Why Invest In Overseas Property?

Posted on: 21 May 2008 by Gareth Hargreaves

Ordinary people can invest in international 'bricks and mortar' to earn profits that beat a shaky stock market.

Property investmentReturns on investment in residential property have outperformed returns on just about every other form of investment over the last 30 years, and with far lower volatility.  

With the poor returns on the stock market and uncertainty over the future of pension funds, more and more ordinary people are investing their hard earned cash into bricks and mortar. 

The value of property is driven by supply and demand.  Greater demand, can mean only one thing over the medium to long term – property prices will rise.  Even though there will be short-term fluctuations, the future trend is clear.

Since the early 1990’s UK property prices have risen sharply fuelled by increasing demand and the advent of the buy-to-let investor.  However, rental values have failed to increase at the same pace.  With investment yields reducing, demand from investors for UK buy-to-let property has dramatically slowed down over the last two years. 

This has led to many investors looking further afield and in recent years the overseas property market has looked increasingly attractive.  UK investors are now seeking investments in established markets such as France, Spain, USA and the Caribbean and also exploring the 'new' markets such as Eastern Europe, Asia and South America.

Across these regions there are a diverse range of opportunities aimed at investment buyers and those searching for a property for personal use.  Certain projects will offer the prospect of good capital growth, whilst others are more highly geared to providing an ongoing income stream.

Reasons To Buy A Property Abroad

Property Investment

Buying property abroad is proving to be an excellent investment over the medium to long term.

The property investor is primarily seeking property,which provides a good level of capital growth and has the ability to generate a sufficient level of rental income to cover all mortgage borrowings and expenses relating to the property. 

By raising finance to purchase property, the investor can effectively limit their cash input.  By using 'other people's money', namely the banks, it is possible for the investor to amplify the growth of their original cash deposit.

This in turn will help the property investor create a portfolio of properties by borrowing further funds, secured against the growth in capital value of the properties within their portfolio.

By investing overseas, it is possible for the investor to spread their risks and create a balanced portfolio of real estate investments!

Retirement Abroad

Retirement abroad is no longer the prerogative of the rich and famous. The dream of owning a property overseas turns into reality for hundreds of thousands of people every year.  Increasing numbers of pre-retirement age, and the middle aged, are buying overseas property in the hope of using it as a permanent or semi-permanent home in their forthcoming retirement.

The promise of a warm, sunny retirement or a secure nest egg is a comforting prospect after a hard day at the office.  The number of retirees investing in bricks and mortar abroad is booming, lured by more attainable and often affordable property, the promise of a better climate, a better quality of life, and a lower cost of living to that offered in the UK.

Holiday Homes

More and more people are purchasing a second property abroad to use as a holiday home in summer and winter.  With the costs of travel dramatically falling, it is becoming cheaper and certainly more exciting to go abroad.  Also, the weather is almost guaranteed!

A lot of ordinary people realise that buying overseas property can not only provide an ideal holiday home, but also a steady rental income.

There are many affordable opportunities to own a place in the sun, in both established and emerging property markets.

The Successful Investor

The key for the investor is to minimise risk, whilst maximising returns.  However, without the benefit of having a crystal ball and being able to see into the future, how do you go about making the right decision?

To be a successful property investor you must be armed with clear and effective investment strategies.  When to buy? Where to buy? When to sell? How to finance your portfolio? How to buy below market value? What are the risks and how can you manage them?

For investors, the race is on to find the best property investment opportunities the world has to offer.  Investors generally look to acquire a property portfolio that has a combination of short and long-term opportunities in a variety of different countries, to diversify their investments and therefore minimise their risk.

It has been suggested that during all stages of the property cycle, diversifying by adding international property to a property investment portfolio can significantly increase returns and decrease risk.

The case for global diversification over the long term is strong.  In a boom, a bust, or even in a long period of stable conditions, an investor with a spread of global property assets would have significant improvements in risk adjusted return and increased overall returns.

Globally, the increasing attractiveness of property and greater capital mobility has made cross-border investing more popular.  This has also been aided by the increasing accessibility, in many countries, to mortgages for the local market and to foreign nationals.

Some people feel that purchasing international property is out of their reach.  There are also practical challenges to cross border investment, for example, culture, currency, tax and legal jurisdictions.  As finance becomes more easily available, the foreign markets are becoming increasingly accessible to small and medium size investors.

Where do I start?

Before using the family savings to buy a dream home abroad, it’s essential to seek proper advice and research the area in which you are looking to buy.  The key is research, research, research.  Really look into the countries you are considering investing in. 

A big ‘pause for thought’ should also be taken when deciding what you actually want to do - why are you considering buying the property?   Many first time buyers plan to retire to their overseas home because they don’t want to live in the UK after they stop working.  If you’re looking to retire to your overseas home eventually, then the property you buy needs to be centrally located.  You don’t want to be stuck in the middle of nowhere with limited or no access to health services, transport links and general infrastructure.

Serious investors buy one or more properties and consider their purchase purely as an investment, with the possibility of it doubling up as a holiday home.  If this is the case, then you must consider the quality of your investment and whether it is likely to help you achieve your goals, before finally committing to a purchase.

In some of the emerging markets, English is not widely spoken or written.  This means that you are forced to rely on translations of contracts.  You must then place a great deal of faith in the translated version and your locally based representatives doing a good job for you.  Unfortunately, a lot of people have fallen foul of disreputable Agents and Developers.

Without a doubt, you should seek independent legal advice from an advisor not linked to either the selling Agent or the Developer.

Why use an AIPP approved agent?

The Association of International Property Professionals (AIPP) has been set up to guide and to regulate the international property industry.  Its aim is to give the buyer of international property confidence in choosing where to spend their money.

Companies who are listed as Members have signed up to follow the industry Code of Conduct, established to help the consumer when buying overseas.  These guidelines dictate that a professional approach is followed and that companies act with honesty, transparency and integrity at all times. Any failure in their actions will lead to disciplinary action to which, once again, they have agreed.

Where you see the AIPP Member logo, you should feel confident about doing business.

By Derick Ivimy

Derick Ivimy is a partner at Principal International.  The company is a member of the AIPP which specialises in investment properties around the world. Because they are successful international property investors, Principal International have the expertise to show you how to build a successful portfolio, and only recommend property they are happy to invest in themselves.

Principal International can be contacted on 0800 038 0000 or 0044 (0)1483 748629.  They are located at 1st & 2nd Floor, 6 Chertsey Road, Woking, Surrey GU21 5AB.  For further information visit Principal International: Investment Property Overseas.

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