Don't rush to buy into 'hot spots'

The Straits Times

Recent curbs hit genuine buyers

Malaysia has long been Plan B for Singapore property investors deterred by cooling measures and sky-high prices here, but there are plenty of pitfalls across the Causeway for the unprepared.

The fact that it's right next door does not lessen the risks for local buyers, who should arm themselves with a good understanding of the country's rules and regulations.

The very nature of investing in real estate offshore is in itself a chancy endeavour, as National Development Minister Khaw Boon Wan highlighted last Monday.

He warned in Parliament that Singaporeans, when buying properties overseas, should take note of the added risks and complexities arising from differences in legal and regulatory frameworks.

That has not stopped Singaporeans from making a beeline for Malaysian hot spots such as Kuala Lumpur, Penang and, more recently, Johor over the years.

The attractions are obvious: Many years of rising prices here have led those with smaller investment budgets to seek out more affordable units in Malaysia.

5 things to know before investing in overseas property

Click on thumbnail to view. Story continues after photos. CEA Consumer Guide; Photos: Dua Residency, ST, TNP, Bloomberg

  • Ask yourself the following questions:
<br><br> Is
this
foreign
property
an
investment,
a
future
retirement home, an accommodation for children
studying overseas, a holiday resort, etc.?
<br><br>What
do
I
want
to
get
out
of
this
property
–
passive
income
from
rental,
profit
gains
from
capital
appreciation, better living standards, etc.?
<br><br>What
is
the
financial
commitment
I
am
prepared
for and over what period of time? Can I afford it?
  • Understanding your needs will help you to decide on the
type of property and the location or country that you are
interested to buy into. Your needs and situation are likely
to be different from others. <br><br>
Do not rush into buying a foreign property because
others are doing so. You may regret your decision later if
the
purchase
does
not
fulfil
your
needs.
  • Be it a local or a foreign property, it is important to
do your research thoroughly before embarking on the
purchase. Some factors to consider in your decision-making process are as follows:
  • - Rules
and
restrictions
on
foreign
ownership<br><br>
Some countries may impose restrictions on the
types of properties, minimum property price or
location of the property which foreigners can
buy. Some countries may impose restriction on
reselling in the secondary market e.g. resell only
to the locals (citizens and PRs). Sometimes, buyers
of foreign property may do so via a local company
vehicle, which may come with added risks.

Certain properties may also have restrictions on
their use.
  • - Lease
period <br><br>
Some countries may define the lease
period differently from Singapore. <br><br>-Property
market<br><br>
trends
Most property markets experience ups and downs
known as property cycles. Depending on your
needs, be it a stable rental income or high capital
gains, you should understand the market trends
and the duration of each cycle to gain a better
insight in the foreign property market that you are
interested in buying into.
  • - Political, social, natural climate
 <br><br>
Understanding the country where you are buying a
property is also crucial. Foreign legal
frameworks may change suddenly and cause a change in policies.
The insurance costs in countries
prone to natural disasters may also be high. In some countries,
the availability and reliability of public utilities may have
to be considered. All these factors are likely to affect
the value and returns of your investments.
  •  - Buying
transaction
process<br><br>
As a foreign buyer, you are likely to face a more
complicated purchase process than local buyers.
For example, you may need to obtain approval from
local/central Government to own the property. You
may wish to find out more about the procedures
involved and the timeframe to complete the
process to ensure a smoother transaction.
  • - Dispute
resolution
avenues
and
relevant
laws <br><br>
In addition, you need to be aware of any relevant
laws that apply to your transaction. If ever there
is any dispute, you need to know the dispute
resolution mechanism that will apply in the event
that your transaction does not go through smoothly.
You should find out under which jurisdiction the
dispute resolution will be handled.
  • - Approved
building
plan <br><br>
If the property is still under construction, you
can ask for confirmation that the property had
obtained building plan and other necessary
regulatory approvals in the country where the
property is located.
  • - After-sales
support <br><br>
Find out if there is any service support from the
developer after the sales is completed e.g. whether
there will be progress reports on the property
development if it is under construction. If there is
support, ask for the extent of the support in writin
  • For
new
property
purchases, examine the track record
of the property developer to see whether it can deliver.<br><br>
For
resale
property
purchases
, ask about the
condition of the property and neighbourhood where it is located. <br><br> 
Prior
to
signing
any
agreement, read
and understand all the terms and conditions carefully.
If the documents are written in a different language, ask for a translated copy.
  • Foreign properties may appear to provide better value
and returns than local properties. However, you must be
aware of the associated costs and financing limits when
doing your financial planning to make the purchase. <br><br>
You should find out what is the total financial
commitment before you purchase the property. The
initial downpayment may appear low but progressive
payments may add up to a heavy commitment.
  • It may be possible that discounts and guaranteed returns had already been factored
into the price and costs that you have to pay.
<br>
In some countries, you may be liable to pay capital
gain tax if your sell your property. You may also have
to pay income tax if you receive rental income from
your property.
  • Other costs:
<br> Housing
loan
or
Loan-to-Value
limits
<br>• Valuation
price
<br>Mortgage
interest
cost
<br> Conveyancing
or
legal
fees
<br>Mortgage
legal
cost
<br>Maintenance
fees
<br>Conservancy
charges
<br> Insurance
costs
<br> Ground
rent
<br> Stamp
duty
fees
<br>Property
tax
• State
consent
fee
• Car
park
lot
may
need
to
be
purchased
separately
• Salesperson’s
commission,
if
engaging
a
salesperson
  • While
you
may
be
attracted
by
claims
of
ostentatious
returns, promotions and freebies stated in the promotion
materials or advertisements, you must be discerning in
reading such claims.


<br>For example: 
<br>High
and
guaranteed
returns
e.g.
XX%
Yield
guarantee!
  • Exercise due diligence and do not be rushed into buying
any foreign property without carefully considering your
needs and the financial commitments.
  • If the property is not marketed and sold directly by
a property developer, ensure that the sales agent/
representative is registered with CEA.
  • You should only engage a salesperson who is registered
with CEA. Please request for the salesperson’s
registration number, and verify that he or she is listed on
CEA’s Public Register at www.cea.gov.sg before engaging
his or her services.

Several rounds of property cooling measures and loan restrictions have pushed wealthier investors northwards too.

At the same time, the ramping up of development in Iskandar in recent years has attracted a wide variety of Singaporean buyers, from savvy speculators to retirees looking for a more laid-back lifestyle and lower cost of living.

Of course, Malaysia is not the only market that Singaporeans have targeted.

In fact, it was the rush to invest in foreign fields that prompted Mr Khaw to sound his warning last Monday.

The Council for Estate Agencies (CEA) released an online guide this week that will provide some general tips on buying property overseas.

It will also step up efforts to regulate estate agents marketing foreign properties here.

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