Investing in property overseas? What country do you choose?

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Investing in property overseas? What country do you choose?
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Property investment has its benefits, one being capital protection. When you’re investing in property your asset is real, productive and has a use. Historically, properties have been proven to be one of the best hedges against inflation and turmoil. People will always need a place to live. Though prices bubbles may come and go your property will always retain an intrinsic value.

Property investment has a supply reaction with multi-year lags, as residential and commercial properties aren’t being built as often as say money is being printed. So what would happen if investors outweigh the property supply? Prices and value would appreciate at an accelerated rate, which can be far faster than the economy or other assets. This can have a ripple effect on the property market which can be very detrimental.

What would be your next move? You’re ready to invest but don’t have any properties available to invest in. It would be to invest internationally, broadening your outlook on potential investment properties to international areas. This gives you an unlimited supply of investment opportunities.  The world is a very big place, full of different countries, economies and currencies. And having a big playing field can be very overwhelming; therefore it is recommended that you have a decent knowledge and understanding (which can be researched and learnt) of the country before purchasing an investment property within its borders.

You are now probably wondering what country is king for international investment. Who will provide you with the biggest ROI? Below are outlines of the current property markets in each country analysed, starting with Australia.

Australia-

Australia is generally known to have a stable property market this is because the number of Australians who are behind on their mortgage payments is down, 

reflecting low interest rates and smaller payments. The delinquencies across Australia were recorded to be at 1.25% at September 30 (2013) down from 1.45% at 31st of March the same year. This is below the six-year average of 1.53% but still above the 1.20% at September 30 (2012).

Though this represents a strong market, the OECD released a report which concluded that Australia was the fifth most expensive housing market in the developed world. At the end of 2013 Australian housing was 45% over-valued relative the long run average (from 1980) when measure against rents and 28% over-valued when measured against incomes. This compares to the OECD of 6% over-values when measures against rents and 5% under-values against incomes.

Even though Australia is overpriced the economy is stable as well as the property market. The combination of relatively low interest rates with the long term potential for strong yields and capital gains presents the ideal conditions for property buyers looking to get into the market.

If you are looking to invest in property with in Australia it is good to take note of the best performing suburbs which you can see in the image displayed.

America

America at the present is well known for the GFC property crisis where the market was flooded and housing prices dropped dramatically. But some are saying that it is the best time to invest and some are saying it isn’t. So which one is it?

The American Enterprise Institute (AEI) had a new finding, that the risk of defaults on purchase loans under stressful economic conditions hit an all-time in April (2014). The National Mortgage Risk Index (NMRI) had climbed to 11.89 last month; this meant that nearly 12 per cent of loans would be at risk of default in the event of a serious economic downturn.

The new Qualified Mortgage (QM) have attempted to lessen the risk of another real estate collapse by demanding higher credit standards for borrowers, though the AEI suggests that the new rules have had little effect on making the market any better. The majority of loans are either FHA or GSE which are exempt from rules establishing a borrower must have a maximum 43 per cent debt-to-income ratio which would bring the risk factor down.

Although the risk factor is still high the American property industry is on the mend. The market is expected to remain strong in 2014, as property prices are predicted to continue to rise. It will be at a slower pace due to more supply coming into the market as construction activity is also on the rise. There will be higher mortgage rate and more expensive home prices, economist John Burns expect home prices to rise by 4% in 2014.

Therefore even though the risk is high, investing in American property would offer a very substantial capital return due to the continual increase in property prices. Now would a prime time to invest, but the risk of another property downfall is a potential factor.

China

China is a country who has boomed over the past years, they are the centre of most export process in the world. But is their property market as strong? According to ANZ economist Liu Li-Gang, “China has an increasing risk of a property bubble. The house prices are getting a bit out of control, especially in the big cities”. China’s house prices are constantly rising, in October 2013 the house prices of 100 cities surveyed rose again. This being the 17th consecutive month for it to rise, the prices rose 1.24% to an average of CNY $10,685 (US $1,742) per square metre. This being an increase of 10.7% when compared to the same period of the previous year, there prices are sky high. But they are taking action.

China has placed strict rules to profit the market and to prevent any further increases in prices. These rules in the long term will create a strong property market.

  • Every first quarter of the year, major cities should publish an annual housing price control target.
  • Cities with overheating housing markets are to raise their commodity housing and land supply, while cities with declining prices should keep prices stable by stimulating housing demand.
  • In cities where price hikes exceed their price control targets, local People’s Bank of China (PBOC) branches will increase down payment requirements.
  • Tighter mortgage restrictions on second home purchases will be implemented in banks. Buyers without a local registration are barred from buying more than one property.
  • Banks should not give loans to developers that hoard land and participate in price-inflating activities.
  • Local governments must boost low-income housing production.
  • The government will continue to reform property taxes, to include an extension of the trial holding tax from Shanghai and Chongqing to other cities, and a transaction tax.

What China also offers is that they are landlord friendly. There is no rent control in major centres of China, such as Beijing, Shanghai, Guangzhou, and Shenzhen. Though the rental housing sector is regulated, the system is very much in favour of landlords. The landlord is covered by the ‘guarantee money’; this is essentially a security bond and is generally one months’ worth of rent. There are also no restrictions regarding tenant discrimination.

The three countries that have been analysed are America, Australia and China, all being established countries. Their economy has both negatives and positives; this also applies to their property market. There all strong in some areas and weak in some areas. When looking for an opportunity to invest overseas it is best to consider both sides, look at the positives and the negatives. Because international investment is a beneficial move when choosing to invest, choosing to invest overseas isn’t the hard decision. Choosing which country to invest in is when it gets hard. Overall research and deliberation are key to knowing what to do when investing globally. Good luck. 

By Manish Khanna

Author Info Manish Khanna

Manish is founder of Business2sell Group of Websites. 

Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities. 

With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent. 

I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.

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