When living abroad as an expat it can be tempting to invest some of your spare cash in a local property. But is it the appropriate investment for you? In this article we look at the benefits of investing in overseas property.
There are many benefits of investing in overseas property, but there are also a number of things you need to consider. In this article we focus on the advantages of investing in overseas property and we cover a number of the risks of buying overseas property in this article.
1. Investment Diversification
One of the biggest benefits of investing in overseas property is the diversification it can bring to your investment portfolio. For many people, their personal wealth is heavily weighted in Australian residential property (through ownership of the family home), and then secondly in the sharemarket (through their superannuation fund). And while there is much conjecture as to which direction the Australian property market is moving, there is always value in diversifying your investments.
A big advantage of investing in overseas property is you can provide your investment portfolio with diversification not just in terms of asset class but also geography. Property prices tend to correlate with the fortunes of the broader economy, and so investing in an overseas property provides exposure to the success or otherwise of another economy (or protection from a protracted downturn in the Australian economy).
2. Currency Diversification
As with investment diversification, investing in overseas property provides the opportunity to diversify your currency exposure. Having all your investments in Australia, means you are fully exposed to the fate of the Australian dollar. Currency diversification obviously also brings with it the associated risks, and you may want to consider mechanisms to manage your currency risk.
3. Makes it affordable to own a second home, holiday home or even retirement home
For many people, it is just not financially possible to purchase their first or another property in Australia due to the high purchase costs and, relatively, high interest rates. Whilst buying that holiday home on the beach in Australia may set you back $1 million, a property offering a similar lifestyle in another country could cost less than a third of that.
4. Access potentially higher yields and returns
When investing in residential property in Australia it can be difficult to find positively geared investment properties. That is, to find properties where the rent is greater than the costs of owning the property. Depending on the country you are considering investing in, investing in overseas property may provide you the opportunity to obtain higher yields and as such positively geared investments.
5. Easier to finance and at a lower cost
It is becoming increasingly difficult for Australian expats to finance Australian property. Since mid 2016, Australian banks have tightened lending criteria and for many people this has meant they are now no longer able to finance property or they need to provide an increased deposit (eg. 30%).
Buying property in your overseas country of residence may be easier, and you may be able to access interest rates much lower than borrowing rates in Australia.
6. Ability to live in your own home while living abroad
If you are going to be living overseas for an extended period, the idea of renting for that time may not appeal. Investing in an overseas property to live in (like Sam) enables you to remove the complications of being tenant whilst living abroad, and enables you to truly make your house abroad your home. A word of caution though – property is a long term investment, and so it would be a high risk strategy if your only intention was to own the property for a relatively short expat assignment.
You can also check out my thoughts on whether you should buy or rent while living abroad.
7. Tax Benefits
Whilst you need to understand the tax implications for your overseas investment property while living abroad, owning a property overseas once you are living back in Australia may provide some tax benefits. As an Australian tax resident, it is generally possible to depreciate an overseas investment property (subject to a number of factors including the age of the property), and you may also be able to claim the cost of a trip to inspect your overseas property each year as well as other costs associated with owning the property (eg. maintenance, loan interest, and property management costs). Of course, as an Australian tax resident, you will also need to declare your rental income from the overseas property.
If or whilst you are a non-resident for Australian tax purposes, then you will not need to declare your overseas property investment to the Australian Tax Office.
8. Owning Property Can Provide Permanent Residency
Investing in overseas property in countries such as Colombia, Panama and Malaysia will, under certain circumstances, give you the right to permanent residency. This presents some interesting possibilities if you are looking for a lower cost of living in retirement or considering retiring abroad.
Before investing in overseas property, you should also consider What you need to know before buying a property abroad.
Have you invested in property overseas? What was your reason and what has been your experience?
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way. The Australian Expat Investor may receive referral commissions from companies referred in this article.