Before you invest your hard-earned money in overseas properties, you should ensure such investments align with your overall investment goals and objectives, including short—and long-term anticipated return on investment and risk appetite.

Reflect and contemplate these factors before investing in overseas properties:

Consider your tax liability as an investor

Everyone has different tax circumstances, especially in the diverse real estate market. Different countries impose varying governing tax laws and legislation. They include stamp duty, title transfer tax or even inheritance tax.

Some countries legislate home-owners to pay land tax, a recurring annual cost that could result in gradual capital erosion. Singapore does not impose capital gains tax, but in the US, capital gains tax ranges from 0% to 20%, depending on your taxable income for the year. These potential costs must be factored into your budget and investment; otherwise, you may be confronted with legal penalties and potentially incur unexpected losses.

Obtain an independent valuation

When purchasing an overseas property, a structural survey and an independent valuation is highly recommended. This is to ensure the real-estate you purchase has a clean title. Majority of investors fail to do this due to the cost and logistical challenges even though it is considered a small price to pay to protect your larger overseas investment.

Have an exit strategy

It is important to note that even the best-laid plans occasionally go awry. Therefore, it is prudent to devise a contingency plan and an exit strategy to mitigate any potential negative financial impacts. Investors have always to keep abreast of the global real estate outlook and possess a good understanding of prevailing economic trends. These factors may dictate the need to reassess existing investments and if required, sell ahead of time or change strategy.

Do your own due diligence

Before investing in an overseas property, it is important to conduct research on the said location and its proximity to amenities. These factors can directly influence your estate’s value and its corresponding returns. For example, a centrally located property with an abundance of nearby amenities would naturally command a higher rent. Depending on the nature and type of the real estate, it is advisable to carry out due diligence on off-peak travel times as you may experience a fall in demand and income during this period. These seasonal demand and income fluctuations should be factored into your investment returns.

Ensure you can secure financing

It is more challenging to obtain financing for an overseas property since it is subject to international laws and usually discussed in local currency terms. In Singapore, the Central Provident Fund (CPF) savings are commonly used to fund property purchases. However, CPF funds cannot be used to finance overseas investment purchases. This means it may be more financially taxing to fund overseas estates. Due to the risk elements of overseas property investment, banks only offer loans to selected countries. For example, DBS only offers overseas property loans to estate purchases in prime areas in the UK and Australia. So if you are looking to purchase a property in countries other than the UK and Australia, you would have to seek out alternative lenders.

Discuss your estate purchase with your mortgage broker or lender, who will issue you an “Agreement in Principle” so that you are 100% assured of the amount you can borrow to finance your investment purchase. This will help to safeguard your interests should you fail to obtain financing for the investment due to strict regulations.

Conclusion

Overseas property investment could yield high returns but correspondingly could also involve greater risks. In summary, before you invest in overseas real estate, do consider these factors:

a)Your tax liability as an investor

b)The need for an independent valuation

c)Having an exit strategy

d)Doing your own due diligence

e)Understanding the financial implications

Apart from these five considerations, it would be practical to deliberate on other important considerations when buying overseas properties.