Investing

5 Considerations Before Investing in International Real Estate

Individual investors are constantly seeking the best returns possible. While Singapore's real estate market has shown improvement in recent months, it has been outpaced by a number of international real estate markets in the past year. Investors that are interested in chasing higher returns in other countries or simply diversifying their portfolio may be interested in pursuing international real estate investment opportunities. Before diving into international property markets, it is important to take into account a few considerations.

Knight Frank Global House Price Index 2017

Compare Markets

First, it is important to examine the potential real estate markets available to you. Perhaps you are interested in purchasing property in a global financial center such as London, New York or Hong Kong. These markets are typically expensive, but have performed relatively well in the long-term. However, many of these global centers have experienced rapid rise in property value in the last few years, so you should be careful about purchasing at a peak of real estate prices before a sudden drop, which would result in major losses in your investment's value.

S&P/Case Shiller New York City Home Price Index

Alternatively, Singaporeans also have great access to developing economies. For example, Malaysia is great opportunity as it is the only country in in South-East Asia that allows full real estate ownership by foreigners. Foreigners can purchase residential properties through the Malaysia My Second Home (MM2H) program with lower minimum property value requirements. Additionally, the Malaysian government's $87 billion investment in the Iskandar zone and High Speed Rail (HSR) between Singapore and Kuala Lumpur make this nation an exciting opportunity for Singapore's investors.

Pay Attention to International Interest Rates

If you require financing to purchase real estate, you'll need to decide where to obtain funding and how much it will cost. Following the trends of international interest rates will give you an idea of the comparative cost of borrowing money in different countries. It is also important to note that countries have different laws regarding mortgages for foreigners, so it is wise to conduct thorough due diligence before proceeding with an international mortgage.

Long-Term (10-year Government Bond) Interest Rates

Carefully Review Property Insurance Contracts

Generally, it is important to insure your personal property and real estate as an investment is no different. Property insurance laws vary from country to country, so it is crucial to know the laws in your preferred location. Insurance coverages also vary greatly, having an understand the cost and range of coverages from the policies available is important. Finally, it is good to have an idea of any location specific risks to ensure sufficient coverage. For example, coastal properties are more likely to flood and may require additional coverages for this risk.

Be Aware of Additional Costs

Before purchasing real estate, it is essential to understand the local taxes and fees charged in the city in which you plan to buy property. Taxes and fees to be aware of include property sales tax, registration tax, income tax, specific business tax, stamp duty fee and condo fees. Maintenance costs are also important to take into account, as they represent a significant portion of the total. Finally, investors should have a solid understanding of real estate agent fees.

Additionally, real estate investors should estimate the travel costs associated with traveling to visit properties internationally. Flights are generally a drop in the bucket compared to the cost of real estate; however, several trips to visit different properties can add up as significant time and financial costs. Below, we show the average round trip cost of flying to several major cities from Singapore.

Average Cost of Round Trip Flights to Major International Cities

Research Alternatives to Purchasing Physical Property

The capital and logistical hurdles of investing in real estate limit opportunities for individual investors. However, investors can still participate in real estate investing without purchasing physical properties. For example, investors can invest in real estate investment trusts (REITs), which are firms that own, operate or finance real estate properties. Individuals can invest in publicly listed REITs on major stock exchanges through a brokerage account. Investing in REITs can be advantageous as it allows individuals to take on incremental exposure to real estate markets without contributing a major amount of capital.

Also, property exchange-traded funds (ETFs) allow investors to purchase shares of a funds that hold real estate related assets (e.g. stocks, bonds, etc.). Similar to REITs, property ETFs give investors the ability to invest gradually in real estate markets. In contrast, property ETFs tend to offer a bit more diversification compared to REITs as they are composed of a range of assets and are often diversified across international real estate markets.

Lastly, real estate crowdfunding platforms provide another opportunity for individual investors to gain exposure to property markets without purchasing physical property. Real estate crowdfunding campaigns organize large groups of individual investors in order to finance real estate projects. There are a handful of platforms like Investacrowd that offer international investment opportunities in cities including Hong Kong, Sydney, Los Angeles and New York to Singaporean investors.

William Hofmann

William is a Senior Research Analyst at ValuePenguin Singapore, focusing on banking and SMEs. He previously was an Economic Consultant at Industrial Economics Inc.