Pete Wargent blogspot


'Must-read, must-follow, one of the best analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Markets & Economics Editor, Sydney Morning Herald.

'I've been investing 40 years & still learn new concepts from Pete; one of the best commentators...and not just a theorist!' - Michael Yardney, Amazon #1 bestseller.

Monday 12 June 2017

Buying property overseas

Capital flight

A short piece I did for 7 News (click image to view the video).

Numbers recently released by OFX (formerly OzForex) showed a strong increase over the past five years in the number of people transferring money overseas from Australia to buy foreign real estate, albeit from a low base (and it should also be noted that OFX is a growing company in its own right). 

In particular, the figures suggested that young people in the 18 to 30 age bracket are leading the charge.

This may suggest that affordability in expensive markets such as Sydney is causing some young people to look overseas.

That said, global real estate portals show that the most searched markets included London, New York, and Paris - hardly cheap property markets in their own right!

In my opinion it's at least as much a lifestyle phenomenon, with young people working, travelling, and living overseas more than has ever been the case before. 

There is also a foreign exchange driver of foreign property purchases.

At the peak of the mining boom there was a flurry of activity for Aussies looking to buy US property post-crisis, for example, but the Aussie dollar has since depreciated very significantly (and in many cities US home values have recovered).

Today, Aussies are showing more interest in London, especially post-Brexit.

Risks abound

Despite having a buyer's agency in London, I always caution investors to think very carefully before taking the plunge and buying property overseas.  

There are several risks involved in buying overseas real estate.

Firstly, financing can be considerably trickier, and lenders are often reluctant to finance overseas deals, in part due to flight risk.

I also often caution prospective buyers that if they are planning to repatriate funds in the future then they aren't just buying a property investment, they are also playing the currency markets, even if inadvertently. 

There is also a risk of changes in legislation going against you. 

For example, in recent times there has been a movement towards taxing foreign property owners at higher rates in some countries (and, of course, you may not even have a vote in the country you are investing in, so you won't get a say in such matters).

Last but not least there are sovereign and country-specific risks, or in plain English, the chance that things go pear-shaped in the region you decide to buy in!

Caveat emptor.