With the hands of property buyers tied by the TDSR rules, property marketers are making the most of the situation to hold overseas property seminars and exhibitions.
I have no intention of selling you any foreign investment opportunity in my blog. Over the years, I have seen too many people who regret buying overseas properties. And their stories show that many buyers do not think carefully before they commit.
Let me summarize the top three risks of buying properties in an overseas market:
Risk #1: Foreign language and culture
• How do the locals, especially your neighbors, see owners from your country of origin?
• Do you speak and read the local language? Can you read the fine print in a contract?
If you have problems understanding the language or getting yourself understood, can you imagine communicating with the property agents, the management office and the lawyer? How about negotiating with local contractors to get renovation or repair work done?
Risk #2: Political, economic and legal risks
1. Political
• Does the country have strong leadership under a stable government? Or is it besieged by red-tape, corruption and weak governance?
• Is the country plagued with political unrests or coup d’états? In case anything happens, what are you planning to do with your property?
2. Economic
• Does the country have a stable economy and a sound financial system?
• Do you foresee any big fluctuations in the foreign currency?
If the foreign currency keeps falling, or your home currency continues strengthening, it will gradually wipe out whatever income or profit you have generated from your overseas property.
During the Asian Financial Crisis, the Malaysian ringgit fell 41.3 percent while the Thai Baht plunged 76.4% against the Singapore dollar in barely seven months’ time from June 1997 to January 1998. If you had bought a Malaysian or Thai property, you would have lost tremendously in foreign exchange, on top of the falling prices of your foreign property.
3. Legal
There are restrictions on foreign ownership of properties in almost every country. These regulations can change from time to time. Some can change overnight with no advance notice.
Legal systems vary in different countries. Foreign buyers may face a difficult legal battle if they run into any legal dispute, say, complaints against the developers, disputes with property agents or contractors, missing rent or evacuation of tenants, etc.
Every country has its own calculations on property taxes which can be different for local and foreign owners. Find out how it works and how it affects the income from your property. Also, ownership of foreign properties can affect the calculations of your TDSR in your home country.
Risk #3: Challenges in remote management
1. Long-distance
Imagine having to book a flight and accommodation, travel for hours and spend a few days there to attend to property-related matters — all these you could have settled with a call or a short drive if the property was in your own country!
Do you really like to go to the same country and stay in the same accommodation during every vacation? And with all the errands to run, you may not be able to really enjoy yourself there. What was meant to be a leisure home may become a burden to you.
2. Property management
You may ask a friend, relative or your child studying there to manage the property for you. But it is a favor, not an obligation. The person may also move somewhere else in the future.
Some overseas projects throw in a complete package including property management, with a fee deducted from the income of the property. By engaging a property manager or a property management company, you are relying on the goodwill of an individual or a company. After all, you can’t check the condition of your place or the maintenance of the project very often.
A story of buying overseas properties
In 1996, there was a fever among Hong Kong people buying properties in the South China region. Countless property ads were promoting the luxurious villas and condominiums, all selling at a fraction of those tiny apartments in Hong Kong. The developers promised a European-style garden, a golf course, a luxurious clubhouse and free shuttle buses from Hong Kong directly to the front gate of the development.
Frustrated with sky-high property prices in their country, many Hong Kong people purchased these attractive properties as their second homes or retirement houses. Celebrities who were spokespersons also owned villas there.
Problems only started to surface a few years later: Some were dissatisfied with the quality of their ‘luxurious’ home. Some complained about furniture and appliances that went missing every time they visited their place. Some turned out to have bought projects that were never completed. The victims organized street demonstrations to voice their discontent and ask for compensations.
There was a reversal of fate twelve years later.
In 2008, Hong Kong property developers marketed aggressively to the newly-rich in China. There were free shuttle buses sending groups of Chinese buyers to the property sales galleries in Hong Kong. The apartments were often sold to the ignorant buyers at prices much higher than what were offered to the locals.
In just a few months’ time, the sub-prime crisis struck and property prices collapsed. Newly-bought properties all became negative equities. The buyers were either forced to forfeit their deposit or left holding on to their depreciating asset.
Now, are you still keen to buy that overseas property after knowing all the risks? What are the lessons learned?
You know best the market you live in. Only invest in what you are familiar with. Avoid buying in markets that you know very little about.
Buying a foreign property is a very challenging feat. The only time you are happy is when you are buying it. After that, most of the time you pay for this and that: the mortgage, the property tax, the corporate rates, the management fee and the repairs. You have to have very deep pockets and tons of patience. When you are lucky to rent out the place, the agent get paid in full the commission while you are in no control of the rental income to be collected in the months to come. All you can rely on is the rental deposit and your faith in the rental agent.
You only find out if you made the right purchase when you want to sell it. That’s when the would- be buyer starts to size up your property. Somehow, all these buyers seem to know more about your property than you do. In the end, after all the hassle, you throw in your towel and swear never to touch another foreign property.
But somehow we either never learn or we all have amnesia because the same people who made the bad investment fail again in the same thing.
Property investment is not about buying a property and hope that you will make a profit or won’t be making a loss after your purchase.
Real property investment is you know that you will make a profit the moment you buy it, not wait until you the moment you sell it. It’s because you have done your due diligence and thorough research before making the purchase decision.
Does that mean we have to do our research now so that when we spot a bargain; or
the market is really cooled and we spot the bargain,
we make the move?
That means we have to be alert and reasearch ?
Yes, do your homework first and have your “wish list” in place.
i saw your four property purchases in the 2002 years onwards. Mandarin Gardens and Bedok Place etc. these are all 99 LH.
for 99 LH, at what age will you stop buying them ? that is do you have your own stop limit as how many more years they should have?
No I don’t set a limit on the age of the property. It is not the number of years, but how good is the property maintained, the location, the resident profile, etc. that matters.