3 Things to Consider When Investing in Overseas Property (Part 1) 

As property prices in Hong Kong continue to rise, many Hong Kong people choose to invest in overseas properties with lower entry fees to achieve their dream of home ownership, while earning money at the same time. But buying overseas property is inherently riskier. Buyers have to bear relatively high investment risks. To avoid serious losses, here are three things you should pay attention to. 

Nowadays, property fairs are held from time to time in popular investment destinations such as Australia, Japan, Canada and Thailand. However, due to the increasing number of overseas properties available for sale and the number of agents involved in the sale, the number of complaints related to overseas properties is on the rise. Last year, the Consumer Council received 35 such complaints, more than doubling year-on-year.

Among them, there were 11 complaints concerning the purchase of properties in the UK and 6 related complaints for Australia. The remaining complaints addressed the purchase of properties in the Mainland, Southeast Asia and the United States. Specific issues raised included unfinished projects, under-valuation of properties affecting mortgage applications, and discrepancies between the sale and purchase contracts and sales agents' representations. 

For example, a complaint was lodged regarding the purchase of an uncompleted flat in the UK through Company A in Hong Kong – a full house with furniture, for a sale price of about HK$740,000, with half of the price already paid as down payment. The property was originally scheduled to be completed in the third quarter of last year, but eventually the developer failed to complete the project due to debt problems. The complainant made enquiries with Company A, and A stated that it would not intervene in the dispute between the complainant and the overseas developer. which stated that it would not intervene in the dispute between the complainant and the overseas developer.

Another complainant visited an Australian property exhibition held by Company B in Hong Kong. Interested in buying a detached house worth about HK$2.2 million, he asked the staff about the mortgage arrangements. He was told that he could obtain a loan-to-value (LTV) ratio of 80 per cent if he had sufficient salary or a bank deposit of HK$1 million. The complainant paid a reservation fee of HK$20,000 on the spot and remitted a deposit of about HK$180,000 several days later.

Afterwards, the company informed the complainant that the local mortgage company said the property was only valued at about HK$1.8 million and the mortgage was approved at a maximum of about 60%, i.e. about HK$1.08 million, which made the complainant lose his budget. Company B initially delayed the return of the deposit, but later returned the first deposit with the assistance of the Consumer Council.

The reality is, buying and investing in real estate is a major financial decision. It involves a considerable sum of money, and the risks involved in overseas properties are even greater. Therefore, consumers should think carefully and pay attention to the following points before investing in an overseas property.

1. Taxes 

When buying a property in Hong Kong, you need to pay stamp duty or property tax. However, different countries have different taxes on the sale and purchase of property, including value-added tax (VAT), stamp duty and land tax, or taxes on the sale of property by non-locals. Therefore, before buying a property, you should understand the property taxes in different countries to avoid the hidden taxes that may increase the amount of your investment.

In addition, if your overseas property is to be rented out, the buyer may have to pay a rental profit tax. For example, some countries offer greater protection for certain types of tenants, and if a tenant is in arrears, it is important to know your rights as a landlord, and how long they can stay in the property.

2. Exchange rate 

The exchange rate is an important factor in determining whether or not to rent or sell a property overseas, as it is calculated in the local currency. Therefore, pay attention to how exchange rates fluctuate as you consider purchasing an overseas property. 

For example, when you sell or rent a Japanese property, you might face the risk of losing money when the yen falls. The exchange rate of a currency can go up or down, so buyers entering the market should be aware of the resistance of the local currency and whether they can afford it.

3. Loan-to-value ratio 

Generally, homeowners will apply for a mortgage when buying a property. However, the loan-to-value ratio of overseas properties is different from that in Hong Kong. In contrast, overseas property owners generally pay less than locals, and no more than 70 per cent of the property price. In some places, property owners are even required to pay the full amount of the property at closing. 

Take Japan, a popular investment destination, as an example. It is near impossible to apply for mortgages for small-priced properties, especially properties located in earthquake zones. Banks may be unwilling to bear the relevant risks. From this, we can see the importance of doing your homework when buying an overseas property, so as not to lose your budget due to insufficient valuation, or even delay the booking.

As we can see from these situations, it is important to do your homework when buying overseas properties so as not to lose your budget or  you don't end up missing out on your budget or even forfeiting the deal due to insufficient valuation.

In Japan, for example, a popular investment destination, the small price of the building is basically not able to apply for a mortgage, especially in the earthquake zone of the property, the bank may not be willing to bear the risk. As you can see, it is important to do your homework when buying overseas properties so that you don't end up missing out on your budget or even forfeiting the deal due to insufficient valuation.

There are many things to keep in mind when investing in overseas properties, so don't take this lightly! If you are interested in learning more about this, read Part 2 of what to consider when investing in properties overseas. 

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