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 similar 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.

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. - StarProperty


August 16, 2011 at 7:50 AMewelee

from the statement above, why malaysia goverment hv no restriction for the foreign people to "speculate" malaysia properties?

August 16, 2011 at 11:25 AMDr.

Foreign investments is always welcomed into our country. I.e. M2h scheme. This brings money in. Why restrict when there's inflow of money? Our country's citizens can speculate in other countries too, i.e. Vietnam, Cambodia, Indonesia, Bangladesh, etc.

August 16, 2011 at 3:36 PMmrtraveller

For foreigners, Malaysia is not a great deal either !
Bought a 1.8M house in Penang on the largest reclaimed land project on the island. I have my keys for more than a year, Developer promise a club house with swiming pool, still waiting ... ! I feel cheated. I still would like to move in my house with my family but MM2H keep on changing their rules and regulation. So, we are stuck !
I now understand why 2/3 of new properties are empty !!!
Foreigners who want to buy property in Malaysia, think more than twice.

August 16, 2011 at 4:14 PMpetestop

It is not easy to invest in other countries, like Vietnam and Cambodia. You need a local partner and cannot be fully 100% in your name or have to be done through trustees.
Their govt is very protective of their citizens to avoid speculation by foreigner, especially the huge difference in the income level.

Malaysia is one of the easiest for foreign ownership of properties. Even local companies can be 100% foreign own now (one of the first thing Najib did).

So, either Malaysians have to "transform" themselves to high-income bracket, or be left behind.

MM2H program is basically like a long-term tourist visa.

However, I'm not sure if MM2H is beneficial to the locals in the long-run.

You don't normally attract retirees as tourist who just want to make their money stretch longer in a lower cost country, competing with the locals for housing, health services, even food, while paying no tax. In effect, we the local tax-payers are subsidising them.

Likewise those that the govt is trying to attract back to Malaysia via Talent Corp by giving tax incentives.

Someone remarked that it is better to be foreigners or ex-Malaysian, as the govt gives you better tax incentives to come back or live in Malaysia.