Investing in Property

The property market has boomed since the gradual market correction (and September's collapse) of world equity markets over the last two years. Investors quite naturally look for safer options and property is one of them. Indeed only this week, the Bank of America (the US's largest coast-to-coast retail bank) and Fannie Mae (large US mortgage supplier) have seen huge increases in profits due to not only this 'flight' to property, but also for people taking advantage of historically low interest rates.

Many expatriates are surprised by the facilities available to them here in Japan to enable them to purchase an investment property in a wide variety of countries. The most popular being UK, US Australia and to a lesser extent Canada and New Zealand. There is a wide number of banks willing to lend in these countries. Obtaining the finance is less painful than you would imagine many, banks offer a 'pre-approval' service which approves the finance before you have located a suitable property. This saves you a great deal of time and money.

But there are disadvantages to property ownership. Money becomes "illiquid", tied up in bricks and mortar - if you need ready cash, it can take months to sell a property as opposed to seconds to liquidate a fund. Property prices can fall, as can rental yields and maintenance bills - such as a new roof, plumbing or wiring - can be expensive and laborious. As a proprietor, you are responsible for keeping the property safe and you can be legally liable for accidents. Also, if you employ the services of a third party agent to look after the property on your behalf, this will usually cost between 5 and 15 per cent of the rent, depending on the level of service you want and in the country or city where the property is located.

The latest UK survey by the Association of Residential Letting Agents (ARLA) shows that marginally higher rental returns are to be gained from investing away from London and the south east of the UK. The average rental return in the UK is 7.3 per cent a year, a slight fall over last year at 7.6 per cent. The figures for the US are not too disimilar.

Statistics have shown that people who have invested in property over the long term, in the right location have made very impressive returns indeed.

There are some general guidelines I offer individual's looking to invest in property.

• Decide on the real reason for buying the property, is it for pure investment or is it with a view to living in it if you eventually relocate. The latter can be very difficult to locate when you are living abroad. Sometimes personal preferences can get in the way of a good investment opportunity. If it is simply as a holiday home, then do not expect the investment gains that one would associate with a letted apartment in a major city, for example.

• Obtain the pre-approved finance before you locate a property, this will save a lot of time and can be used in the price negotiations.

• Select an adviser that has links to a variety of banks and lending sources, both onshore and offshore, this way you can be sure that you are getting the best deal and indeed offers a pre-approval service.

• Do your research on the area where you are looking to buy, find out what the property market has been like over the last few years and what the future holds.

• Only use reputable real estate agents who are well-established in the area that you are looking to buy.

• Select a lawyer that specialises in property conveyancing, this can assist the smooth purchase of a property. The last thing you want are complications when you are out of the country.

I hope that this gives you a brief insight into the sorts of things that you need to be aware of before investing into this asset class.

Warning
Your property or home is at risk if you do not keep up the repayments on your mortgage.