Advice and Opinion

Five mistakes to avoid when investing in overseas property

Identifying the world’s best property investment opportunities can be challenging for the solo investor, making research and analysis support essential. International investment teams are experts in their local markets and undertake extensive due diligence, working with industry-leading developers to bring only the very best real estate investment assets to market.

Local expert George Radford, Director of global property investment firm IP Global’s Africa operation, offers his top tips for those preparing to invest overseas:

1. Do your research and choose your partners wisely

Radford has seen clients enter into big investments before knowing all the facts, getting their fingers burnt in the process and seeking advice after investments have gone wrong.

“It’s primarily due to not doing enough research beforehand so I can’t stress this step enough. Alongside understanding fundamental factors such as supply and demand data and growth projections, don’t forget the more technical aspects that can make or break the profitability of your investment,” says Radford.

“Gather facts on how, where and whether you can invest, develop an understanding of the purchase process and associated costs. Think carefully about how you will manage tenanting, management and even, eventually, who will buy the property when you are ready to divest.”

2. Ditch the DIY route / Ask for help

Even if you have undertaken thorough research, many people have tried and failed to navigate the investment waters solo. Radford says it’s imperative to work with the right partners, as there are so many elements you may not be aware of.

“There is no quick and easy fix when it comes to offshore property investment,” he explains.

“Some people will over-commit themselves, and many people make the mistake of not budgeting accordingly if they don’t have the help and guidance of experts in the field. Ensure you only work with credible partners – from developers to investment consultants or lawyers. Who you partner with is crucial to your success!”

3. Be aware of hidden costs

It’s important to fully understand the costs associated with offshore property investment – both transactional and operational – as there are many “hidden” associated costs.

According to Radford, people often go into big investments with less money than they actually need. Not fully understanding all of the costs associated with foreign markets is a huge mistake.

“It’s not just the price of the property that you have to pay, but also operational costs and ongoing taxes – legal costs, mortgage fees, transfer taxes, council tax and rates, service charges and ground rents,” he says.

A recent YouGov report issued by IP Global revealed that these are among the most frequently cited barriers for potential South African investors.

According to Radford, South Africans, over all other markets taking part in the global property market survey, were most concerned about costs and currency fluctuations due to South Africa’s volatile economic climate.

4. Understand the legal and tax implications

Before you invest offshore, it’s imperative to understand all the implications of investing in foreign markets. A big part of property investment is understanding what’s going on in markets and economies as a whole.

“Before looking to invest in a country, you have to fully understand the legal structures of the country or market you’re investing in,” Radford explains.

“It’s wise to understand the tax implications of investing in foreign markets – income, capital gains and inheritance tax, as well as understand the requirements to get a mortgage or bond in international markets.”

5. Know where to invest

You might consider investing in a country that appeals to you for any number of reasons, but it may not be the most sensible option from an investment perspective.

Radford concludes: “It is not simply enough to choose a city; you need to know the ins and outs of the city itself. We focus our investments on specific locations that represent pockets of value. These are safe-haven markets that will deliver stable, sustainable yields and capital appreciation over 5 to 10 years as a result of rising populations and demographic trends, major infrastructure upgrades and steady economic growth. From up-and-coming neighbourhoods in Melbourne and Berlin, to regenerated riverside sites in Manchester, the specific locations we pick have a lot in common.”