Investing in overseas properties

The case for investing beyond the boundaries of a country is an idea often pushed forward on the premise of diversifying one’s portfolio.

Indeed, in terms of physical investments, properties are perhaps the best vehicle for the long term. If bought at a reasonable valuation – factroring in the appreciation in value – properties overseas can be sold for capital gains at an opportune moment.

Real estate is also a good way to protect capital as the asset is real, productive and serves a purpose. Historically, land has always been one of the best hedges against inflation and turmoil.

Other than diversifying risks, another reason why investors consider looking at overseas properties is because there are various opportunities in many countries.

Steven Cheah, the principal and managing director of Property Talk International Sdn Bhd (Propery Talk) informed BizHive Weekly that the top three destinations for Malaysians investing overseas is Singapore, Australia and the UK.

“The reasons why these three are favorites are due to factors like education, familiarity, history and family ties in that countries,” he explained in an exclusive interview.

“The demand and needs of the Malaysian Investors varies. We have the investors who are buying because their children are studying in that country, investors who want to diverse their Investment Portfolio or simply because they will be migrating to these countries for better job prospects.”

Cheah noted that most Investors will look for properties in the Central Business District or near to universities when they invest in overseas properties.

“Rental yield is higher and more demand from students and working adults. Many Investors prefer to purchase a property as in the long term, they gain in the capital appreciation and hedge against inflation,” he explained.

“Also , many parents rather than paying rental to a landlord prefer to pay for the Bank mortgages and own the property in the long run. The Asian mindset is that propertie are is safer and something that can be passed down to the next generation.”

To further help this sentiment, the ringgit has been relatively strong on the general scale, compared with the likes of the Australian dollar, Singaporean dollar and the pound.

To further exacerbate the local situation, local property prices have reached the point where over 60 per cent of Malaysians cannot afford to purchase local properties.

“The reasons (for Malaysians to invest overseas) are many but the major consideration is education for their children,” Sim Kiang Chiok, the secretary general for Sarawak Housing and Real Estate Developers Association (Sheda).

“The local investors are already familiar with the government systems of these countries and they also share similar laws as they are part of the Commonwealth,” Sim added.

Ironfish Australia’s property strategist, Seulyn Wong noted an increase in savviness in investment knowledge amongst Malaysians.

She believed that the reason for this was the increasing availability of specialist property investment companies that provide the much-needed research, support and facilitation have enabled investors to make decision and take action quickly, knowing full well that their risks were minimised where well-selected properties had been thoroughly screened through for them.

Wong noted that even Malaysian banks had responded to provide mortgages for Malaysian buyers investing overseas.

Maybank, for instance, had introduced loans for property buying in London and Melbourne.

Given the above, Wong explained that she did foresee more Malaysians investing overseas. Seasoned investors understand fully well the concept of diversification. By spreading their investments geographically, they are effectively minimising their risks.

“The often-handsome rental income together with tax refunds makes it very easy to ‘hold’ a property while waiting for its value to appreciate. It is not unusual to find individuals holding a few properties at the same time yet only contributing between A$20 and A$80 per week as ‘out of pocket’ payment.”

She noted that over time, with rental increases and expenses maintained, properties could go ‘cash flow positive’.

“With the use of right strategies, investors can accumulate numerous properties to form a balanced portfolio generating passive income to provided income for their retirement life.”

BizHive Weekly takes a look at Malaysians looking at other options outside of our own borders.

AUSTRALIAN properties on the frontier

Foreign investors have been buying up properties on Australian shores for some time now, and this trend is expected to continue despite the high Aussie dollar.

Property Talk principal and managing director Steven Cheah stated for the past two years, investments in Australian properties from Malaysia remained at about RM125 million per annum.

Cheah noted that a major factor for this value was the fact that parents purchased properties down under for their children.

“Many parents find that buying properties for their children make more economic sense than renting. Once their children complete their education, the property can be rented out to obtain rental income or they can sell with for good capital,” he said.

With reference to the latest research by Australian Property Monitors, of the major capital cities, Cheah noted that Melbourne has been the standout performer for house price growth over the last five years, with prices increasing almost 30 per cent in just 15 months.

A very transparent country

Adding on to this sentiment, Ironfish Australia’s property strategist, Seulyn Wong said Australia is one of the most transparent countries in the world for property investment, with plenty of well-collected data and analysis to aid decision-making.

“The matured and efficiently operated property market has attracted a lot of international property investors to its shore,” she told BizHive Weekly.

“Rental yields for residential properties are high compared with Malaysian standards and vacancy rate well below the balanced rate of three per cent.”

In Australia, Wong noted that properties undergo a unique cyclical trend that generally will last from seven to 10 years.

“The beauty of investing in Australia is that different cities are at the different points of a cycle. From an investment point of view, Brisbane and Perth are the two states which are relatively at the low point at the moment,” she added.

“Enter low and ride on the waves when there is an upswing,” was the quote she used when explaining Western Australia as the engine of growth for the country. It had a higher economic growth rate than other states because it was a mining city.

She elaborated that the next boom would be in Perth, riding on a huge flow of investments into the resources industry, which in return, would see more workers being drawn in and that would drive up the population concentration in the vicinity.

“Growing population is the basic driver for property growth. A lot of people don’t realise Australia is gearing to be the world’s second largest producer of liquefied natural gas after Qatar.

“Now is the best time to enter Perth and Brisbane given that Brisbane is always a few steps ahead of Perth, based on historical data,” Wong hinted.

Good currency rate

Meanwhile, Sheda’s Sim Kiang Chiok noted that foreign exchange also plays a vital role in foreign property investment.

“The Australian dollar has appreciated from RM2.20 to RM3 to the dollar. This has significant effect on where investors put their money in, due to the need to use less capital as most investors already purchased property there when the ringgit was stronger than the dollar,” he said.

This could add a significant capital gain to the already appreciating property.

“Exchange rate plays a major factor in considering where to invest because as an investor, you would want to buy when the exchange rates is low and sell when the exchange is high compare to our ringgit.

“Usually they will hold the property for a few years and would enjoy the appreciation of the property as well, especially in Australia where the property can appreciate very fast,” he concluded.

Gerard Kho, director for Property Guru also expressed his opinion, “The foreign currency is strong against the ringgit and on a possible upward trend, then the investor benefits from having a safe haven for investment. Even if the prices of the property do not increase at robust levels, the rise in the currency would afford some gain.

“If the currency is lower against the ringgit home currency i.e. Australian dollar versus ringgit, it would be a good time to invest in Australian property today because the property is effectively cheaper for a Malaysian holding ringgit.”

Kho also affirmed his thoughts that Australia is the closest base to Malaysia for a western based education and traditionally, has always been a stable place – politically and economically, making it a safe place to invest.

Demand in UK on an upward trend

Demand for properties in the UK, particularly in central London, continues to see an upward trend.

Against a relative lack of new supply over the last two decades, incremental demand for prime London spaces has received an added kick from the rising influx of foreign buyers.

Malaysia’s Prime Minister Datuk Seri Najib Tun Razak also expressed similar positive sentiments on investing in London properties, commenting that the country is at the start of an important upswing in its investment into the UK that will turn it into a major player in the property market.

It was suggested by AmResearch Sdn Bhd (AmResearch) that the lack of supply has been a key driver underpinning the continual appeal of London properties.

“Based on the Census 2011 data, the Department of Communities and Local Government estimates that new households in London are expected to surge nearly 40 per cent between 2011 and 2021,” the research firm noted.

Indeed, channel checks indicate that demand for prime areas within central London remains strong even at average prices of between 2,000 pounds per square foot (psf) to 4,000 pounds psf.

AmResearch Sdn Bhd have stated an example of the ultra luxury One Hyde Park apartments; total sales have reached 2.8 billion pounds (average pricing: 6,000 pounds psf to 7,000 pounds psf with only one unit left unsold to-date.

“It was highlighted that just recently two projects were launched at prime Central London namely The Chilterns and and Primerose Hill both had great reception with The Chilterns, a contemporary-styled apartments within the fashionable area of Baker Street/Marylebone High Street, and close to Oxford Street fetches from 3,000 pounds psf while Primerose Hill had already sold four units with three of the four sold during its launch in Singapore (average of 950 pounds psf),” it added.

According to Saffron International, properties within Primerose Hill have historically enjoyed a 10 per cent increase in capital values per annum.

Further supporting this view is the still-strong rental demand within prime central London. Property search and acquisition consultancy company Black Brick opined that the appetite for sub one million pounds, one to two-bedroom units is still fertile, particularly for those within the 27 to 35 age bracket.

As access to mortgage financing is still somewhat difficult to obtain in the UK, these sub-group normally resort to rent as often time – they are unable to fork out the higher deposits required to purchase a home.

Broadly, most investors who are looking for properties in London also harbour plans to send their children for tertiary education within the area – Malaysians notwithstanding. Not surprisingly, roughly one-third of the buyers of One Hyde Park are believed to be Asians.

But unlike boutique schemes that are sold off-market with far fewer units, it was observed that recent and upcoming maiden launches by Malaysian developers in London come with higher density with more integrated offerings.

Secondly, the absolute prices of these units are within the more affordable range at below one million pounds – where demand remains fairly robust as indicated earlier.

Gerard Kho of Property Guru explained that with the current recession in Europe, it is a good time to make a buy as it is possible to find properties below market value.

He further enthused that choice was also a factor to be considered and at the moment, there are more options available now from luxury homes to condominiums, even studio accommodations for investors to choose from.

“The growing awareness and acceptance among Malaysians that the UK can be a possible property investment destination is beginning to also have an affect. You now have foreign developers marketing directly to Malaysians via newspapers, roadshows and so on. This is having an effect in attracting more people to look abroad.”

Meanwhile, on the exchange rate, Sim Kiang Chiok of Sheda noted that the English pound has depreciated from nearly RM7 to less than RM5 to the pound.

“That alone is a depreciation of roughly 30 per cent of the value from before meaning that the property prices there is more affordable now,” Sim enthused.

“With our local banks providing end financing for property purchases for selected Malaysian developers in London, it is very easy for a Malaysian to invest in the country whereby a few years ago these facilities were unheard of.”

SINGAPORE: Always a local favourite

Over the years, Malaysia’s closest neighbor, Singapore, has evolved itself into an economic powerhouse in Southeast Asia, possessing some of the region’s most rewarding investment options to investors and entrepreneurs alike.

According to Property Guru director, Gerard Kho, Singapore’s proximity to Malaysia, family ties or either similar connections (childrens’ education or family migration between Malaysians and Singaporeans makes this a rational destination for investors.

He added that Singapore is arguably the most developed Asean country, with world-class employment opportunities, international education and exposure.

Many Malaysians buy properties in Singapore after having worked there for many years and have attained permanent residence or similar status.

“At present, Singapore prices are about 20 per cent higher than the previous peak in 2008. Though the Singapore property market is more volatile in the shorter term, the capital growth is still stronger than Malaysia in the long term, typically in the five to 10 year period,” Kho elaborated.

“With the cooling measures put in place in the last two years by the Singapore government, it makes it attractive for Malaysians to explore the Singapore market right now.”

Properties in Singapore, residential and commercial alike have been a safe investment option for some time. With demand far outpacing supply, property prices in the small nation continue to rise in Singapore.

To note, Singapore’s Economic Development Board’s (EDB) Global Investor Programme (GIP) enables foreign individuals to obtain permanent residence (PR) status should an investment of a minimum of S$2.5 million in a new business or expansion of an existing business or in a GIP-approved fund.

An appealing aspect of Singapore real estate investment is that there is no capital gains tax or estate duty tax unlike Malaysia.

This was why foreign buyers accounted for circa 26 per cent of property purchases after the second quarter of 2008. Despite a restriction on property that includes land, foreigners can get involved in Singapore’s real estate investment.

Foreigners have the option to borrow up to 80 per cent of the value of the property when undertaking Singapore real estate investment. International banks such as ANZ Bank, OCBC Bank and DBS Bank are used for obtaining property finance.

The Mercer 2010 Quality of Living Survey supports the strengths of Singapore real estate investment. In the survey, Singapore was ranked the 28th for its quality of living standards. It’s the highest ranking Asian city in the survey.

As the leading market in the region for personal safety and it’s high quality of living standards, Singapore has all the key characteristics to attract investors.

Another factor which Sim Kiang Chiok of Sheda pointed out was similar to those of London and Australia, namely the foreign exchange rate, except this time it was due to the high rate of the Singapore dollar.

The Singapore dollar has emerged as one of the safest investment options in the world. With turmoil in the global economy especially in western nations including US and many countries in Europe, currencies have been fluctuating considerably.

A lot of foreign exchange investors have looked at Asian currencies for investment but even in Asia there has been unpredictable moves made by many of the major currencies.

In that regard, the Singaporean dollar has remained strong and has appreciated in value over the past few years.

Many analysts feel that the Singapore dollar will remain strong and would not go through as many unpredictable fluctuations as many of the other world currencies are doing.

However, Property Guru’s Kho also explained that there are certain criterias that an investor needs to pay heed to when investing into overseas property.

“In no particular order: price, capital appreciation potential, location, the overall ownership package or cost of ownership, potential or upcoming developments in the vicinity of their intended purchase, past growth history, the socio-economic climate, ease of financing and available liquidity as well as currency exchange rates. Some buyers like the fact that the currency is stable or perhaps on an uptrend.

“They should go in with their eyes open, having done their due diligence and with full awareness of foreign exchange trends.

“This is essential to ensure they make a sound investment and not end up with a costly one or a loss-making proposition. As always, investing in property is a safe vehicle, but never totally risk free.”