What to consider when investing in overseas property

Written by realestateview.com.au in Buying

Many people consider investing in overseas property for one or a combination of the following reasons: identifying downturns in an overseas market, a desire to diversify a property portfolio, and fulfilling an emotional connection to an area. That last one can be a very powerful pull for investors, with the potential to enjoy a different lifestyle and entirely different culture without completely selling up and moving to a new country. But what should you consider before investing in overseas property?

Invest with global real estate companies that specialise in this field

The key to establishing good relationships within international real estate markets is to do your research and not commit your finances to anything you haven’t seen yourself. Look for professionals with strong communications skills and a proven record and experience in the country and area in which you wish to invest.

This is where you should be extra careful in your research, going above and beyond to find out about those companies you will be working with and their performance within your desired market. Look beyond their own testimonials or online reviews and actually start calling up and emailing locals who have had experience with the company to find out more. The hardest and most obvious thing about investing in property overseas is that…it’s overseas. That distance makes it that much more important to trust those professionals who are representing you and looking after your assets.

Different countries have different tax requirements

Australia’s tax arrangements differ with individual countries, and with professional advice you may be able to save money on your taxes and avoid any unwanted surprises. For instance:

  1. Does the area in which you wish to invest have a Double Tax Agreement (DTA) with Australia?
  2. What taxes will you pay on your property?
  3. Will the ATO reduce your taxable income through its foreign income tax offset system?

Seek advice within Australia about the sorts of specific regulations you might have to look out for when buying a property overseas.

Stay on top of currency fluctuations

This is an unavoidable part of investing overseas. Not only do you have to stay on top of the AUD, but also the currency of the country in which you invest. This requires extra dedication of your time as an investor. Research the country’s economic past, while plans for the future will reveal whether or not it is a worthwhile investment decision.

On top of this, pay particular attention to how international events may affect your investment overseas. You may be protected from events more in Australia than your investments will be in different economies.

Dow Jones graph

Get to know the country’s political system

Research will again reveal the realities of a country’s political system, however, personal advice from those within the country will reveal the extent to which cultural norms or, at worst, corruption may affect your ability to easily invest in a property. Ideally, you will have found out these cultural nuances during your travels in the country.

What sorts of hoops will you have to jump through to make any changes to your property? If you are planning major works, remember that many areas in which Australians wish to invest, especially in Europe and the UK, have strict guidelines on building and renovations. Don’t invest in overseas property with plans to build or renovate without knowing whether these plans will come to fruition.

Once you have your home, what will the costs be? Research ongoing costs, equivalent to council rates, and assess how they differ to Australia.

How will you manage the property?

Ask yourself the following questions to get a stronger idea of your goals:

  1. Will you derive regular income from your investment, and if so, how?
  2. What are the costs of renting out a property in the area (i.e. real estate agent fees, your responsibilities to a tenant, etc.)?
  3. What are the tax offsets you can make as an owner of an investment and how do these costs compare to doing the same thing in Australia?

What kind of investment is it?

Is it a leasehold or freehold purchase? This is an important question in the UK, as leasehold arrangements are increasing compared to freehold. The risks of a leasehold purchase, especially in the UK, are that they are usually more expensive and you do not own the land on which the property sits, or you do not own the building in which the property is situated. Be aware of the nature of the title/contract and be sure you are purchasing the land on which the property sits.

Secondly, be sure of how the property is being sold: by auction, tender process or private treaty. An auction may force you to employ a buyer’s agent to bid for you, increasing your expenditure.

Buying property overseas can be financially and personally rewarding, with access to markets at lower entry costs to that of Australia, and access to some of the most beautiful locations you can imagine. However, be aware that investing in overseas property requires significantly more time and ongoing effort as an investor in comparison to investing in Australia. But with the potential for a villa near Lake Como waiting for you when you retire, the reward may well be worth the work.