With an increasingly competitive domestic property market, many Australians are looking overseas for investment opportunities. Investing overseas comes with a degree of risk, however you can also benefit from some good returns if you know what you’re doing.
Over the last few years, there has been a surge in Australian investors turning to overseas options for their property investment needs. With Australian property prices on the increase, more and more Australians are finding foreign property investment an appealing and achievable way to diversify their property portfolio.
As with any form of investing, there are pros and cons to investing in property overseas. Here we take a balanced look at some of the advantages and disadvantages for Australians if they choose to buy property abroad.
- You have a holiday destination at your disposal all year round: Investing overseas not only offers you a potential rental income but it also provides you and your family and friends with holiday accommodation.
- Lower entrance point to the property market: If you purchase property overseas you can potentially benefit from lower start up costs and less stringent eligibility for loans.
- Strong capital growth and rental return: These two factors can often be very difficult to find in Australia’s competitive property market. Well-located overseas property may well offer higher capital growth and higher rental returns than what is achievable in the local Australian market.
- Tax benefit: Depending on your level of income, offshore investments have the potential to offer some benefits at tax time. It is vital that you seek the advice of an accountant to determine if overseas property investment offers any benefits to your personal circumstances.
- Lifestyle: Purchasing a property overseas to live in can provide many with a much-needed sea or tree change.
- Lack of local knowledge: One of the greatest risks when purchasing property abroad is that you may not have enough knowledge of that country’s local property market to make sound investment choices. In most cases it is advisable to get professional help and advice, and actually visit and become familiar with the local market in your chosen country before making any property purchases.
- Arranging finance: Borrowing money for overseas property investments can be tricky as Australian banks are reluctant to lend money to borrowers for offshore property investment. In some cases, purchases might need to be made entirely in cash unless the purchaser has citizenship in the country of purchase.
- Lax property laws: In Australia, we have very tight property laws, which provides buyers with confidence and assurance when they purchase property. Not all countries around the world have the same buyer protection laws and this can come as a shock to some Australian investors.
- Tax: Depending on what country you invest in you may be required to pay tax in that country if you are generating an income from rental. It is best to get the advice of an accountant specialising in offshore investment so you avoid any taxation issues down the track.
- Distance Management: Managing your investment properties from a distance can be fraught with difficulty. Finding the right property manager and suitable tenants can be a challenge.
- Tenants: The majority of overseas countries do not have as strict rules for tenants and landlords as we have in Australia. If you are choosing to purchase property overseas and planning on renting it out you will need to familiarise yourself with the laws of that country and accept that there may well be a significant difference to what you are used to in Australia.
- Exchange rates: When choosing whether or not to invest in offshore property it is essential to keep in mind that exchange rates will have a massive effect on the return to your investment. As the Australian dollar increases in value, your returns could fall, so investing in a country with an unstable currency can be particularly risky.
Working out whether investing overseas is a viable option for you depends upon your own unique set of circumstances and what you want to gain from your property portfolio. For some individuals it can be a hugely advantageous decision, whilst for others it may not be a wise investment choice. It’s important that you talk to your accountant and get accurate legal advice in the country of purchase before you make a move. Consider finding an Australian buyers agent to help you through the process of purchasing overseas. The key is to do your research, get advice, be realistic and make sure you weigh up all the pros and cons before making any decisions.
About the author
Debra Beck-Mewing is the Editor of the Property Portfolio Magazine and CEO of The Property Frontline. She has more than 20 years’ experience in property investing Australia-wide and has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is a skilled property strategist, and a master in sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business. As a passionate advocate for increasing transparency in the property and wealth industries, Debra is a popular speaker on these topics. She is also an author, podcast host, and participates on numerous committees including the Property Owners’ Association.