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Should I Buy An Oversea Property?

Hong Kong is infamous for its sky-high property prices and tiny apartments known as “nano homes.”   Despite the recent softening of the market, a brand new 270 sqft apartment in Yuen Long could set you back by HK$4,000,000 or more.  Contrast that with a decent-looking apartment double that size, at a quarter of that price, in Bangkok or Osaka… as often featured in the many advertisements for overseas properties these days. Add in the promise of a rental yield of up to 7%, a mere 25% down payment, and the romance of owning a property in your favorite vacation spot, and these offers look tempting indeed.

So there you are, in a nice cocktail reception organized by the property agent.  The delicious martinis, the canapés, and the vision of owning that chic 500-sqft pad in Sukhumvit are too much to resist.  But before you hand over your credit card to pay the THB100,000 deposit, think again.  (In fact, it’s always a bad idea to carry your credit card to such an occasion.)

 

Investing overseas warrants much more due diligence than investing on your home turf.  You don’t have the same knowledge, connections, or support system as you do back home. Prices far lower than Hong Kong’s should not be the only determinant in whether you invest.

Instead, consider these factors first and foremost:

1.   How well do you know the development?

Information from the advertisement does not count.  What do you know about the neighborhood, and the types of residents?  Is the supply of properties in this area limited, or expanding rapidly? How does the number of properties compare to the overall population?  Where does this property fall in the area’s average price range?  How frequently to properties in this area change hands?

2.   How well do you know the developer?

Is it reputable and established?  A listed company or not?  Any history of major disputes with buyers or contractors?

3.   Are there after-sale services?

You need to check and vet this thoroughly, especially if you don’t plan to live in the property, and rely instead on the agent to handle the leasing and subsequent sale of the property.  Things can often go wrong in this part of the process. Remember that overseas lawsuits are expensive and time-consuming.

4. Do you know the property ownership legislation and taxation structure?

Different countries have vastly different legislation regarding land and property ownership.  Make sure you understand what rights you are buying exactly, especially concerning land ownership.  Is it freehold or leasehold?  This ties in with the taxation structure, where in many countries, land and buildings are taxed separately.  Note also if there are recurrent taxes on ownership, and how much they cost.  This will constitute part of your running costs of owning this property, in addition to management fees, maintenance costs, and utilities.

5.   Do you know the government policy towards foreigners buying properties?

Most countries have specific legislation for foreigners buying properties, most notably with regard to taxes.  Also, you might need to formally declare your foreigner status to the government upon purchase.  Make sure you check with the local government (and not just the property agent) before you sign anything.

6.   Exchange rate risk

This is totally on you.

7.   Financing

Use extra caution if you need to arrange a mortgage.  If you are not a resident or someone with a work visa in the country, banks are unlikely to grant you a mortgage.  Many developers offer to arrange mortgages for foreign buyers.  In this case, be extra careful in checking the repayment terms and interest rates, and compare them to the local benchmarks.  Here, help from a local friend could come in handy.

Investing in overseas properties can sometimes prove profitable.  But in order to succeed, you must do your homework first.

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