Thinking of buying a beachfront escape in Asia? Or planning to invest in a rental property in Europe? For many residents in Singapore, investing in foreign property is a popular way to make money go further or to provide some extra security for their retirement.
One of the first stages is to fully research all the costs of buying back home or in a new country, especially if it is your first venture into overseas investing. This means that you won’t be surprised by hidden costs that can arise and could even make savings along the way.
Here we have gathered five hidden costs Singaporeans should look out for when buying a property abroad.
For overseas property investors, it is important to spend time understanding the market in the country they plan to buy commercial or residential property in. Some unexpected costs a Singaporean investor should consider include:
- Short-term rental regulation changes that impacts taxes for example in Canada, where new rules for Airbnb and short-term rentals have been implemented, as well as across the EU and talk of introducing an Airbnb register in the UK.
- Economic and political stability can negatively impact a rental yield and your rent received is less than your mortgage repayments.
- Energy efficiency and national climate directives being enforced leading to compulsory upgrading of your overseas investment.
Fees and charges
Government fees or charges might also apply when looking to invest in property overseas. For example, non-resident buyers in Australia must pay a A$5 000 fee to the Foreign Investment Review Board (FIRB) if the property they want to buy is valued at under A$1 million and this fee increases by $10 000 for each additional A$1 million added to the purchase price.
Further fees to consider when investing could be a yearly management fee to pay the property management company in newer developments and any forecasted increases to this fee. This would need to be budgeted for and added on to the total cost of the property.
Transfer fees are one type of fee you needn’t worry about with CurrencyFair. Right now, CurrencyFair is offering new customers three months of unlimited free transfers for a limited time only. T&Cs apply. Find out more here.
To mortgage here or away
Singaporean investors buying abroad might also need to research if they can apply for a mortgage there or from a bank in Singapore.
If applying for a mortgage in Singapore, consider the Total Debt Servicing Ratio or TDSR . This serious-sounding framework was developed by the Monetary Authority of Singapore (MAS) to ensure Singaporean residents don’t borrow more than they can afford.
Currently the TDSR that financial institutions allow is 60%. However this includes all borrowings you have in Singapore and your mortgage. So a credit card balance, a monthly car loan repayment or that student loan you have almost finished paying will be factored into the borrowing percentage remaining when applying for a mortgage in Singapore.
Researching the best provider for a large money transfer to buy property overseas could lead to serious savings. Getting a better exchange rate and paying less fees means savings that can be used on renovations or upgrades to increase the value of your home.
With CurrencyFair, you can exchange in a peer-to-peer FX marketplace. The reason why CurrencyFair is so much cheaper than banks and other money transfer companies is because they can match you with our other users who are also looking for the fairest rate.
Request a rate and wait to get matched. You could even exchange at rates that are better than the currency market rate, a feature unique to CurrencyFair. Find out more here.
Foreign property laws
Investors in Singapore looking to buy property in nearby countries need to consider the laws on foreign ownership that exist there. This could mean being forced to purchase only new properties or properties with a minimum value. You might have to then increase your budget or limit the choice of property you can look to buy.
Foreign buyers in Thailand can only be the full owner of apartment units and cannot be the full owners of land. Even then, 51% of each apartment building must be owned by Thais.
Malaysia is popular amongst Singaporean property investors and the only restriction for Singapore investors is that full ownership of a Malyasian residential property is possible for properties with a minimum value of at least RM1 million.
Foreign investors are typically not allowed to buy property in Indonesia. Paying an Indonesian representative to purchase property on your behalf could be an option. However this process and the steps to make a contract could mean adding more to your property purchase bill.
For Singapore investors, thorough research and planning before deciding to invest in property abroad is important to understand if you are even eligible to buy there and also what hidden costs could arise as a foreign property investor.