"Diversify, diversify, diversify'' is one of the most basic principles of investment, and when it comes to property, small numbers of investors each year do just that by buying properties overseas.
Australia and the South Pacific are the common locations, but the UK's Daily Telegraph tips a number of exotic locations as potential high-growth markets, including Shanghai, Antigua in the Caribbean, the French Alps, and Tuscany in Italy.
One advantage of buying abroad may be that the destination country is in a different stage of its property cycle.
In Fiji, says LJ Hooker's Callan Mantell, yields on executive properties aimed at the expat or corporate rental markets can reach 12 per cent. Even 10 per cent is rare in New Zealand these days.
Often, says Brian Greer of mortgage broker Kiwi Mortgage Market, cross-border buyers are looking to buy property to retire to and rent it out in the meantime.
However the majority, have attended property market seminars and been convinced there will be higher capital growth in a bigger market.
Many of New Zealand's leading estate agents such as Harcourts, Bayleys and LJ Hooker market property in Fiji and elsewhere in the Pacific. A slice of absolute beachfront in paradise costs considerably less than here.
At the Two Islands residential estates that Bayleys is marketing in the Yasawa Island group, a newly completed villa is expected to be priced from $1 million.
Property investor Mark Uden shuns New Zealand-based residential property because be believes that Kiwi tenants are "atrocious''. "We have laws that protect them to the end of the earth and a bad tenant can clean you out,'' says Uden.
Instead he buys in Australia where tenant protection databases are that well developed his property managers are able to weed out potential problem tenants.
Here landlords can record a default against a tenant's credit file and see if they have unpaid debts.
But in Australia there are highly developed tenant checking systems that let landlords know if tenants are lousy payers.
Uden owns two properties in Brisbane and is waiting to buy more when the market is right. His property portfolio also includes commercial property in New Zealand.
The Christchurch-based mortgage broker who helps arrange finance for other property investors interested in the Australian market, bought his first property over the ditch in 2003.
He chose a four-bedroom home in a new subdivision in a growth area of Brisbane called Springfield Lakes - where Australasia's largest shopping centre was planned. Uden has seen the value of the property jump from A$240,000 to around A$380,000.
His second purchase, a luxury five-bedroom home in North Brisbane is still under construction. But indications from real-estate agents in the area are that the A$435,000 he paid for the land and construction are at least A$200,000 less than the place is worth now.
Up until three years ago, Uden would sit clients down and spend two hours warning them about the property scams in Australia. These days, he says, new laws in Queensland have largely solved the problem, leaving investors free to concentrate on financing the deal.
Uden recommends to clients that they source the deposit for the properties in New Zealand, but borrow in the Australian market. Finding suitable investment property in Australia isn't as difficult as it may sound. The proliferation of independent research houses such as PRD Research and Residex make life a lot simpler.
Traps for the unwary
Although plenty of people buy property overseas without incident, there are many traps to be wary of. Dean Humphries, director of valuation and advisory services at Jones Lang LaSalle (JSL), points out that investors may encounter unfamiliar real estate practices in foreign countries.
JSL publishes a global real estate transparency index in which the company examines the issues of greatest concern to cross-border property investors.
Some countries such as Australia are more or less as transparent as New Zealand. Others fall well below the standards that Kiwi property investors expect as a norm. One of the harsh realities of global real estate, as in so many other businesses, is that foreigners are often treated differently from locals, says Humphries.
From a tax point of view, says Neil Russ, senior tax partner at Buddle Findlay, there are a number of traps that property investors fall into unwittingly. They include:
Investors who take out mortgages with institutions that are not based in New Zealand can find themselves paying 10 or 15 per cent New Zealand withholding tax on their mortgage payments.
This can be avoided by choosing a bank that has branches in both countries.
People that buy foreign property for reasons other than domestic purposes can find themselves subject to New Zealand tax on the currency gains and falls on that property as the Kiwi dollar rises and falls.
Local tax issues in the country they plan to buy in can cause nasty surprises. Investors buying in Australia face paying both stamp duty on purchases and capital gains tax on property sales.
You will also almost certainly need to complete a tax return in both countries.
Russ says potential investors should make sure they get professional advice before signing on the dotted line to buy a property.
The currency risk of buying overseas has seen some investors come unstuck.
If you're buying off plan based on current exchange rates you could come unstuck if the rate moves substantially and your cash is in the wrong country.
It can be worth dealing with a currency specialist.
Should you go offshore?
AdvertisementAdvertise with NZME.