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The Lure and Allure of International Property Investment

Much is to be said about the emerging trend of investing in overseas property. Every weekend in Hong Kong, sales exhibitions are held in luxury hotels to promote pre-construction developments for everywhere from the U.K. to Canada, to Australia and back, with the sole aim of enticing prospective buyers to invest in places they may never visit in their lifetimes. What is the appeal? Who are these buyers and why are the Chinese and many other nationalities taking their investment dollars global?

To say that investing in overseas property is becoming popular would be making a very understated assessment of the situation. Investing in foreign property is epic. It has becoming such an increasingly popular method of investment internationally that the Treasury Department of the United Kingdom is now considering implementing additional taxes on foreign buyers of property in the UK because of the profits they are able to general through the letting and sale of these homes. A similar taxation and increase of the stamp duty was implemented on all property sales in Hong Kong earlier this year to help level out the property market and in essence turn off the tap of foreign money that was quite literally pouring into Hong Kong and overflowing the market. So why is the trend of buying overseas so popular right now?

To begin with, we should probably establish if this is actually a trend, or is this is something bigger, possibly the new mentality of the wise investor in 2013? Franklin D. Roosevelt is famously quoted as saying that, “(r)eal estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” Another frequently adhered to investment mantra is the saying to never place all of your eggs in one basket.

Internationally, real estate markets fluctuate like the wind blows, one day they are hot, the next cold, but there is no cause for concern because in time they will be hot again. This is the thinking of the overseas property investor. Place money in different cities throughout the world. If the market isn’t great in London, it may be terrific in Toronto. Regardless of the scenario, you are maintaining the property as an asset and if you are letting out the space, you are having someone else pay down your mortgage. It can be a remarkable savings plan.

Speaking of your savings, besides sitting in that bank account, affectionately called a Savings Account, what are they doing for you? With most banks offering little to no interest, the only party benefiting from you keeping that money stocked in that vault is the bank. Start investing that money in assets and let it start growing for you.

What’s fun about investing in property whether it is domestic or foreign is that it is a bit of a choose your own adventure story in that you as the investor get to pick what route you take with your investment. Should that option lead you to a dead end or less desirable outcome, the options are simple, choose to go to other way and chances are the story will end with a better result.

What makes for a great investment property? The question is asked time and again but the answer depends largely on who you are asking. Traditionally, property investors tend to fall within three primary buyer types, the Speculator, the Long-term Capital Appreciator and the Rental Income Generator. They all sound a bit like Superhero names. 

 

The Speculator

This investment model is great and is looked at as the get rich quick method of property investment.

The intention is to often buy small and in desirable locations, put down the required pre-construction deposits, wait out the often two to five years for the development to be completed and keys to be turned over to you as the new owner then place that suite on the resale market immediately to collect your profit.

In that choose your own adventure story mentioned above, the speculative model often leads to an interesting fork in the road. Like just about every get rich quick scheme, the odds of getting that one great suite in that terrific building at a great price that you know will shower you with money in a few years down the road is a bit of a misconception. Especially in the case of larger buildings, when the time comes that your suite is ready for occupancy and for you to resell it, chances are there are 100 other suites that almost identical that also have buyers looking to sell. This leads to price cutting and in many cases investors not maximizing on their investment’s potential.

The Long Term Capital Appreciator

Often for the seasoned property investor and other investors that are really just looking to place their money somewhere and watch it grow, the long-term capital appreciation model is the most common investment strategy.

In this strategy, the investor buys early, more often than not through pre-sales off of a marketing plan and provides their deposits to through the developer’s solicitor. Once the property is completed and ready for occupancy, the investor will hold the property for a number of years, perhaps rent it out, perhaps hold the property as a second home or for housing for their children while they attend studies through an area university.

The mentality of this investor in simple, wait for the most opportune time to sell the property for the maximum profit then pounce. If you happen to miss the most ideal time to sell, then you wait for the cyclical cycle of the market to return then act.

Over the last seven years in working in the Toronto-area real estate development and sales market, I have seen that this investment route, particularly with purchasing the home as a place for your children to live while they attend overseas studies has shown to be very popular. Upon their completion of schooling, the property can either be sold off for profit or in some cases gifted to the child if they obtain Permanent Residency in the host country.

The Rental Income Generator

Like the Speculator and The Capital Gains Appreciator models, the Rental Income Generator investment method starts in the same fashion, buy early and well before construction of the building commences, buy direct through the developer or their representative and buy in desirable locations. Buying in developments that are close to public transportation, shopping and colleges and universities often prove to be good investments and are attractive to future renters.

Engaging a local property management company to find you a desirable renter, manage the contracts, handle the collection of rental income and manage the withholding of applicable taxes is a very wise decision for a foreign property investor. In working with a property manager, these parties are experienced and in some cases licensed to administer the details of rental properties on your behalf, without you as the owner having to worry about the specific details of being a landlord.

In most cases, property investors that seek to rent out their properties to the local market are attempting to cover costs, that is your mortgage, maintenance fees and taxes. The profit you seek in this investment option will come when the renter has paid off your mortgage for you and you get to ultimately sell that property and keep the money yourself, less applicable Capital Gains Tax in most countries of course.

Based on the descriptions above, if you are or have been seriously considering property investment as an option, you should have a general picture of what type of investor you plan to be, at least in the outset, as mentioned, that story can change quite dramatically depending on circumstances down the road and lucky for you as the investor, you have options.

Once you’ve established who you are as an investor, you’re going to need to be equipped with the some general information about the sales process, taxation and mortgage requirements and what to expect when buying, while buying and after you have purchased your new international flat.

In the next iteration of this article we will review the Canadian example, property investing in Toronto, with a look at the entire process from A-Z.

 

Byron Burley

Director, International Sales

In2ition Realty Hong Kong Limited

 

P +852 9458 4672

byron@in2ition.ca

www.in2ition.ca



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