Guide for Overseas Property Investments
21 April 2017
The Hong Kong property market is buzzing with activity. Pricing records are continuously broken and new ones are set every day. Studies show that sales of second-hand properties under HKS4,000,000 are on the decline. This means that 90% mortgage for this type of property will soon disappear completely. Citizens will need to shell out more money to secure a property purchase. As such, many investors are eyeing overseas property markets. In addition to the lower costs, investment prospects are also looking good in most regions. My analysis of such prospects and other noteworthy elements of overseas property investments is as follows.
Attractive currency rates
Canada, Australia, U.K., Japan, Malaysia, and Thailand are some of the more popular overseas property markets in recent years. The American Dollar has been strong in the last two years, so other currencies appear less valuable in comparison. Take the British Sterling Pound as an example. After the announcement of Brexit, the exchange rate to the Hong Kong Dollar fell from 11.5 to as low as 9.3, roughly a 20% decline in a year. As for the Asian market, the Japanese Yen, the Malaysian Ringgit, and the Thai Baht have all fallen to recent lows. The property investment cost in such regions is somewhat discounted due to such an exchange rate fluctuation. One can make a profit from the forex spread by reselling the property when the currency exchange rate rebounds in future.
Affordable prices and agreeable rental returns
Recently, there was a new property with a net floor area of 200 sq ft in the Hong Kong market for sale at a cost of HK$4,000,000. The down payment and expenses exceed HK$1,000,000. In most Southeast Asian countries, perhaps even in parts of Britain such as Manchester or Liverpool, a brand-new property costs less than HK$2,000,000, which is much more accessible for investors with limited cash. In terms of rental returns, those generated from overseas properties are more attractive than those from Hong Kong properties. Take U.K. as an example, owing to high rental demand, properties situated near university campuses may yield annual returns as high as 5% to 8%. Some property developers may offer a guarantee in rental returns, but the effect is limited to one to three years from the date of purchase.
A note of caution to property purchase
Much like the procedures in Hong Kong, purchasing overseas properties also entails brokerage, stamp duty taxation, etc. Lawyer services however are not mandatory in certain countries (e.g. Canada), and the fees also differ between countries. Investors should also note that most overseas markets limit mortgages to a maximum of 70%, perhaps even less, of the property’s prices. Mortgage interests also differ, depending on the local banks’ interest rates. For example, British properties carry a mortgage interest rate approximate to 3.5% to 4% p.a., which is higher than that of Hong Kong properties.
Due to geographical constraints, managing the lease of an overseas property is not a simple task. For investors who want to let out their properties, they may consider employing property management companies to handle all rental matters. These companies provide a full set of services including tenant-sourcing, contract negotiations, and even standard maintenance. They normally charge a fee of 5% to 15% of the monthly rental income.
Investors should also pay close attention to tax requirements such as the rental income tax and capital gains tax. For example, the British government collects a rental income tax equal to 20% of the rental income of a property, and a capital gains tax equivalent to 18% of the profit gained from resale of the property.
All in all, buying overseas property is a mid to long term investment requiring a fair amount of money. Investors should do their homework to understand information regarding the market, finances, legal and tax requirements, etc. before making investments. Consult overseas property consultants if necessary.
The above information is provided for reference only, and does not constitute any investment advice or offer. You shall not make any investment decision relying on this article. Investments involve risks, and fund prices may go down as well as up; past performance is not indicative of future performance.
The author has endeavoured to ensure the accuracy and reliability of all information (including data) provided, but the information shall not be interpreted as a guideline for consumers. The author and Convoy accepts no responsibility or liability for any loss or damages suffered by any person due to any inaccuracy or omission in respect of any information provided in the article. Different plans have respective terms and conditions which are stated by different product providers. Please refer to the respective principal brochures for detailed terms and conditions.
In the event of any discrepancy among the English, Chinese and Japanese versions, the English version shall apply and prevail.
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