The Top Six Overseas Property Investment Questions, Answered

14 Nov 2019

Whatever the shape and substance of your investment portfolio, you do not want to be overexposed to uncertain market conditions. Property has long been considered a safe and stable investment option, particularly when compared to more volatile alternatives, such as stocks and shares. Whether you are looking for long-term capital growth or income generation, or a combination of the two, there are several things to consider before making a property investment that is right for you.

Why look at overseas REAL ESTATE investment?

The purchase of property is seen to be a prudent investment as it can provide an individual with a solid income. It also adds diversification to a portfolio that may otherwise be focused on stocks and shares. Overseas real estate investments had the added benefit of providing geographical diversification, spreading risk over various markets.

While property on home turf often holds appeal, once people investigate offshore markets, they can find the benefits to be lucrative. Exchange rates, regulations or tax benefits can favour the overseas investor.

How does IP Global choose offshore investment opportunities?

At IP Global our approach involves extensive research and due diligence that can be best summarised by the ‘PIE’ acronym: understanding each market’s Population, Infrastructure and Economy before making recommendations.

Firstly, as a location’s population grows so does demand for dwellings, driving property prices upward.

Secondly, infrastructure and connectivity are key. A government’s approach to regeneration and improvements to transport infrastructure often correlates with rising population density, further increasing an asset’s value.

Finally, a stable and robust economy with diverse industries and growing employment levels makes for a promising investment opportunity.

What should investors consider before buying an overseas property?

There are plenty of considerations to take into account before making an offshore investment. How easy will it be to extract profit? What are the income, capital gains and inheritance tax implications of investing in foreign markets? For example, properties in Berlin are now extremely popular because, in comparison to British properties, they do not undergo capital gains tax if held for ten years.

Although a market may appear attractive for investment, when considering overseas properties, it is important to understand the entire purchase process. What are the legal and tax implications for foreign investors? Variables such as how and when to apply for a mortgage should be considered; the procedure changes significantly under different jurisdictions and can be challenging in unfamiliar markets. A trusted mortgage adviser to guide you through the process is often an invaluable partner.

As a foreign investor, it is also important to consider the exchange rate and how currency fluctuations might affect the investment in the medium to long term. Currently, the strengthening US Dollar, combined with Brexit concerns, make it cheaper for overseas investors who are residing in countries such as the UAE or Hong Kong, which are pegged to the US Dollar.

Once the purchasing logistics have been confirmed, potential investors also need to conduct due diligence on their partners on the ground, from the developer to lettings agents, to the property management teams. Understanding the local rental market is key to ensuring strong demand and future saleability prospects. Again, choose any partners wisely and work with advisers that have a strong track record of success.

Purchasing a buy-to-let property can enable investors to repay their mortgage via the proceeds of their rental income. In the last decade, customer-buying behaviour has changed with investors becoming more cautious. Instead of buying trophy properties outright, clients are more inclined to use their budget to buy multiple properties in a range of locations, spreading any risk. They also use mortgages as leverage to maximise their returns and enable their money to go further.

Even if you have the available cash to purchase your property outright, there can be strategic advantages to leveraging (borrowing money) to finance an investment. Investors can not only buy more than one property but buy types of property than they could not otherwise afford. For example, an analysis of IP Global’s London property portfolio found the return on property investment was magnified 2.7 times on average using this strategy.

What should investors look at on an ongoing basis?

Once investors have made property purchases, it is important to constantly assess their value and progression and, if necessary, re-evaluate any related strategy whilst simultaneously managing tenants and property upkeep. Many expatriates who purchase overseas properties are working on a contract basis so it is worth planning ahead, particularly when it comes to reselling. However, purchasing overseas often provides more freedom in this respect. Generally, IP Global recommends a 5 to 10-year minimum hold on an investment property.

Why IP Global, and why now?

For many investors, the legal, mental and financial implications of purchasing overseas properties can be daunting. IP Global has local and global expertise in end-to-end servicing, from research and arranging mortgages, to facilitating purchase and conveyancing, handling lettings and managing the property, as well as advising on the optimal time for reselling.

Ultimately, the key advantage of acquiring offshore property is that it provides continuous reliable returns through capital growth and rental yields, with minimal active management. For individuals wanting to drive their net worth, property is a reliable asset. And for those living and/or working in locations with an opportunity to monopolise on a strengthened US Dollar, the time to buy is now.

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