Local or international? What to consider when buying overseas property

Investing in Singapore property has become a bit of a wait-and-see affair, following the implementation of a variety of cooling measures. The cooling measures, coupled with rising supply, have started pushing prices down.

Developers are leading the price corrections, with lowered prices at new launches, and at re-launches. Some buyers are waiting for prices to drop further, as the recent iProperty Asia Property Market Sentiment Report found, while others are jumping in at a price point they are more comfortable with, as the May sales numbers show.

Property continues to be a cornerstone of investment for Singaporeans, and as they wait for local stability, many are looking overseas, notably to Malaysia and Australia, as well as a few others. Even though the TDSR includes offshore loans, Singaporeans continue to applying for overseas property loans.

A key driver of overseas investment is affordability, with most projects costing well under one million Singapore dollars. According to the Global Property Guide, the average price per square foot is S$889 in Australia and S$243 in Malaysia, a relative bargain for a 1,000 sq. ft. apartment compared to Singapore.

Hot or Not? The draw of overseas property investments

According to Colliers, there was a 13 percent increase in sales of overseas properties to Singaporeans in Q1 2014, compared to Q1 2013. The lure of overseas properties is supported by attractive exchange rates and strong educational institutes. Among the most popular investment locations are Malaysia’s Iskandar, Melbourne, London, Manila, and Tokyo.

Iskandar continues to be attractive, with a strong dollar against the Ringgit, its proximity to Singapore and the promise of high rental yields when developed to its full potential. In recent news, the Nusajaya Tech Park industrial estate received 40 percent pre-commitment from Singapore-based companies, supporting demand for apartments as workers arrive.

Popular investment locations like Melbourne and London are known for their established universities. In the global prime residential Candy GPS report by Savills World Research, Deutsche Asset & Wealth Management, and luxury developer Candy & Candy, London is noted for being “the world’s capital for overseas property investors, attracting buyers with its track record of capital appreciation." Melbourne is recognised as “one of the rising second tier cities with the potential to show strong residential property price growth as global investors seek alternative locations.”

Specific to the Asia real estate market, the 2014 Emerging Trends in Real Estate Asia Pacific survey by PwC and the Urban Land Institute identified Manila and Tokyo as top Asian cities for investors buying residential properties.

Manila topped the list with a young demographic, a growing economy, low vacancies, and large numbers of expatriates from multinational companies. Tokyo is now a popular choice as rental outlook improves and properties offer capital appreciation. Global real estate group JLL noted that prices of brand new properties located in Tokyo are about 30 to 40 percent less than in Singapore.

Ticking boxes; going about investing

When purchasing property directly, working with licensed real estate agents, or well established property developers, is recommended. If you require a loan, local banks offer overseas property loans.

You may also consider a loan from a bank in the country where you are investing. This usually requires more commitment however, such as a life insurance policy to protect the bank. Currency exchange rates, interest rates, and repayment terms area also important to consider.

Next, consider appointing a trustworthy lawyer to assist you with overseeing the property if frequent travel to the property location is not ideal. This ensures your property is well taken care of.

Finally, be ready to keep a close watch on your investment market. As the Monetary Authority of Singapore recently advised, economic conditions, foreign exchange and interest rates, as well as respective government regulations on property developers will affect your investment. So start doing your homework and prepare to consider a worthwhile investment in international property.