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Newsletter 09/2017

Sponsors Updates | IP Global: Update on Offshore Investment

 

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A BUYER’S GUIDE TO OFFSHORE INVESTMENT

Purchasing property is seen to be a prudent investment as it can provide an individual with a solid income, increase their net-worth and enable portfolio and geographical diversification. Property is often characterised as a stable and reliable asset, when compared to more volatile alternatives like stocks and shares. Finally, owning property can also bring with it a sense of pride and security, being a tangible, physical asset to pass on to future generations.

IP Global recently conducted a survey with respected polling company YouGov, exploring the property trends within the UAE market. We found that 33% of UAE residents plan to invest in property in their home country rather than stocks, shares or bonds (21%) while 13% have plans to invest in property overseas in the next year.

Reviewing the results of the YouGov study from a global perspective, residents of the UAE had the highest percentage of people planning to invest in property abroad in the next 12 months, compared to Hong Kong, Singapore, China and the 

The YouGov study clearly highlighted a strong appetite for offshore property investment. However, choosing the right market for your investment is key. At IP Global our approach involves extensive research and due diligence that can be best summarised by the ‘PIE’ acronym; understanding each market’s population, infrastructure and economy before making our recommendations to clients.

The simple reason for this is that as a location’s population grows so does demand for dwellings, driving property prices upward. Additionally, a government’s approach to regeneration and improvements to transport infrastructure often correlates with rising population density, further increasing an asset’s value. Finally, a stable and robust economy with diverse industries and growing employment levels makes for a perfect investment opportunity.

However, before purchasing property further due diligence is required.  Investors should consider how easily you can extract your profit; researching the income, capital gains and inheritance tax implications of investing in foreign markets. Another important factor to investigate is the process of obtaining mortgage finance in international markets. For example, properties in Berlin are now extremely popular because, in comparison to British properties, they do not undergo capital gains tax after 10 years.

Although a market may make an attractive investment, when purchasing overseas properties, it is important to understand the entire purchase process, including the legal and tax implications for foreign investors.  Variables such as how and when to apply for a mortgage should be considered as the procedure changes significantly as per each country’s jurisdiction which can present a challenge in unfamiliar markets. A trusted mortgage advisor to guide you through the process is often an invaluable partner.

As a foreign investor, it is also important to consider the exchange rate and how currency fluctuations might affect the investment in the medium to long term. Currently, the strengthening US Dollar, combined with a post-Brexit world, makes it cheaper for investors to buy properties abroad residing in countries like the UAE, which is pegged to the US Dollar.

Once the purchasing logistics have been confirmed, potential investors also need to conduct their due diligence on their partners on the ground, assessing the credentials of all involved, from the developer to agents and lettings, to the property management teams. Additionally, they must understand the local rental market to ensure there is strong demand and future saleability prospects. Again, choose your partners wisely – ensure you are working with advisors that have a strong track record of success.

Choosing a buy-to-let property can enable investors to repay their mortgage via the proceeds of their rental income. We have seen customer buying behaviour change in the last decade as due to recent world events investors are becoming more cautious. Now our clients do not tend to buy trophy properties outright, but use their budget instead buy multiple properties in multiple locations – using mortgage as leverage to maximise their returns and enable their money to go further.

On the other hand, many clients do possess the total cost of purchase. Yet we would continue to promote the strategic advantages of leveraging (borrowing money). By using leverage to finance their investment, investors with a large amount could not only buy more than one property but buy types of property than they could not otherwise afford. For example, a recent analysis of IP Global’s London property portfolio found the return on property investment was magnified 2.7 times on average using this strategy.

Once investors have bought their property it is important to constantly asses the value and progression of your portfolio and if necessary re-evaluate your strategy whilst simultaneously managing tenants and property upkeep. The majority of UAE residents come to the region on a contract basis and so when the time is right we advise our clients to plan their exit strategy. By purchasing overseas this gives you more freedom but, overall, we recommend a 7-10 year minimum hold on an investment property.

To the majority of investors, the legal, mental and financial implications of purchasing overseas properties can be quite daunting.  Therefore, most rely on companies like IP Global, which has both local and global expertise in research, consulting, working with solicitors and facilitating the purchase and conveyancing, arranging mortgages, lettings and managing the property as well as advising on the optimal time for reselling.

Ultimately, the key advantage of acquiring offshore property is that it provides continuous reliable returns through capital growth and rental yields, whilst giving investors a passive income with minimal active management. For those individuals wanting to drive their net worth, property is the perfect and reliable asset and with the existing opportunity to monopolise on the strengthened US Dollar, the time to buy is now.

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Richard Bradstock, Head of the Middle East, IP Global 

ABCD Member

richard.bradstock@ipglobal-ltd.com

www.ipglobal-ltd.com

 

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