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Buyer beware: A look at overseas property investments

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Hongkongers are mad for property investment, and with skyrocketing local prices investors are increasingly looking overseas. Elizabeth Kerr reports.

Real estate has been referred to as the single greatest asset an investor could buy. Stocks, bonds, commodities and currencies are subject to volatility, and lifestyle investments like wine, art, vintage cars, stamps and coins – ‘investments of passion’ as global property agency Knight Frank refers to them – are hit and miss. You might get lucky or you might get vinegar. But real estate as an asset class never goes out of style, and over the long term it never loses value. Or so the thinking goes.

Recently, property markets worldwide have found themselves subject to stiff cooling measures in the form of taxes (Singapore, Australia, New Zealand and Canada), peaking (London), closing (Switzerland), mass exodus (London again) or restrictive shortterm rental regulation (Japan). As a side effect, Argentina’s currency crisis will have a negative impact on property owners, particularly investors, as it drastically increases interest rates, and Thailand’s last coup d’etat has yet to result in elections. Property has become a thorny issue.

Nonetheless, research by Hong Kong advisory IP Global suggests the appetite for investment property doubled in the SAR between 2016 and 2017. Reasons for this include a desire for a second home, sending kids to school, and post-97 wealth preservation. Smart investment is also ingrained in Cantonese culture. “Hong Kong is very sophisticated and cosmopolitan, blending the cultures of Asia and Europe. [It’s] 98% Cantonese… [and] Cantonese habits and customs are dominant,” theorises Peter Chu, overseasadvisor for the Plover Cove project in Chiang Mai, of Hongkongers’ thirst for investment property.

Andrew Sprowell, BuyAssociation Asia managing director, agrees. “Relatively cheaper overseas property often provides the only opportunity for a large demographic of Hong Kong investors to access this popular investment asset class,” he says, adding that for those who can stomach Hong Kong’s prices, overseas property is also a strong way to diversify a portfolio.

Oz and the Great White North

However, according to analysis by Colliers International, property bubbles are in danger of blowing up in two of Hong Kong’s most preferred investment locations, Australia and Canada (and Hong Kong), stemming from elevated valuations and high debt rates. Despite those fears, investors continue to pour into those locations. Both Toronto and Vancouver saw transaction volumes drop after each implemented 15% foreign buyer duties, but not significantly. Why? Australia and Canada are transparent lifestyle locations, with good schools, stable, progressive governments and favourable currencies.

“Mainland Chinese investors [invest] to move capital,” notes Jennifer Kay Chan at Forest Hill Real Estate in Toronto. Demographics also play a part in locations like Toronto and Sydney, where high immigration rates mean viable tenant pools.

Which raises the most important questions about the purpose and stability of an investment for those considering foreign assets. Apart from market fundamentals, security and goals are where to begin. Security includes factors such as tax laws, ease of exit and, increasingly, transparency; goals simply refer to what the investment should accomplish.

As a rule, Andrew recommends medium to long-term investments in locations with strong resale markets and limited supply. “In addition, restricted supply generally translates to higher tenancy occupancy rates, so your investment property is tenanted and contributing an operating income consistently.” So where does anyone considering stepping into the investment arena go? The same recommendations come up time and again for good reason: Tokyo, Berlin and Birmingham are noted for their favourable demographics, strong rental yields, robust tourist arrivals and, above all, affordability. Resort investments are always a consideration. Thailand, Indonesia (specifically Bali) and Vietnam are among the most popular destinations for investors seeking soft white sand and crystalline waters. Properties in those spots pull triple duty: revenue generators, vacation homes for owners, and potential retirement locations.

The Land of Smiles

Even with rising land costs, Thailand remains a popular choice among Hongkongers. Geographical proximity helps, as does a similar culture, and relatively strong transparency and property rights. Southeast Asia is a rising property policy star – ownership laws and transparency are improving every day – and Thailand has been the vanguard for years.

Stable development and transparency are “key essential and sustainable attributes attractive for both Western expatriates and Hongkongers, almost nullifying the 2014 coup,” says Peter. “Relatively it was inconsequential compared with the nationwide unrest frequent in regional countries such as Malaysia and Indonesia.”

Additionally, the cost of living remains reasonable when compared to other major locations, the lifestyle is nearly ideal for retirees, and there’s a choice between urban centres and more relaxed, less frantic emerging city locations such as Chiang Mai and Phuket. Added to which, Thailand has no annual property tax. Buyers pay everything up front, once, at transfer.

“Moreover, the standard of medical care across Thailand is very high and costs are extremely reasonable. This has helped to make the country a popular destination for medical tourists and retirement. Together with its reputation for international schools and [as] a haven for IT nomads, Thailand ranks top for comprehensive value and an all-in-one starter and retirement investment,” finishes Peter.

Dear old Blighty

But sun, sand and surf aren’t for everyone. Notably, even with Brexit set to have an enormous impact on London next year (despite the official word from The City of London), the UK capital remains the world’s single most popular investment location.

“A lot of investors see Brexit as an opportunity. They don’t necessarily see the politics as anything negative,” says Mei Wong, Knight Frank’s executive director, head of international residential sales. “They just want to make sure they’ll continually get tenants, a reasonable rent, a good price and so on.”

Consistent undersupply, widespread public-private regeneration that boosts surrounding area prices and a mature and transparent legal infrastructure have set the bar for all investment markets, and on a cultural front, what Andrew refers to as “Generation Rent” has become a key rental sector driver, creating a viable tenant pool for owners.

The UK ticks all the boxes, and with London having peaked (prices dropped 0.4% last quarter according to Knight Frank data) the door has swung wide open for alternative locations in the so-called Northern Powerhouse and Midlands Engine. Major infrastructure (high speed rail links, new airports) and business development commitments have put Manchester (home of the new BBC studio), Birmingham (HSBC, Deutsche Bank and PWC headquarters), Liverpool and Leeds on investor radar for their stellar capital appreciation and up to 5% rental yields. Second tier UK is attracting Londoners too, and graduates are remaining both for growth potential and for a higher, affordable standard of living.

Traditional investments like bonds and equity markets are currently either volatile or underperforming – and so “for mere mortals such as us, it represents serious risk,” says Andrew. “Property in comparison is a stable asset class within strong markets and provides a stable income… Working with an expert in the market allows you to build a portfolio that meets your investment goals, whether that is a leaning towards capital growth, income or a mixture of both.”

• BuyAssociation, www.buyassociation.co.uk
• Colliers International, www.colliers.com
• Forest Hill Real Estate, foresthill.com
• Knight Frank. www.knightfrank.com
• Plover Cove, www.plovercove.com

Illustrations courtesy of www.freevector.com

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