THE stakes are higher when it comes to investing in foreign properties.
We gather here the highs and lows from an industry president and a seasoned property investor on what potential pitfalls to avoid when buying offshore properties.
Chan Ai Cheng (President of the Malaysian Institute of Estate Agents (MIEA) Term 2021-2023)
Tip #1: Buying is easy but selling is the problem. Know your exit strategy at the time of purchase
Always bear in mind your exit strategies as every country have different spurt growth cycles so it’s important for you to roughly know this and how long you are in it and how to exit.
There have been cases whereby people have bought the “wrong” properties and when it’s time to sell the property, one may find oneself stuck.
Tip #2: Local property mindsets don’t apply to foreign properties
We must not rely solely on our local knowledge of buying properties here and applying it overseas. Some fundamental rules may remain the same but local knowledge of the country you want to invest in is key.
A good guide to follow is to buy where the locals are buying. There are many different rules, laws and taxations involved when it relates to buying foreign properties.
You need to do your independent research before embarking on this journey. In some countries for instance, you can only sell your property to a local.
Tip #3: Be sure to comply to overseas taxation requirements
Rental properties may be subjected to income tax and yearly filing similar to that in Malaysia. This is one of the ongoing issues that needs to be addressed.
Tip #4: Take into account currency fluctuations
If you are buying property in a particular country, ensure that the loan taken is that of the country’s currency. This is to ensure that there are reduced number of mitigated surprises should the currency exchange rate fluctuate dramatically.
Tip #5: To appoint a reliable property manager for daily upkeep and management of the tenancies
Picking a good registered property manager abroad is essential for peace of mind as you embark on your foreign investment journey. In fact, have a few of these contacts ready.
Datuk Seri Gavin Tee, seasoned investor and founder of SwhengTee International Sdn Bhd and FangDao Property Club
Tip #1: Retrace past property performance to brace oneself for future potential
The market in 2022 and 2023 will be better for international property investment.
And while the market has performed better in the last two years, there will not be a repeat performance of the last five years from 2015 to 2019 for cross-border investments.
Buying foreign properties is possible but when it comes to buying Chinese properties there is always the risk of running into management problems especially in terms of the Guaranteed Rental Returns (GRR).
Similarly, expect that there will also be difficulties in coordinating with the local contractor to solve building maintenance problems.
Having said that, one needs to be sure to only buy from reputable developers as well as those that come with contractual services.
Tip #2: Bear in mind currency fluctuations, political changes or conflicts
Pitfalls like currency fluctuations and international political situation or conflict can also result in investments being affected.
For instance, when Pakatan Harapan took over the Federal Government in 2018 and it’s prime minister Tun Dr Mahathir Mohamad spoke of certain new policies, it inadvertently affected foreign investment interests.
Any international political situation and policies can also result in investments being affected as in the example of the US trade war whereby plenty of assets and funds from countries like the Soviet Union and China were banned, thus causing a lot of damage to the property market.
Therefore, the international property market is subject to a lot of international relations, political conditions and financial challenges involving foreign exchange, taxation, guidelines and acts being imposed or enforced.
Tip #3: More countries, more property choices but distance & basic services need more attending to
The choice to invest in foreign properties opens you up to more choices in a larger property market. However, you will need to contend with the distance of these properties from your home base.
When distance is an issue, you will need to pay more heed to management issues or risk trivial matters such as changing a lightbulb potentially becoming a problem as well.
Tip #4: Accessibility via ground travel & desired distance from the properties purchased is key
In the post-COVID-19 pandemic era, people tend to travel less and there is no doubt that people are less inclined to partake in long-term distance travelling.
Therefore, the same rule applies when it comes to purchasing or investing in a property as investors tend to want easy accessibility and to be as close to their properties as possible.
In addition to properties that are easily accessible via air travel, the new trend is for properties to be easily accessible by land as well, most preferably connecting China to other Asian countries as well.
Tip #5: Ascertain your objective for investing in foreign properties
Past history has led to the people in China having reduced interests in purchasing Western properties.
This scenario is different from five years ago when many were buying foreign properties in a hot market – a trend which will not likely be repeated again.
The trend these days seem to be investing in properties with an intention or objective in mind, for example, for studies or retirement. – April 30, 2022
Yvonne Yoong specialises in covering the property & lifestyle section for FocusM.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
