Ben Kingsley, chair of Property Investment Professionals of Australia(PIPA), said that offshore property investment could prove to be lucrative for some investors. The high potential for yield is the first reason.
“[Investors]Offshore property may offer higher yields. Rental yields in Australia have contracted as property values have gone higher, so potentially there may be a more attractive rental yield that is coming from offshore property,” he told news.com.au.
Domestically, things aren’t looking very rosy. According to data from CoreLogic, rental yields hit record lows last November across Australia’s capital cities largely due to dwelling values continuing to rise at a faster rate than weekly rental rates.
The average gross rent yield is 3.2%. This is lower than the 4.1% and 3.5% of five years ago. CoreLogic research head Tim Lawless said that Australia’s rental yields are expected to continue falling.
Second, Aussie investors may also benefit from investing in property overseas.
“There are investors taking advantage of holiday access,” Kingsley said. “So they might be on holiday in South East Asia and see some type of development going on — a condo complex near the beach — and they can invest in one and rent out the room and get some income from that as part of a holiday accommodation. But they can also be attracted by the incentive of a couple of weeks holiday each year, where they can holiday in that location.”
Third, investors might be eligible to benefit from stronger foreign currencies. If there is an improvement in the currency of the country they’re going to invest in and the Australian dollar falls against that, it could lead to significant uplifts in terms of currency exchange.
Both the rewards and the risks
While investing in offshore property offers unique benefits, it’s a lot riskier than keeping your portfolio local. Kingsley admits it probably isn’t a wise move to invest abroad unless you’re a seasoned and committed investor. It takes more research and effort to manage properties in other countries.
An investor must address many issues and concerns. Who will collect the rent? What happens to the property if it is damaged by natural disasters? “There are some real high-risk, time-consuming and potentially expensive considerations, especially if you have to travel to that country and sort out these issues. It is certainly for those who are a little bit more experienced,” Kingsley said.
Kingsley suggests you work with an International Law Firm or an International Law Agency to ensure correct title transfer.
Kingsley recommends that investors seek out good markets overseas. He also emphasizes the importance areas that have strong employment, committed infrastructure development, and are known for their reputation.
Understanding tax arrangements
Investors who intend to invest in offshore properties need to be aware of tax rules. All overseas income must be declared as income to the Australian Taxation Office. This includes any rental income received from overseas properties, as well any capital gains made by investors if their investment property is sold.
They may also be required to pay tax on their rental income to the tax department of the country they’ve invested in. They may be eligible for an offset of foreign income on their Australian tax returns. However, there are certain rules that must be followed and they can be very complicated. Investors who plan to invest abroad should seek professional tax advice. This will make the process easier.