by Mr. Propwise
This is Part One of an interview with Getty Goh on his tips for investing in overseas property, and his experiences developing an overseas property project. In Part One we ask Getty whether it makes sense to even look at overseas property investments, the differences between investing overseas and in Singapore, and the risks involved when buying foreign property.
Getty is the author of two real estate bestsellers (Buy, Bye Property: Mistakes you want to Avoid in Property Investing and Buy Right Property: the R.I.G.H.T. Approach to Property Investing in Singapore), as well as the Director of Ascendant Assets Pte Ltd, a real estate research and investment consultancy based in Singapore. With his latest foray into Krabi, Thailand, Getty is adding development to his real estate CV. Getty has an MSc in Real Estate and a BSc in Building from the National University of Singapore. He is also a guest contributor at Propwise.sg.
For someone who is interested to invest in property, is it a better choice to invest in Singapore or overseas?
When you think about it, the key objective of any investor is to make money from the property market. In other words, anywhere where you can make good profits will be a good place to invest.
At present, the Singapore private residential market is not a good place to invest as the series of anti-speculation measures introduced by the government has significantly reduced that segment’s profitability quotient.
I am aware that as a result of the anti-speculation measures, investor interests have shifted to the non-residential sector (i.e. commercial and industrial properties). My company, Ascendant Assets Pte Ltd, did research recently and we found that from 1995 till 2011 (16 years), there were only 109 and 2083 profitable commercial and industrial transactions respectively. This translates to approximately 70% of commercial and 65% of industrial properties being profitable. We did a separate analysis for residential transactions and using a sample of 5 years from 2003 to 2008, we found that there were more than 12,700 profitable transactions. This was approximately 95% of all residential transactions. I find this information to be very telling as some investors would assume non-residential units would be as profitable as residential units. This is clearly not the case.
We often think that investing in properties abroad can be risky as we do not often hear of people making good returns from it. What we more often hear about (and remember) are the horror stories of how overseas investments had gone awry.
I agree that overseas investment can potentially be risky, however I have also come across instances where investors made significant returns from their purchases abroad. For example, several years back, I came across one particularly savvy investor who bought a mountain in New Zealand for about S$1 million and sold it for S$16 million several years later. The view was fantastic and he value added to the site by building a small lodge on it. Back then, no one knew that a mountain could see such price appreciation. Ultimately, the foresight as well as courage of the investor (to invest in such an unconventional real estate) paid off.
I also know some friends who bought properties in China before the Chinese economy boomed and they are sitting on handsome profits right now. Even one of my wife’s relatives managed to make good profits by investing in an apartment in Kensington (near Harrods in London).
All these examples made me realise that there is really no such thing as a good or bad location and profits (as well as losses) can be made almost anywhere. So if I were to invest in real estate now, I would consider looking at overseas properties as I believe that there may presently be some interesting real estate deals abroad. I must emphasize that this remark is made based on current market conditions. As the real estate market is constantly evolving, this view may not be valid or relevant in three to six months’ time.
What are the differences between investing overseas and in Singapore?
At the macro level, investing in overseas properties is actually not very different from investing in Singapore as the considerations are largely the same. In my second book Buy Right Property: The R.I.G.H.T. Approach to Investing in Singapore Properties, I wrote about five key considerations (i.e. market Realities, Investment considerations, Goals, Hotspots and Target price) that people should take note of before they buy. These five conditions are also applicable when buyers are sourcing for good investment opportunities abroad.
The differences are more apparent at the micro level and the specific rules and regulations vary significantly from one country to another. It is not possible for me to list all the differences down.
But a general piece of advice is that investors should do their due diligence before making a purchase. Some examples of due diligence include checking up on the developer’s credibility, financing terms, property tenure, making a site visit, consulting a lawyer, etc. But when you think about it, are these not things that you should also do when you buy a property in Singapore?
What are the things investors should check before investing overseas? What are the risks?
Let me state up front that buying a property, whether in Singapore or abroad, can be potentially risky. The risks of buying an overseas property is generally more as information is not as readily available as compared to Singapore. The uncertainty is compounded for countries where English is not the native or working language and some of the nuances are lost in translation.
If I were to list a single success factor, I believe that the secret lies with who your service providers (i.e. property agents, legal advice, financial advice, etc.) are. For example, if you are lucky enough to come across a very professional and competent property agent who is familiar with the overseas market, they will be able to value-add to your investment decisions by pre-empting the pitfalls as well as giving valuable advice. In other words, they would be able to help make the most complicated deals as smooth sailing as possible.
On the other hand, if you are unlucky come to across agents who are not well versed in handling overseas deals, they may mess up even the most straightforward process.
To illustrate, for my company’s development project, we hand-hold potential buyers from the point of purchase to when they sell their units. We assist them in all aspects of the purchase, ranging from bringing buyers to see the site, helping them with the contract, sourcing for financing, reselling their units, managing of property, etc.
I also make it a point to be personally involved when we communicate with our clients. I have observed that it helps when I personally explain to my buyers what we are trying to do, what our future plans are and how they can make money from it. It reassures them that I have a personal stake in the development and that we are with them all the way. It gives them the confidence in the development when they know that my own money is involved. More importantly, my buyers know that if anything is not right, they will be able to get in touch with me directly and we will fix it. Ultimately, it is this level of commitment that my team and I put in which assures our buyers.
Risk-wise, I have come across investors who are hesitant to buy overseas properties and the common concerns cited are (1) frequent changes in ownership regulations and (2) natural calamities. In general, many assume that it is safer to buy properties in Singapore as the government is stable and they do not think that anything would likely happen to their property once they buy it. How wrong they are!
In Singapore, the Land Acquisition Act gives our government the authority to acquire any land that it deems necessary for public good. If you have been following the recent news, a large land acquisition exercise was recently announced due to the construction of the North-South Expressway (NSE). Whether you had recently bought a million-dollar property or are a long-time HDB occupant for a development that lies in the path of the NSE, do you really think that your property would not be affected? In view of this, can you really say that your Singapore property is risk free?
Another common reason that put some people off buying overseas properties is the risk of natural calamities. They believe that Singapore is relatively safe from calamities like earthquake and typhoon. However, if you recall, Singapore’s famous shopping belt and Bukit Timah were hit by a series of major floods in 2010 and in 2011. It is anyone’s guess if these areas will flood again in 2012.
My purpose of highlighting these is to reinforce my earlier statement that property investments are risky and almost anything can go wrong. The only way to minimise such risks is to thoroughly do your homework. However, not everyone has the time or expertise to do such detailed research so the next best alternative is to find reliable third parties (e.g. developers, marketing agencies, lawyers, etc.) whom investors can trust to do the leg work for them.
Hope you enjoyed Part One of this interview! In Part Two we ask Getty which countries have the most upside for property investors, how to find deals, how much capital you need to invest overseas, and his experience developing property overseas.