26 October 2016
Rows of semi-detached residential housing and apartment blocks are seen in this aerial photograph taken over Lee Valley, Hertfordshire, in the United Kingdom. Photo: Bloomberg
Rows of semi-detached residential housing and apartment blocks are seen in this aerial photograph taken over Lee Valley, Hertfordshire, in the United Kingdom. Photo: Bloomberg

Things to consider before investing in overseas property

Given the crazy home prices in Hong Kong, many of my friends have turned to overseas markets for property investment.

Apart from places such as United Kingdom, United States and Australia, of which Hongkongers are already familiar with, people have been looking at markets such as Japan, Thailand and Malaysia.

While there are rewards to be had in overseas property, one should bear some things in mind before making the investment decisions. 

Hong Kong people’s understanding of property values may not be in line with the actual reality in overseas markets, given the differences in the living environment between the city and elsewhere.

The uniqueness of location or history may be priced in certain overseas properties. Meanwhile, there could also be some hidden risks. 

To be an outstanding real estate investor, one should have curiosity. Real-estate investment requires understanding of the macro trend rather than micro perspectives.

An investor, for instance, needs to keep in mind factors such as economic growth, employment, urban planning and cultural aspects of the place where he will put his money. 

Turning points in trends will determine whether an investment turns out to be successful or not.

In practical terms, bear in mind four aspects. 1) location; 2) room for improvement of the project or apartment; 3) how to conduct the transaction at lower cost (taking into account issues such as tax, management fee, handling fee, etc.); and 4) financing strategies (leverage ratio will impact the return on investment). 

For those who have kids, they can buy properties near their children’s schools, and then lease spare units to other students.

According to Credit Suisse’s Global Wealth Report 2015, China has the largest group of middle class families holding the most amount of wealth after the Americans. The demands around the middle class kids’ education will be a long term positive factor for related properties. 

According to the UK’s Higher Education Statistics Agency, in the academic year 2013/14, international students from non-European Union region were up 3 percent, or a total of 310,000 students, from the previous year even as there was 1.7 percent decline overall number of students in higher educational institutions in the country.

Among the non-EU international students, about a third are from Hong Kong and mainland China and the ratio has been increasing. 

The increase in international students is positive for the UK in many perspectives. Besides direct contribution to the economy, it also has long-term strategic value. The international students in UK can help the country build long-term relationships with other nations in trade, cultural and foreign affairs. 

The investment horizons for real-estate assets are usually long, and people should consider possible variables. Supply of property will be heavily influenced by policies, and ultimately decided by politics. 

The greatest potential risk factor in the UK is a referendum at 2017-end which will decide whether the country will stay in the European Union or not. Many UK people have negative attitude toward the EU and the Middle East refugee issue may further push away Britain from the European continent.

Meanwhile, one should also bear in mind that not all UK citizens appreciate international students’ contribution to the local economy. Some people feel that tuition fees are being pushed up due to influx of foreign students and the latter also create more competition for local students.

Opinions of local people may influence urban planning and affect the balance of home supply.

Political uncertainties will increase a lot if the UK quits the EU. Given the new normal after the global financial crisis, political factors will become increasingly important for investors — whether we like it or not.

This article appeared in the Hong Kong Economic Journal on Oct. 20. 

Translation by Myssie You

[Chinese version中文版]

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