SINGAPORE, Oct. 26 2022 / DollarsAndSense / – Ask anyone in Singapore about investing in a property, and they will exclaim that prices only go in one direction! If we continue the conversation long enough, we would eventually hear about a golden opportunity to buy a property that was missed due to the huge investment outlay required.
Given the exorbitant costs and various cooling measures targeting loan applications, it may be prohibitively expensive to invest in a Singapore property. Furthermore, as property prices in Singapore continue to rise, those in other markets are tapering off.
This may lead us to believe that investing in overseas properties is more lucrative. In fact, CBRE reported earlier this year that Singapore investors are among the most active overseas property investors in Asia Pacific.
While more are looking at investing in real estate overseas, it comes with its own set of challenges.
Investing In An Unfamiliar Property Market
The unwavering confidence that Singapore investors have in property investments is founded on decades of stable prices and strong capital appreciation. However, we cannot take this mindset to an overseas property market, especially one that we are not familiar with.
For a start, not every country offers the same political stability as Singapore. Also, unlike Singapore’s property market, overseas properties may not be as insulated from macroeconomic developments resulting from heightened geopolitical unrest and others.
Next, we must also be familiar with the location and outlook of the overseas property market that we want to invest in. Most of us do not have any advantage in picking a better location or real estate project than the locals. Neither can we create an accurate projection of our investment returns without the help of real estate professionals.
Understanding The Regulatory Environment
Even in a generally stable property market like Singapore, regulations can affect short-term prices. All the more, we need to pay attention to such rules and measures when we invest in overseas properties.
In Singapore, for instance, those of us who own an HDB flat must complete a 5-year Minimum Occupation Period (MOP) before we can invest in another residential property, whether it is located in Singapore or overseas. However, this restriction would not apply if we were to invest in an industrial or commercial property in Singapore or overseas.
And if we were to invest in an overseas residential property first, we would not be eligible to buy an HDB flat in Singapore before we dispose of our overseas property.
Similarly, there may be certain property-related regulations in foreign countries that affect us. For example, in Australia, non-residents are not allowed to buy resale properties. This means that we are only able to buy new properties in Australia. At the same time, we are also limited to selling the property to only the locals when we want to exit the investment.
Crunching All The Numbers (And Knowing How Much It Costs To Invest Overseas)
Securing a good exchange rate and lower fees on an overseas property can result in substantial savings. As we will be dealing with five- to six-figure sums in our property transactions, just a slightly less favourable exchange rate or costlier transfer fees can add up. The same issue exists when we want to exit the investment or even transfer our monthly rental income denominated in a foreign currency to Singapore dollars.
If we need a property loan to invest in an overseas property, we may also be restricted by the Total Debt Servicing Ratio (TDSR) and Loan-to-Value (LTV) ratio if we were to borrow from a Singapore bank. And, this will limit the amount of borrowings for our investment property.
When buying an overseas property, we have to ensure that we are able to keep up with the property loan repayments. When investing in a property, we may see a vacancy period. When this happens, we will need to maintain sufficient savings in our overseas bank account to keep up with our property loan repayments, if we were to choose to take a property loan from a foreign local bank.
Finally, we have to fulfil our tax responsibilities, including ongoing property taxes and rental income taxes, as well as capital gains taxes if we were to sell off our investment property.
Managing Your Overseas Investment Property
When managing our overseas property investments, we will need to open an overseas bank account, through which we will pay for our investment and collect our rent.
This can be tricky. Overseas banks may have different requirements to ensure that we are using the account legally. Furthermore, as we may not have any existing records in the country, we will likely have to open the account in person. However, we may not have the luxury of staying too long or retrieving yet another piece of documentation that we may not have brought along.
To help manage our overseas property investment, we will also need a trusted real estate agent to be our hands and feet (and ears) on the ground.
We will have to rely on them to find a tenant and negotiate for an appropriate rent. In addition, we would need them to help arrange for repairs and other maintenance works to be conducted on our investment property.
Apart from the initial renovation works (and some minor repairs and replacements that are required from time to time), many of us will not consider major enhancements to the property. But this may become an issue after several years, as wear-and-tear erodes the rental appeal of our investment property. When that happens, we may need the assistance of a real estate agent to oversee the enhancement works to the property.
In addition, when we invest in a property, it is also imperative that we buy the right insurance for the property. For that, we may have to get our real estate agent to help as well.
An Easier Way To Invest In Overseas Property
As attractive as it may seem, there are many challenges we have to overcome when investing in an overseas property. But there’s an easier way to invest in overseas properties from Singapore. Through real estate co-investment platform, RealVantage, we can co-invest in physical properties in various overseas countries and Singapore.
Regulated by the Monetary Authority of Singapore, RealVantage lowers the barrier to overseas real estate investments with a team of experienced real estate fund management professionals. They source for lucrative property deals and take these deals through a panel of industry veterans for approval, before they are offered to the investors.
From an investor’s point-of-view, RealVantage solves another major challenge of overseas property investing — being able to diversify our property exposure. Rather than investing in one property on our own, we will be able to invest in multiple properties.
Of course, if we see few merits in investing in certain deals that RealVantage brings to the table, we retain the full freedom to participate in them (or not). To-date, RealVantage has offered investors 35 real estate deals in more than 20 cities in the U.S., the U.K., Australia, Singapore and Hong Kong, of which 11 have been realised to date.
Of these, the average realised net Internal Rate of Return (IRR) is 27.4% for equity deals and an average income distribution of 7.8%, as at 20 October 2022.
The biggest draw for retail investors is that we no longer have to worry about the large and typically out-of-reach ticket sizes to be a real estate investor. RealVantage allows us to fractionally co-invest in properties starting from as little as $5,000 to $25,000.
In essence, RealVantage has removed many barriers to overseas real estate investing through fractional ownership. And the majority of the investment opportunities we can access on RealVantage were previously only available to institutional investors.
To find out more about fractional property investment opportunities with RealVantage , you simply need to create an account, which will only take a few minutes. Now, you don’t have to rue another missed opportunity to invest in real estate.
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RealVantage is a real estate co-investment platform that allows our investors to diversify across markets, overseas properties, sectors and investment strategies.
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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.