The merest glimpses across the world of property investment will show you that many investors are now looking overseas for better value. We have Chinese investors looking towards the UK, America, Australia and many other parts of the world. We have UK investors looking towards bombed out market such as Spain and Portugal as well as China. We then have Canadian investors looking towards the US while a whole host of overseas investors attack the Canadian real estate market.
Why is it that property investors often see better value outside of their own domestic market?
It is all good and well highlighting the fact that some international investors are looking towards China while Chinese property investors are looking across other areas of the world. However, there are many other influences to take into consideration which include: –
Currency movements can and do have a significant impact upon property returns in the short, medium and longer term. Volatile currency markets, as we have seen over the last decade, can make investment in overseas markets much cheaper if the exchange rate moves your way. For many people the idea is to use weakness in one market, or the strength of their own currency, to enhance their investment power overseas and then to exchange back into their own currency when currencies eventually balance out.
While a great idea in theory, is it as easy in practice?
Spreading the risk
It may not simply be a case of seeing better value in overseas markets but perhaps investors are already fully invested in their own domestic market. Any investment adviser will warn you that you need a spread of investments, taking in different countries, different types of property and different time spans. Not all of these will be available in your own domestic market therefore much of the overseas investment we have seen over the last 20 or 30 years could simply be a means of spreading the risk.
Tax has become a hot topic over the last few months especially in light of the so-called “Panama papers” which cast a very deep but unwelcome light upon the worldwide investment market. Investing in overseas markets may well have significant tax benefits for some property investors therefore it is no surprise to learn that tax is a consideration for many people. It is also worth noting that tax laws and tax levels in different countries can vary enormously leaving the potential to maximise returns outside of your own country.
Value for money
There are many different ways in which you can value property market and depending upon which method you use it can seem cheap, fair value or expensive. We only need to look at the London property market to see how demand can push prices to seemingly unsustainable levels but these levels have been intact for many years now. The bottom line is that investments are considered by comparing like-for-like situations and therefore those looking, for example, for exposure to the London property market may well see better relative value elsewhere. It is not quite as straightforward as this because you need to take into account potential capital growth and rental income but it gives you an idea of how people compare perceived value of properties around the world and may well find arbitrage situations.