Investing in Property
your chosen location on its own merit
Deciding on the best foreign markets to invest
in is a case of weighing up the potential for growth and rental income against the risks and
Each country's property market have different
rules, which can also vary from time to time. You need to consider all different angles for your chosen
location, before you decide if it's worth the risk.
|Investing in property
abroad means doing your homework well for the
chosen location, to weigh both positive and negative
vary from country to country
For example prices of residential homes in Beijing rose by 20%
in 2005 (according to the Beijing Municipal Construction Committee), however there are many issues regarding the
transfer of funds out of China, a 5% tax on rental income and the possibility that the Chinese government could
claim the land back.
Latvia on the other hand presents a lower risk to foreign
investors, with membership of the EU and the ability to borrow up to 90% of the value of the property making it a
more appealing choice.
However, this is not to say that an investor can simply buy any
property in Latvia and expect to make easy rental returns. Like any foreign market, the risks are generally higher
than buying in the home market. Not the least because you're working on an unfamiliar terrain.
To help encourage potential landlords to overseas markets, a
number of investment companies are offering guaranteed rents for anything up to 5 years. Rental guarantees, it is
argued, provide a reliable safety net for riskier markets, however many experts warn they are merely a marketing
tool and advise investors to look very closely at the deal being offered.
One of the biggest issues with guaranteed rentals is a lack of
demand for the property once the period has finished. Guarantees are often used to market properties that otherwise
would not sell and many investors are shocked by the resulting drop in income.
Footing the rental bill
In addition to this, it is often the case that investors end up
footing the rental bill themselves, when developers inflate the price of the property to cover the guaranteed rent.
This can provide a further shock when the investor tries to sell the property and realises that it is not worth as
much as they originally paid for it.
If you do opt for a guaranteed rental deal, make sure that it
is properly underwritten by a bank. Otherwise you would be at risk of losing the guarantee if the developer were to
go out of business.
Poor regulation means that it is also worth checking the small
print for any hidden clauses that enable the developer to avoid paying the guaranteed rent and it is always a good
idea to seek expert advice.