words. After all, they are sales agents and not travel agents.
An experienced developer in Singapore does not mean they will succeed overseas. Do they have the local know-how? Are they partnering a local developer to reduce their risk? Do they know what the locals want? Asians generally are attracted to skyscrapers but ask yourself, do the locals want to stay in these high rises?
Foreign exchange, interest rate risks
Foreign exchange can be volatile. Look at the recent Sterling Pound movement after Brexit. One should factor in the volatility in their projections, and also be prepared if the currency moves against your favor.
Interest rates is a consideration that many assumed it will NOT go up. We see many customers using outdated rates as their benchmark. However rates can and will go up. In Australia, the lending rate is about 5% in 2012, 4% in 2016 and 5% to 8% in 2017 for non-residents. Furthermore, many banks practice lending to developments only when the units are completing or ready for physical inspection (valuation). This practice is very unlike Singapore, where banks can issue loan contracts before construction and valuer will perform a desktop valuation.
Understanding foreign regulations
Simply put, different markets have different rules and these can change.
Property lease – in Singapore, leases range from 99-year to 999-year to freehold. In Australia, they are 99-year (rarely) or freehold.
Taxes – Singapore do not have capital gains tax but seller stamp duty. Australia impose a capital gains tax. UK implement inheritance tax.
Ownership – Singapore allows locals and foreigners to own private apartments without restrictions. Australia requires foreigners to buy brand new residential dwellings, which means foreigners cannot buy resale properties.