If you had asked private investors 20 years ago whether they should balance their domestic property portfolio with overseas exposure, the vast majority would have probably dismissed this out of hand. The simple fact is that before the Internet it was nigh on impossible to keep track of overseas property markets without the use of potentially expensive agents and advisers.
The situation has changed dramatically over the last 20 years and much of this is down to the Internet and the information now readily available to everybody. However, this still begs the question, should you look to balance your domestic property portfolio with overseas exposure?
Spreading the risk
While much of this will depend upon how you intend to build your property exposure, by direct investment, property shares, investment trusts or other collectives, it will also depend upon the size of your investment pool. It is relatively simple to buy tradable shares in collective investments today which will give you ready exposure to any area of the worldwide property markets in an instant. For many people this is perhaps one of the easiest ways to build up their property exposure but there are obvious issues to take into consideration which include the cost and lack of input to name but two.
Are you a hands-on investor?
Many people will be content to buy shares in collective property funds but others will want to have a more hands-on strategy picking and choosing which investments to buy and, perhaps just as importantly, when to sell. As we mentioned above, the introduction of the Internet has given many would-be property investors the opportunity to do research in the comfort of their own home and acquire direct property assets, building a portfolio over time.
Before we look at specific overseas exposure and the additional risks compared with domestic property investment, is there really a need to look overseas? If you pick any one country in the world you will see an array of subsectors to the main property market. The reality is that the vast majority of countries will offer you exposure in some shape or form to whichever area of the market catches your eye. So, if you are purely and simply looking to spread the risk of your property portfolio then perhaps you do not even need to look overseas and can take advantage of the very different subsectors of your domestic market?
There will be others who have “spotted” potential property hotspots of the future and we will take Dubai as an example in this instance. This is a real estate market which was relatively untouched prior to the turn-of-the-century rising to heady heights just before the 2008 worldwide economic crash. While the Dubai real estate market has recovered significantly since 2008 this does perfectly illustrate the risks of buying overseas property without “knowledge on the ground”.
There are obviously additional risks to take into consideration when looking to buy property overseas which include the currency, local regulations and a lack of “hands-on knowledge”. That is not to say that overseas property investment cannot work but for the vast majority of people direct investment in overseas property markets is possibly a step too far?