Should you invest in overseas properties?

I noticed that there are more and more advertisements on overseas properties in the local media recently. These include properties in Australia, the UK and of course, the US.

What is interesting about the adverts is that they make the properties look like such great deals, and as such we would be throwing away a great profit opportunity not investing in them! Furthermore, because of the financial crisis in the western countries, property prices have dropped significantly in the last two years. This adds to the attraction of investing in properties overseas.

So should you jump in? Well, perhaps not.

Actually, other than the low prices, there are not many plus points about them. The negative points, however, are plenty! For starters, the properties are in a different country, with their own peculiar laws, rules and regulations. This means that there could be some existing laws that may not be conducive to property investment over there! For example, there are some restrictions – maintaining green belt is one – that prevent certain lands around London Heathrow Airport from being developed. So while you can buy the land but as it will take years to be developed – if it ever will – it means that your money will be stuck there.

There are other traps of course. For example, the costs of hiring agents, lawyers and property managers overseas are not cheap. It is normal for a property manager in the US to charge between 8% to 10% of the rental collected. And every time the property needs to be let out, there will be more costs involved as there are advertisements to be run, repairs to be made and commissions to be paid – all of which cost significantly higher than in Malaysia.

Another trap is the high property taxes over there, a topic that is hardly talked about at all over here. I was told that I would be paying $50,000 property tax a year for my house if it was in the US (I’m paying about RM2,000 assessment tax for it here). In other words, there are many such traps that often catch foreigners.

Next, there is also a huge over supply of properties in many countries and areas.

There are reports of ghost towns in Ireland – rows of empty houses and apartment blocks dotted and clustered around the country. A similiar situation exists in the US; there are reports of some six million empty properties in the country! Las Vegas alone has over 167,000 empty houses!

What is even more critical is that there may be some way to go before prices recover.

A Qantas Boeing approaching London Heathrow airport, overflying the roof of the houses in London.

This is particularly so for the properties in the US. While prices have dropped in many areas around the country, it appears that it will continue to fall in the foreseeable future. There is no indication that prices will be turning around any time soon, certainly not before 2015. In fact, some areas are expected to be down in the doldrums for decades! Ditto apply for Ireland.

This means you may have to wait for years before getting a return on your money!
Last but certainly not least is that we must also consider the physical distance.

For example, the UK is over 11,000 kilometers away while the US is over 14,000 kilometers away! This will mean clocking some serious air mileage every time you buy, rent out and eventually sell the property. Needless to say, all this travelling will only wear you out, not to mention draining your bank account!

Actually, there are more points that we must consider before investing in properties overseas. What I’ve shared here is just the tip of the matter, to give you an idea of the challenges and traps that lay in front of you.

So this being the case, you should think very carefully before investing in properties overseas. While the attraction is there, the traps are many and could be very costly.

Azizi Ali runs property seminars in Malaysia. For more information on his upcoming seminars, call 03-7880 1051 or visit www.millionairesplanet.com