Property is, and always will be, one of the most popular vehicles used by individuals to build capital and receive income. Most people choose to invest in a property for one basic and simple reason; they understand it. For many the modern financial world is a confusing and dangerous place. Every day brings another news story of impending financial doom and understanding complex hedge funds or derivatives is a hard task even for financial professionals. However, when we talk to people about property they always seem to be happy with their investment and see safety in this type of asset.
For me, one of the most appealing advantages with a property investment is that you can rent it out and use this income to pay off the mortgage used to purchase it. Over time this means you will end up owning the property and in the future you can use the rent to provide your family with an income. This is a great system but not without its difficulties. Managing a property can be time consuming, especially when we are already busy working and raising a family.
Usually people focus on buying property in the country where they live. This is all well and good if you are a native to that country, but as expats who plan to return home one day this might not be the best solution. Living in China we hear all the time about property bubbles and the difficulties of foreign ownership, which can make it less attractive to buy a property here. Over the years I have seen many of my clients struggle with the day-to-day hassles of owning a property in China and they also have significant problems removing the profit when they leave.
A lot of people are most comfortable focusing on buying properties in their home country. For most people, investing back home is better than choosing a market where they have no knowledge of or any emotional connection with. Unfortunately, understanding and being comfortable with a market does not equate to making a good investment. I understand and, to a certain extent, agree with the knowledge part of this argument. But how many of us, hand on heart, really ‘know’ any property market. If someone was to knock on your door every day and tell you the current value of your house, I think you would be surprised how much the price changes. The emotional connection side is something I definitely do not agree with. No investment should ever be based on emotions. The best stock traders in the world do not care about where they buy shares, they just look for value.
My advice is to invest in a developed, regulated and trustworthy market where there is value to be had. For example, Paris and London are two of the most popular property markets in the world and it is easy to have confidence in both of them. But do they offer value for investors? Sure, it is very likely that any investment in either will provide growth after 20 years, but could you gain more somewhere else? For me the best market in the world at the moment is Berlin as it is a very safe market but significantly undervalued.
Another option that many people who live in the Far East choose is a market in South East Asia like Thailand. There are some excellent opportunities in SE Asia, but political instability and regulations over foreign ownership of land lead me to question how ‘safe’ these markets are.
Buying an investment property is something we will likely all do one day. Whether this is something you are doing now, or will do in the future, here are a few simple guidelines to follow:
- Real Ownership – Beware of property funds and joint ownership property projects, often these companies are raising capital to grow their business and liquidity is a major issue.
- Off-Plan Property – Do not invest in unbuilt off-plan property unless you are an experienced investor and know what you are doing. You want to buy a property not become a developer.
- Laws & Regulations – Invest in a country where you trust the government has put in the correct regulation to protect you as an investor.Value – Look for a location where the property market is undervalued and provides potential for growth in price and income.
- Paperwork & Research – Make sure you read all of the Terms & Conditions and do a full due diligence on all of the relevant parties. An established track record of success is a good first step here.
- Ask for Help – If you are not sure or confident what you are doing then speak to a professional.
Please note that beijingkids does not necessarily endorse the views presented in this article.
William Frisby originally arrived in Beijing as a finance guy on a bicycle and will probably leave as a finance guy on a bicycle. He works for Premium Finance Group (PFG), a financial consultancy that has been established in China for over ten years. PFG offers clients no-nonsense, personalized advice and serves the whole of China from their Beijing and Shanghai offices. Services include international property, investment, insurance and financial planning. To contact William, email firstname.lastname@example.org.
Photos: images of money and markmoz12 (flickr)