Watch out for these risks when buying property overseas

By EdgeProp Singapore / EdgeProp | September 22, 2017 11:33 AM SGT
Buying property in an overseas market presents diversification opportunities for your investment portfolio in terms of asset class and geography, as well as the glistening prospect of higher yields.
According to 2016 survey findings by property investment company, IP Global, Australia, the UK and Japan are the top three destinations among Singaporeans looking to invest in property overseas. Other popular investment destinations include Malaysia and Thailand.
However, venturing into an unfamiliar foreign market is no light decision and you could end up in a property investment trap.
Here are the top risks you should consider before embarking on a foreign property investment:
1) Foreign currency fluctuations
Investors take on foreign exchange risk when they purchase properties overseas. In 2015, the Malaysian Ringgit weakened about 40% against the US dollar, and sank to a record low of below 3 against the Singapore dollar amid falling oil prices and political instability.
Foreign exchange risk also affects rental yields and could result in further losses for property owners.
On the flip side, foreign currency fluctuations can also swing in your favour. For instance, if you’d bought property in London in 2013 when the pound was at $1.90 against the Singapore dollar, you would have made a pure currency gain of 15% in 2015.
The attractive exchange rates relative to the Singapore dollar also offer a pricing advantage for property investors here. However, for more stable returns, buyers looking to buy property abroad may consider seeking markets where the local currency has proven to be stable over time.
2) Developer risk
Developers in Singapore are subject to stringent requirements before they are allowed to build and sell a project. These requirements include safety records, architectural standards, and importantly, having sufficient funds to actually complete their projects.
Whereas in some countries, property developers may be allowed to start selling projects before they are finished, with the hopes that the sales will make up for capital shortfall and allow them to continue the project.
This is where it gets tricky, for should the developer fail to sell enough units to carry on construction, they will...