Should I Invest Overseas or in Australian Property

As prices in the majority of capital cities on the Australian property market keep rising, it may be time to look to invest overseas where you can get more bang for your buck. Before you book that plane ticket however, it’s important that you understand the risks involved. By arming yourself with the right information and talking to local property industry experts, you can mitigate the possibility of running into trouble. In order to discern whether you should invest your hard earned money overseas, let’s look at the most popular countries for Australians to invest in plus weigh up common pitfalls and the advantages of purchasing property abroad.

Why Should I Invest Outside Our Borders In The First Place and not in Australian Property?

  • Diversify Your Portfolio: You’ll be able to diversify your portfolio by taking advantage of international property markets that are performing at different stages of the property cycle compared to the Australian property market
  • Less Taxes: You could end up paying less in property taxes overseas if you fall into a smaller tax bracket
  • Great Value For Money: Depending on where you invest, you may be able to pick up properties that represent fantastic value for money
  • Tap Into Emerging Markets: If you invest in a country with an emerging property market, you’ll be able to ride on the coattails of their price growth
  • Foreign Currency: By purchasing in another country you’ll essentially be earning an income in another currency which could be to your advantage should the Australian dollar drop

Popular Investment Locations

With property prices falling by £40,000 over the last 5 years1, the United Kingdom has become one of the most popular property markets for Australian property investors wanting to invest overseas. Others have chosen New Zealand as a more viable prospect; it’s close proximity being highly convenient for Australians. With no stamp duty or land tax it’s also possible to pick up a great value for money deal. The United States post 2008 financial crisis also saw a flurry of Australian led investment activity, partly due to our ability to purchase homes across the country for next to nothing.

What Do I Need to Consider Before Investing Overseas?

There are two main issues that need to be addressed if you’re planning to invest overseas, the first being the subject of finance. You’re not able to access a standard home loan from an Australian bank to purchase abroad, meaning that you have to find alternate ways to secure finance. In order to combat this matter, you may have to contact a specialist foreign finance company and seek professional advice. You could also approach a bank with branches around the world to help you fund an overseas property purchase.

Another consideration is tax. Australia has different tax arrangements with different countries, meaning that for any income produced outside of Australia there are different tax consequences2. Rental income must also be declared even if it’s from a source outside of our borders. If you have paid tax in another country on your rental income, you can claim a foreign income tax offset in your Australian tax return3. Talking to a tax adviser in the country you intend to invest in whilst also seeking advice safeguards you from running into problems with the taxman.

Risks Associated With Investing Abroad

  • Unfamiliarity With The Local Market: Simply put, if you don’t have two feet on the ground you’re going to find it difficult to get a grip on the local market. Visiting the country you intend to invest in is recommended, as is plenty of research and comprehensive advice from trusted local property experts
  • Hidden Fees: There may be undisclosed fees that pop up during the transaction period that you’ve not accounted for. These hidden costs vary from country to country so it’s important to remain vigilante whilst purchasing
  • Long Distance Relationship: They say long distance relationships don’t work right? Well the same applies to property if you’re not careful. If you can’t visit the property at least once a year or don’t trust in the managing agents ability, then overseas investment may not be for you
  • Different Tenancy Regulations: The process for claiming rent in arrears or evicting tenants in Australia is very well structured compared to other countries. Do you know what you’re getting yourself into if your new tenant turns out to be a renter from hell?

Is It Worth The Effort To Invest Overseas As Opposed To in Australian Property

This question depends on just how much time you have on your hands and where you’re thinking of investing. Obviously there are still plenty of good deals to take advantage of in places like Hobart and Canberra, or Adelaide, Perth and Darwin if you can wait out the price slump. Australian’s actually have it pretty good, which is evident when you look at just how popular we are with international investors. Sydney and Melbourne also offer the savvy investor plenty of opportunities to make smart money by taking advantage of increasing population numbers and firm job growth.

Is Overseas Property Investment Really For Me?

If the idea to invest overseas was hatched during an overseas holiday trip then you should also be cautious. An emotional attachment formed during a brief stint of wanderlust may lead you down the primrose path to investment capitulation.

Alternatively even if you’ve meticulously researched a specific country and feel like you’ve found a diamond in the rough, you still need to consider the time spent travelling to and from plus costings involved with local agencies and financial specialists. Remember that if it sounds too good to be true, it generally is. We advise that you seek professional advice if you’re serious about trying to invest overseas to make sure you’re not missing out on a once in a lifetime deal right here in the Australian property market before you go ahead.

Resources:

  1. Marc Terrano, 6th January 2017, “How to buy an investment property in the UK”, (https://www.finder.com.au/how-to-buy-a-uk-investment-property)
  2. Belinda Gadd, “Thinking of buying abroad?”, (http://www.domain.com.au/advice/thinking-of-buying-abroad/)
  3. Australian Taxation Office, Australian Gov., 25th February 2016, “Rental income from overseas properties”, (https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-overseas/Rental-income-from-overseas-property/)
  4. Belinda Punshon, 6th January 2017, “Don’t invest in overseas property until you read this”, (https://www.finder.com.au/investing-in-overseas-property)
  5. Australian Securities and Investments Commission, 17th September 2015, “Investing outside Australia”, (https://www.moneysmart.gov.au/investing/international-investments/overseas-investments)
  6. Australian Securities and Investments Commission, 13th December 2016, “Property Investment”, (https://www.moneysmart.gov.au/investing/property)
  7. Otto Dargen, 8th July 2015, “Can overseas property investment work”, (http://www.smartpropertyinvestment.com.au/opinion/14355-can-overseas-property-investment-work)

 

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