By Property Soul (guest contributor)
I have recently been getting messages from my blog readers, asking whether they should invest in overseas properties. Locations that people are interested in include Iskandar, Kuala Lumpur, Penang, Australia, UK, US, Japan, Thailand and the Philippines.
There is only one reason to justify buying an overseas property
Basically, I am not against the idea of investing overseas if the pasture is really greener on the other side. However, I believe that it is only justified to put your money overseas when the cashflow and profit are much better than what you can find at home.
I am not a property agent selling overseas properties. I won’t invite you to a free three-hour property investment seminar, and push overseas projects towards the end. I am also not selling you a thousand-dollar three-day get-rich-quick property course that promises to turn you into a millionaire, and make sure you place a deposit for that overseas project before you leave the room.
Why I am not buying now
As a property investor, I have researched the property market in selected countries, which includes reading everything I can get my hands on, talking to local developers and property agents, interviewing sellers and owners, and viewing new and old properties on the actual sites.
Don’t ask me where the potential investments are. I won’t buy in any hot and overpriced market, only in markets no one shows any interest in yet, or where things are so depressed you can see ‘blood all over the streets’.
And every time before I commit, I will ask myself four key questions.
1. Who are the other buyers?
Look at the profile of the people who are buying the same thing. That should give you clues on the quality of the investment project. Are they sophisticated buyers or just laymen of the market? Are they savvy investors or just an “average joe” like you?
Try to understand the rationale behind their purchase. Are they just following the herd to dump their spare cash after they faced buying restrictions of local properties? Have they calculated the net return and run through the worst case scenario?
2. Can you trust “them”?
How much do you know about the developer? Can you trust that it will complete the project on time and with acceptable quality? Will it run away when the market tanks?
Who is going to manage the property on your behalf? Can you trust the local management, security and laws of the country? Will they ask you to “pay and pay”, but with you still ending up having to travel there frequently to clean up the mess?
3. Why are the locals not buying?
If the return of that overseas project is so attractive, why are the units not already being snapped up by the locals? Why does the developer have to spend so much time, money and effort to go overseas, repackage and market to you?
Look at the rental return promised by the developer. Are the locals avoiding those projects because of oversupply, bad location or poor rental demand?
If even the locals are not attracted by the potential of the project, what make you think that you, as a foreigner, will be able to get credit terms, government taxes, rental return, etc. more favorable than the locals?
4. Is there a secondary market?
Do you know there are property projects built only to target foreign buyers? Some areas in the US, UK and Australia have properties mainly targeted at Asian buyers. Similarly, some high-end condos and landed properties in Malaysia are only marketed to foreign investors.
Developers can continue building new projects and sell to foreigners at a premium. But one day when you want to sell yours, who will be your buyer? The locals are not interested to stay where you bought. The amenities are only suitable for foreigners. They are not interested to invest there either. Why would they buy overpriced properties from a foreigner that comes with so many restrictions?
What about other foreign buyers? Can you find anyone to take it over from you? What if they have already lost confidence in the market?
I completely agree with what Donald Trump said in his book Trump: Think Like a Billionaire:
“Just because you don’t understand something doesn’t make it a good investment… the words ‘new venture’ sound to me like a loan that will never get paid back … They want your money, pure and simple, so they’ll have a chance to make money.”
I am not saying that all overseas property investments are unprofitable, or all overseas property marketing projects are scams. But before you plunge in, why don’t you conduct a thorough study on the property market in that country and on that specific property project? If you are using your hard-earned money to invest, it’s better to be safe than sorry. And when in doubt, leave it out.
By Property Soul, a successful property investor and enthusiast who shares her experiences and knowledge on her blog.