By Tam Ging Wien (guest contributor)
Many South East Asian countries experienced a surge in property prices in recent years, with the locals finding it harder and harder to afford properties. To make matters worse, governments in Singapore and Malaysia have put in harsh anti-speculative measures to cool the property markets.
These factors have contributed to a rising interest in foreign property investments, which are viewed as affordable compared to the local properties.However, here are five things you must know before investing in an overseas property, to avoid getting yourself into an unpleasant situation.
1. Understand the Local Market, Area and Developer
Familiarity and local knowledge goes far in property investment. Know your goals and investment strategy – is this property a buy-and-hold or a buy-and-flip?
With your strategy in place, study the property market cycle in the respective country and area. Which direction is the property market trending in? What is your exit strategy?
Understand the local situation – is the country experiencing political unrest, strikes or anti-foreigner sentiments? What kind of natural disasters could occur in that area?
Research the location thoroughly. Ask for access to good quality maps of the surrounding area. Enquire about the accessibility – quality of the public transport, access to major roads/highways, proximity to amenities, distance to commercial areas, and whether the location is situated in a good neighborhood.
Examine the track record and reputation of the developer. Has the developer completed projects of a similar scale on time? Has the developer delivered on quality? Have the necessary permits for construction been obtained?
Finally, understand the potential tenant and customer profiles. Who is willing to rent my unit? Who will buy my unit when I sell?
2. Know the Rules and Restrictions
Some countries may impose limits on location, types, reselling restrictions, use or purpose of properties that foreigners may invest in. Check with a local authoritative source or read up on the regulations from government websites.
Prior to signing any documents, agreements or options, ensure that you have read and understood what the terms and conditions are. Ask for a translated copy if the document is written in a foreign language. When in doubt, seek advice from local lawyers, bankers or valuers.
Always do your homework!
3. Calculate the Transaction Costs and Financing Limits
Property transaction costs and financing limits vary from country to country.
Find out the conveyancing fees, legal fees and mortgage costs. Obtain independent valuations on the property and find out the loan-to-value you are eligible for. Study the interest rate situation in the country.
Be sure you have properly understood and factored the taxation cost in the transaction. In some jurisdictions, foreigners are subjected to levies or taxes on property purchases. Additionally, there may be property related taxes such as income tax, property tax, stamp duties, capital gains, estate duties, state fees and withholding tax that may be imposed.
Overseas investments also expose you to currency fluctuations and exchange rate risk.
4. Decode the Sales Pitch from the Reality
Always treat information from sales agents with a pinch of salt, especially if the claims are too good to be true. Never trust artist impressions of the development which typically paint an unrealistic picture.
Don’t be mislead by cheap prices of the unit especially when they come heavily laden with discounts, waivers or freebies (e.g. free club membership, legal fee waiver, zero interest financing, rebates, furniture vouchers, flight tickets to visit the development). These “carrots” are usually priced-in. Check the terms and conditions of these offers. Ensure that all special incentives are written into the agreements. Finally, is the price offered something a local would pay?
Be cautious of investments that offer abnormally high returns or guarantee a minimum yield. These are usually capped, with a limited time frame or just projections! Obtain independent valuation reports and surveys and compare them against their peers.
5. Confirm the Aftersales Support You Will Get
Find out the support that the developer provides to foreign investors. Ask for the frequency of progress reports and be clear of the payment milestones. Obtain contact information of the agents, bankers, valuers and lawyers.
Be aware of the legal and dispute resolution avenues available to you should things turn against you. What is the jurisdiction that the dispute is handled?
Who will assist you to run and maintain your unit? What assistance is available to advertise and seek tenants? Who will execute your instructions in your absence?
Never rush into any overseas investments. Exercise due diligence and do not be pressured by sales agents. Carefully consider your strategy and financial commitments before you take the plunge.
By guest contributor Tam Ging Wien, an avid investor and blogger who spends his time empowering the masses in financial education.