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09 June 2013

Hot spots abroad for property investors
The perks and pitfalls of investing in the Philippines, Britain, Australia and Thailand

Source: Sunday Times | Invest
By Rachel Scully

Analysts can trumpet the benefits of shares, bonds and other investment products till the cows come home but Singaporeans still like to put cash into boring old bricks and mortar.

That's been the case for decades but the big difference now is that foreign fields are looking more fertile than our own patch.

Surging prices on the one hand and tough cooling measures on the other have prompted many local buyers to eye property overseas.

Buyers are finding themselves spoilt for choice with increasing numbers of property roadshows calling in here from overseas, dangling lower prices and higher rental yields.

But there are plenty of pitfalls out there for the unsuspecting buyer, so there is a lot to know before you throw thousands of dollars into a foreign country.

Financing is one such area. While Singapore banks may provide loans for property in established markets like London, buyers will still be exposed to currency risk.

The sharp fall in the Australian dollar in recent weeks, for example, may well have caught out some borrowers.

We look at some cities in two established property markets - Australia and Britain - and two up-and-coming ones - the Philippines and Thailand - to see why they make good investment choices.

Know the rules in each country


Why it's hot now

Demand for residential property is growing because incomes are rising and more people are leaving the family home to form their own households, says property consultancy Colliers International.

Factor in rental yields of 5 per cent to 7 per cent, low interest rates and an inflation rate of about 3 per cent and you have a highly appealing market.

Ms Doris Tan, head of residential international project sales at Jones Lang LaSalle, says prices in prime downtown districts in Manila are about one-third of those in Singapore.

Be mindful of

Local policies and regulations. Colliers International says foreigners can purchase only condominium units and not landed property.

Foreign buyers can own the units outright so long as the condominium as a whole is not more than 40 per cent foreign-owned.

Banks in the Philippines offer financing options to foreigners who are residing there.

Singapore banks do not yet offer loans to buy Filipino property as it is still seen as a niche market.

Investors should also ensure that the location matches their investment purpose.

Rental demand, including from expatriates, is strongest near the major business districts of Makati City, Bonifacio and Ortigas in central Metro Manila.

The Pasay-Manila area has also become a preferred destination for expatriates working in the Pagcor Entertainment City, which will eventually have four integrated resorts with casinos.

Ms Tan says that Manila is a new territory for investment, so there may be some hiccups when buying there.

"There may not be a secondary market for resales, so it is only good to buy for rental yields," she adds.

What's available?

Arya Residences, an eco-friendly designed condominium with about 500 units released so far.

The two-tower freehold condo is at McKinley Parkway in Bonifacio Global City, a new business district in Manila.

It offers one- to three-bedroom units ranging from 12,440 pesos (S$352) per sq ft (psf) to 18,255 pesos psf.

Buyers can expect to get their units in Tower 1 by the first quarter of next year and those in Tower 2 by the first quarter of 2016.


Why it's hot now

Apartments in downtown Bangkok are most appealing to investors, says Mr David Simister, chairman of CBRE Thailand.

The prices are also more affordable than in Singapore, says Ms Linda Chern, head of international project marketing at Knight Frank Singapore.

A one-bedroom apartment in downtown Bangkok can be had for about $200,000.

United Overseas Bank provides up to 70 per cent loans for Thai property.

Colliers International says foreigners can own freehold condo units in Thailand, unlike in some other countries in the region like Myanmar.

It recommends condo projects in the Bangkok central business district area with easy access to the sky train or those enjoying a river view.

Be mindful of

Rental contracts in Thailand typically last for two years.

You should also ensure that the freehold property is registered in your name, says Mr Simister.

If you want a fuss-free option, buy a flat that is managed or leased back to the firm that is selling it, he adds.

Make sure the yield is in line with Bangkok's market, which is now as high as 5 to 8 per cent, says Colliers.

As in any condo purchase, check for costs such as maintenance, sinking fund and other fees.

When selling, there are underlying tax and fees payable at the land office when the property is transferred to the new buyer on top of a commission payable to the agent, says Colliers.

What's available?

Weltz Residences at Sukhumvit Road in Bangkok and 140m away from the sky train station BTS Phra Khanong.

The condo occupies 11 floors of a 50-storey mixed development unit. The freehold 177-unit project is priced at an average of 11,613 baht (S$444) psf for its studio apartments and one-, two- and three-bedder units.


Why it's hot now

The exchange rate of the Singdollar to the pound has effectively cut the purchase price of central London properties by up to a third compared with seven years ago, says Mr Darien Bradshaw, executive director of international project marketing Asia for CBRE.

And London continues to be a choice destination for Singaporeans for tertiary education.

"London's rental market continues to be very healthy, backed by a strong tenant base of working professionals and students," he adds.

Foreigners are also not subjected to capital gains tax and buyers get clear legal titles in a regulated and established market, says Knight Frank Singapore's Ms Chern.

Average prices are on the rise, up 9.6 per cent over the past 12 months and 26.4 per cent in the past four years, says Colliers International.

Be mindful of

Investors should look out for rental yields of 4 to 5 per cent and strong prospects for capital growth and appreciation, adds Colliers.

Leases tend to run for a year.

The stamp duty is the same for local and foreign buyers: 7 per cent for homes costing more than £2 million (S$3.9 million); 5 per cent for those costing £1 million to £2 million; and 4 per cent for property below £500,000, says Mr Bradshaw.

He adds that there are no restrictions on selling to locals and foreigners.

What's available?

The development 375 Kensington High Street has 500 units priced at an average of £1,500 psf, ranging from penthouses to one-, two- and three-bedder units.

The 999-year leasehold block, which is priced at an average of £1,500 psf, is within a 10km radius of the London School of Economics, King's College London and Imperial College.


Why it's hot now

The Singdollar has appreciated against the Aussie dollar by about 9 per cent since March, says Colliers International.

Investors who buy off the plan can get stamp duty savings of up to 5 per cent.

Interest rates have been declining for the past year and are tipped to fall further with mortgage rates now starting at around 5.5 per cent.

Sydney is seen as particularly attractive, given its huge under-supply of property. The rental market there has vacancy rates hovering at 1.3 per cent and yields at between 3.5 and 6 per cent.

Jones Lang LaSalle's Ms Tan says many Singaporeans have bought property in Melbourne and Sydney because of their children's education.

Be mindful of

Australia's taxation system is different from Singapore's and buyers must understand it before entering the property market.

Although there is a capital gains tax of up to 50 per cent when a property is sold, there are ways to mitigate it through proper tax planning.

Buyers are encouraged to get guidance from a tax or mortgage adviser. In addition, there is a tiered stamp duty of between 3.5 and 5.5 per cent when the property is sold or transferred.

What's available?

Skye by Crown is a 20-storey mixed development with 232 apartments - studios, one-, two- and three-bedders and three penthouses - in North Sydney.

They are priced at an average of A$1,083 (S$1,283) psf. The freehold project is developed by Crown International Holdings.