UNFAMILIAR GROUND

If you’re new to buying foreign property, here’s what you need to take note of.

Buying property abroad can be daunting for any novice. Property launches from familiar markets such as Australia, the UK and Malaysia, regularly held in Singapore, offer a convenient and tempting option of hasslefree buying. Still, buyers need to beware of common pitfalls and traps.

Attractive incentives or discounts are often offered during a launch weekend – a bonus for anyone who has already decided to buy. But for the unsure, these carrots may unduly tempt them into a purchase without first conducting sufficient research.
Sales people will sometimes apply hard-selling tactics which, for novices, can be quite intimidating. They may dangle “special discounts” such as rebates on stamp duty taxes on launch weekends. If developers are at the launch itself, it is also easier to directly negotiate deals with them.
A 52-year-old property investor, who asked to be called Richard, believes “the majority of Singaporeans buy overseas properties too hastily and make mistakes”. He has bought a number of properties in the UK and Malaysia.
Roarie Scarisbrick, a partner at Property Vision, an independent property adviser and consultant, supports that view. “I have met people who are convinced that they are buying in Central London when, on closer examination, the development turns out to be on a busy road in suburbia. Everything looks pretty close to Trafalgar Square in the developers’ glossy brochures.”
Careful research and local knowledge are necessary to make the right purchase, given that “agents tend to be hard selling whatever (developments) they have on hand”, Richard says.

Experts emphasise that research is vital – that forewarned is forearmed. And do this research yourself, rather than rely on information given by property agents who may not have your best interests at heart.
Ideally, you should visit the property – or at least use tools such as Google Earth to verify the accuracy of promotional statements. Such online tools help you check the distance between an underground station, for example, and the development, says Richard.
Roarie adds that buyers should “do due diligence on other developments in the surrounding area”. He says: “A stunning river view could easily be obliterated by the next tower block and developers don’t do refunds.”
After examining the location, you should understand the particular country’s rules and restrictions on foreign ownership of property. In Australia, for example, homeowners can resell only to local residents.
The Council for Estate Agencies (CEA) advises buyers to get a good sense of property market trends, and find out if the developer offers any aftersales support. This might include progress reports on the project while it is under construction.Buyers should investigate the range of developments available as well, instead of simply flocking to the latest property launch to buy a property which may not suit their needs.
Peter Thng, executive director of Reapfield Property Consultants, says there are cases of people buying where there was a “misalignment of expectations between their investment needs and what the properties can offer them”. For instance, some buyers are under the impression that they can reap quick profits.
Visiting the main offices of property agencies is a better way to learn about the range of projects available. Approaching agents at newer launches tends to be less helpful, as they have limited material of past developments on hand, and would much rather promote the development being launched. Buyers should also be aware “if something better is about to come up”, says Roarie.

Buying a property overseas is a huge undertaking so you should understand the total financial commitment involved, as well as other restrictions that may reduce your capital gain. For instance, while many developments offer enticingly low initial down payments, progressive payments can add up to a rather heavy commitment.
Terms vary for each development but, generally, buyers have to first pay a booking deposit, that may or may not be refundable. Then, they usually pay 10 per cent of the purchase price within a specified period after the exchange of contracts.
The remaining 90 per cent will be paid near or on the date of concluding the contract, when the development is close to completion. The CEA also cautions that when attractive discounts are given in the purchase price, or when there are guaranteed rate of returns or yield rates, these carrots may actually be built into the overall purchase costs.
Buyers should take note of any additional fees and taxes they will be required to pay. This includes stamp duty fees, legal fees and property taxes. Also, buyers may have to pay income tax if they receive rental income from the property.
Lim Beng Hua, executive director and head of secured loans at UOB Singapore, says that when renting out the property, buyers should factor in the fees required to appoint a good property management agent to help manage their property. They should also take note of the potential shortfall between rental income and expenses when planning their cash flow, he adds.
Taxes such as capital gains tax cannot be ignored either. Take the UK, for example: changes to capital gains tax were recently implemented there so that profits from the sale of properties bought after April 6 will be taxed at a rate starting between 18 per cent and 28 per cent, depending on the amount. Previously, this did not apply to non-UK residents.
Another example is council tax, a system of taxation used in England, Scotland and Wales to partly fund services provided by the local government. It applies to those aged 18 or over who own or rent a home. However, this tax can be waived if occupants of the property are full-time students.
Lastly, be aware of your ability to finance this transaction, as well as the housing loan limits. The recent changes in Singapore’s Total Debt Servicing Ratio laws will influence your ability to purchase overseas properties. Roarie of Property Vision says: “All buyers... should get their tax, legal and finance arrangements in place before going into the market. You have a better chance of getting a good deal if you appear to be a credible buyer.”And while investors have the choice of taking up loans in the local currency of the market where the property is, Beng Hua of UOB says buyers must take into account the foreign exchange risks that may arise with currency movements.

The abundance of developments available to buyers in Singapore is both a blessing and a curse. Too much choice will be the main problem for buyers, Roarie observes. “All developments have some good units and some bad units so it is essential to scrutinise each to make sure you buy the right one.”
Poorly chosen units will “struggle to sell in difficult market conditions”. He cites, for example, developments in London’s Battersea and Nine Elms. While “some of the flats are going to be absolutely stunning, with river views or southerly light... plenty will be secondary, especially on the lower floors in the middle of the maze of buildings, where there will be little or no view”. And although there is an “extraordinary amount of choice... not all are equal,” he adds.
So buyers should first evaluate their investment objectives and the level of risk they are willing to take. Investors hoping for passive income through rental will tend to be looking for a different type of property than those hoping to focus more on capital gains in the medium to longer term, Peter of Reapfield Property Consultants points out.
Similarly, the level of risk involved will differ between different countries and different types of properties. Buyers must also consider the cash outlay they are prepared to fork out, and available financing options they qualify for.Finally, Peter advises buyers to be prepared to “hold their properties for at least four years and beyond to see decent returns. They also need to have holding power as properties are less liquid than stocks and shares”.