Investing abroad: What you need to know about buying properties in London, New York and Perth

Chimney pots line the rooftops of houses in the Herne Hill district of London.
Chimney pots line the rooftops of houses in the Herne Hill district of London. PHOTO: BLOOMBERG

Q What due diligence should an investor undertake for overseas property investments?

A Ms Vanessa Chan, associate director of international residential property services at JLL, said investors must understand the legality and tax matters surrounding the country's residential market. They should also find out if there are restrictions imposed on foreigners to buy, sell or rent a property.

Other considerations include identifying the regeneration and government infrastructure around the area, along with checking the comparable prices through the land registry, said Strawberry Star Group chairman Santhosh Gowda, adding that transport plays a vital role in London property, whether for renting or selling.

Q What are the costs involved in buying an overseas property?

A Costs vary from country to country and city to city. In the US, a lawyer's fee is about $5,000, letting and management fees are about 0.5 per cent of the gross rent and a broker's fee ranges from 2 to 5 per cent, said Ms Chan.

Buying in London means paying stamp duty ranging from 2 to 12 per cent or more, depending on the property and its location.

 

From April 1 next year, an additional stamp duty levy of 3 per cent will be imposed on all second home and buy-to-let purchases, said Mr Duncan Peacock, the client relationship manager at London real estate firm Johns&Co.

Mr Peacock, who is based in Singapore, said potential investors should be reminded to further evaluate their investments.

Mr Gowda said the additional stamp duty levy will apply to properties in England, Wales and Northern Ireland but not Scotland, although he thinks the Scottish Parliament may introduce similar measures soon. "It appears that the purchase of an additional home will be liable for the additional tax irrespective of the location of a buyer's first home, thereby bringing overseas investors into the scope of the tax," he added.

And the broker's fee would be about 2 to 3 per cent of the price of the property, plus a 20 per cent value-added tax.

The broker's fee is negotiable and will tend to be lower if only one agency is involved in the transaction, said Mr Gowda.

Foreign investors in Australia will need to pay an application fee before their applications are processed. The fee for a residential property valued at A$1 million or less is A$5,000 (S$5,085).

 

Q Is now a good time to go in?

A The transaction cost for buying in London is still relatively low compared with other key cities, although the rate of capital appreciation may be slower than in the past five years, said Ms Chan.

On the other hand, New York is a "resilient market" and the growth forecast is still attractive. Meanwhile, with a weaker Australian dollar, properties in Australia would be cheaper for Singaporeans. "Cities like Perth have undergone a price correction and the Western Australian government is spending high investments in infrastructure. It is a good time to consider Perth," added Ms Chan.

Q Should investors look at properties in established areas or go further out to the suburbs?

A Properties in established mature locations provide stability but lower rental yields and possibly slower capital growth, especially if prices have appreciated quickly over the past few years, said Ms Chan.

However, prices in mature locations tend to be more resilient in a downturn and international investors are typically more familiar with the traditional established locations. Properties in suburban areas tend to be more affordable with higher rental yields due to the lower price quantum, she added.

Mr Gowda noted how the suburbs are well-connected to central London so investments in London offer quick returns and high margin of growth. For a more long-term investment, areas like Fulham and Putney in west London, Camden in north London and Newham in the east can be considered.

Q Which cities offer the most opportunity for growth - New York, London or Perth?

A London and New York City are traditionally the more established "safe havens" and offer more growth opportunity in the medium to long term, said Ms Chan.

She noted that the two cities have clear and secure real estate systems and regulations that provide liquidity, stability and transparency to investors.

Meanwhile, there have been mixed views on Australia, with some economists and analysts saying that prices have hit a peak and are expected to fall next year.

Q How long should you hold a property?

A Depending on your risk profile, between three and five years, said Ms Chan. That would allow the net gain to be more attractive after deducting the costs, especially when capital gains tax in some countries is based on how long the property has been held.

Q What are the costs involved in selling an overseas property?

A When selling a property in the US, a foreign investor needs to pay gains tax and Foreign Investment Real Property Tax withholding tax, which is about 10 per cent of the gross sales price. Capital gains tax is between 15 and 20 per cent on the net gains on a federal level. But if the Singaporean investor recycles the gains by reinvesting in a US asset, he or she will be exempt from this levy, said Ms Chan.

In Britain, capital gains tax is 18 per cent or 28 per cent on the net gain. Australia treats net gains as taxable income in the fiscal year in which the property is sold. The top marginal rate of tax is 46.5 per cent.

A version of this article appeared in the print edition of The Sunday Times on December 20, 2015, with the headline 'Investing abroad: What you need to know about buying properties in London, New York and Perth'. Print Edition | Subscribe