Lock, Stock & Barrel: Tread Carefully When Buying Properties Overseas

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This article first appeared in The New Straits Times on 3 August, 2017.

I RECENTLY read an article in the newspaper about a bunch of Malaysian buyers who had been cheated of their money in an Australian property purchase deal. Apparently, they had paid for their properties but the developers had not kept up their side of the bargain. These purchasers were now up in arms, demanding justice for themselves.

Investing in properties overseas has been a preferred option for many well-heeled Malaysians. Many of them were educated overseas and have maintained some connection with that country. Years after their return, with the growth of their net worth, they somehow get drawn into investing in properties there. This is not entirely a bad thing, especially when you are investing in a first-world country with a stable political and economic climate. Many first-world cities attract a lot of investment interest from around the globe, making them very attractive investment destinations.

However, investing in properties in a country which is not your home is fraught with danger. The investor should proceed with much caution. Your due diligence process should be much more stringent than one you would apply when purchasing local properties.

These are some of the risks associated with buying properties overseas:

1. Political risks

If you are not well-versed with the political scenario in that country, you should tread with caution. A change in the ruling political party could sometimes mean a change in property ownership policies.

2. Economic risks

If you are unfamiliar with the economic situation in that country, you may be exposing yourself to risks that may negate any potential upside your property purchase is expected to give you. Study the market carefully, ensure that you know where in the economic curve you are and use that information to make your property purchase decision.

3. Legal risks

Every country in the world has its own unique legal system. No one country can be the same as another in how it treats legal matters. You should familiarise yourself with the laws that affect property purchases, especially for foreigners, before you embark on your overseas property investment journey.

4. Management issues

You may have bought the property as an investment. In that case, your objective would have been to rent out the property once you take possession of it. But you must remember that you may be located thousands of kilometres away from the property. How are you going to manage this process? Where are you going to source for a tenant from? How will you manage the monthly rentals? What about when there are repairs to be done? How will you manage that from back home? To circumvent these problems, it would be wise to engage the services of a reputable agent or property manager. They would be able to take care of all the above and manage your property.

5. The developer’s reputation

Before you pay a single cent to a property purchaser overseas, do a thorough due diligence exercise on the developer. Many purchasers have been left high and dry after the developer abandoned the project and closed down. In some cases, it may not even be possible for you to initiate legal proceedings to recover any money you have paid.

6. Is the pricing right?

Presumably, since you are not a local resident of that country, you would not be familiar with property prices there. Many times, properties are priced exorbitantly high and then taken to another country and marketed as blue-chip investments. Then some unsuspecting foreigner falls hook, line and sinker for the developer’s sales pitch and pays for the properties, only to realise later that they have paid way too much. By then, it’s probably too late.

So, a word of caution to everyone. Be careful when buying a property overseas. Do not be fooled by stories of high returns and amazing capital gains. Always remember that age-old mantra, “if something looks too good to be true, it probably is”.