Why investing in property abroad is still a good idea - if you're careful
INTERNATIONAL:Is buying property overseas still a good idea? International lawyer JOHN HOWELLlooks at the issues for investors
WHY ARE people investing in international property and should they invest at all? While Irish real estate is in decline, overseas property, especially in emerging markets, promises continuing growth and good income yields.
There are other options – they include stocks and shares, bonds, cash, precious metals, commodities – but which is likely to perform best? An analysis of property prices in places like London and Paris compared to share prices over the past 20-plus years shows that property has outperformed shares.
Will this pattern continue? In our view it is likely to do so over the next five, 10 or even 20 years.
But what about the recession? Will real estate work in 2009? And where should people invest?
They should look for quality locations and quality properties in strong economies that are likely to stay strong. They should buy in a currency likely to grow against their own currency and in a place with cheap and easy finance where there’s growing demand, a strong rental market, a gentle tax system and a strong legal system.
Our clients are looking at “old favourites” where they can see good value rather than trendy destinations, for the best properties – in their category – not the most expensive.
Everywhere – the BRIC (Brazil, Russia, India, China) countries, US, western and eastern Europe – will suffer in the next few years but some are likely to suffer less and recover faster.
Countries with essential commodities like oil, minerals and timber and places well placed geographically could do well, places like Slovakia, Panama, Berlin, Paris and Miami.
Investors should look for cheap finance: buy in a place where you don’t have to borrow much – or at all. Borrow in a place with low interest rates – even low interest charges are, at the moment, unlikely to be covered by rental income. Don’t borrow more than 50 per cent in most places.
Think about fractional ownership or a property investment club/syndicate. (Fractional ownership is a property bought by, and the use shared by, several people; it is not timeshare.
Each buyer owns a part of the property – and benefits from its increase in value. But take care – there is good fractional and a lot of garbage.)
If you are investing, understand risk and reward. It is not a case of “more risk, more reward”. Not many people should be looking at high risk investments, most will be better advised to go for a mid to low risk property in an area with better than average performance.
And be sensible: make sure there is a strong legal system in the country in which you buy. There are many countries in the world where – if it goes wrong – you can kiss your money goodbye.
Why will property do well? Because of a growing population, a growing number of households, growing wealth in many countries, a finite amount of land – especially in sought-after areas – and a finite ability to build new property.
The other issues for investors are the basics, the factors you should always look at, whatever the state of the market. Understand why you are buying: is it for work, because you are moving abroad? Are you a first-time buyer who can’t afford to buy at home? Do you want it for holidays and if so, do you also expect it to pay its way?
If you are buying somewhere to live, there are some ground rules: buy in a place that you love. If you are buying a holiday home, think about when will you use it, how will you get there and what you will do with it when you are not there. Do you want it to pay its way? If so, consider how many compromises are you prepared to make in order to improve the financial performance of your investment.
And if you are buying it as a mainly investment property remember – it’s a business. You can make a lot of money out of international real estate if you treat it as a proper business.
Also remember, when you are buying, that there are some awful people out there. Agents who will say anything to make a sale. Developers who have no intention of ever completing the development. Property managers who steal your profit. Get whatever they say checked by your lawyer.
** John Howell is a British lawyer and senior/managing partner of The International Law Partnership LLP, a firm which specialises in giving legal advice to people living in one country about their affairs in another.