There are three types of people that have an interest in investing in overseas property.
First, there are those that are from a particular area who may like to hold real estate there. Secondly, there are those who have visited the area and may wish to return periodically for a holiday or make a more permanent move and are looking to establish a base. Finally, the genuine investors who may believe that a particular country offers better growth prospects rather than investing in their own country’s real estate.
Investing in overseas real estate can be beneficial, especially when you are investing in a country that will see faster growth than Australia. Typically, these are what is classed as a developing country. These countries may be subject to strict ownership rules to protect their own citizens from being priced out. To own property in these countries, you may be required to be a citizen.
It is possible to do deals with citizens in countries such as this, but it is fraught with great risk. You really need to trust them.
Other countries have also begun enforcing the extra taxes that can be charged to a foreign buyer (similar to the foreign purchase stamp duty paid in Australian states). This needs to be factored in when making any investment. For example, stamp duty in Singapore for a foreign buyer can be as high as 30% of the purchase price.
If you intend to hold foreign property in an SMSF, there are additional factors to consider. You may not be able to hold the asset in the name of the trustee, which will therefore require that you prepare some sort of trust declaration that may or may not be valid in the country that you are buying in. Your auditor will need a formal valuation of the property (as they do with Australian properties) but it needs to be done in a manner acceptable to the auditor.
Difficulties can arise when you own real estate in a non-English-speaking country, where all the documentation is prepared in a language other than English. Your auditor will have a lot of work to do to ascertain that you actually own the property and what the value of the property is. You will not be able to refer any service providers to the auditor as they are required to be independent.
Before making any final investment decisions when it comes to purchasing overseas real estate, speak with us about the pros and cons. We may be able to provide you with additional information and insight that you might not have been able to access otherwise.
Investing in Overseas Property in SMSF? Please reach out to us if this is something you are contemplating.
Book a free discovery call with Natalia Clack here.