Investing in overseas property must be an ‘unemotional decision’

Last week, Inquirer Property discussed the prospect of Filipinos investing in properties overseas, using as an example the tempting offer of the soon-to-be-completed Australia 108—Melbourne’s tallest building said to be within the five-kilometer radius of the city’s top universities.

Barry Plant’s head for international business Annie Lim stressed that investing in Australia 108 would be a “wise overseas investment for Filipinos.” Filipino investor Dominique Arcenas explained that in Australia 108, the return on investments within the next two years “becomes 150 percent.”

Exciting numbers, indeed. But should Pinoy investors rush in based on these claims?

Inquirer Property interviewed Enrique M. Soriano III, Ateneo program director for real estate and senior adviser for Wong+Bernstein Business Advisory. He advised Pinoy investors: “Just like any big-ticket purchases, the first step is not to rush in and buy the first property being offered.” He added: “It is also prudent to do your homework by linking with professional and independent property agents who have no vested interests and who are based in the host country or state. (They will) be able to help you make unemotional decisions.”

Soriano added that for Filipino investors with an appetite for investing overseas, do consider these fundamental metrics:

1 Locational quality. If you are looking for price growth, a safe bet is to buy property as close to the central business districts as possible.

2 Supply and demand. Do your homework. Check vacancies and see how long properties have been out in the market.

3 Demographic. Research the people who live in the area. Since Australia 108 is in a university town, that would be a plus, a good starting point, but you also need to look at the growing population as well as a strong disposable incomes that can weather the downtimes when the market softens.

4 Future-proof your investment. It pays to do some research into future housing developments in case there’s a risk of oversupply. Check the annual housing or apartment turnover in the area where the project is located. You might be faced with so many units coming onstream from several developers in the coming months or years.

5 Infrastructure. Check how public transport, new roads and other public amenities that support the growing student or university-belt community are progressing. If you have more time, check what the state government’s long-term spending plans are to find out what projects are in the pipeline and where they are located.

6 Check out the people behind the project, their credentials, funding source, ownership structure, concept of the development and a recourse related to risk and liability scenarios, as the project is based overseas.

7 It is in every investor’s interest to probe and inquire risk mitigation policies and options for exit in anticipation of worst–case scenarios.

8 Investors should look into Australian regulations and restrictions related to offers of a 150-percent ROI for a property development.

Soriano said the rules by the Australian government for buying real estate have been made easier. “Before buying a piece of real estate, one just needs to obtain approval from the government.”

“The bottom line is, it pays to seek professional advice to learn about Australian foreign investment rules about buying real estate,” he added.

Soriano’s other tips include:

• Determine the actual costs to the investor before and after taxes.

• Understand and manage the risks that may be involved balanced against the optimum capital-growth fluctuations in foreign currency.

• “Take note that our local developers can only offer an annualized average of 8 to 12 percent,” Soriano disclosed.

Soriano concluded: “Real estate investors should be aware that the primary reason for investing in property is capital growth, and capital growth is driven by scarcity of an asset. When selecting a property for capital growth, there should always be a consistently greater level of demand and supply.”