Risks with investing in overseas real estate

One of the main benefits the Internet has brought to the business world is the fact that information is readily available about properties and real estate anywhere in the world. At a glance you can see which way markets are moving, which properties are coming online and how local economies are impacting the local property market. However, what other risks are associated with investing in overseas real estate?

There are numerous factors to take into consideration and unfortunately not all of these factors are considered by every investor. We will now have a look at some of the more specific elements which you should consider if looking at investing in overseas property.

Local economy

You could pick the best property, in the best area, at the best value for money at the time but if the local economy is struggling, what chance does the property market have? It is imperative that you look at the economy of the country and the area in which you are investing, look at the demographics and look at the potential for the future. As we mentioned, you could buy the best property at the best price but in the future it is only worth what somebody is willing to pay for it.

Quote from PropertyForum.com : “Hi all, I’m new to the forum – I’ve just moved to Dubai, and was just wondering if people who have invested in the Dubai market in the past have regretted it, and if so what markets do you wish you had invested in instead?”

Currency risk

Currency risk works both ways when looking at investing in overseas markets with different currencies. You can make on the currency exchange rate or you can lose on the currency exchange rate and this is something you need to be aware of. We have seen situations where profits had been made in the local currency only for these to be decimated when exchanged into your own currency. This is not a factor which many people seem to recognise but there are ways and means of hedging your currency exposure which do have a cost but will put your mind at rest.

Worldwide economy

As we have seen over the last few years, you can take the best market, a strong local economy and relatively low currency risk but if the worldwide economy turns down then this is likely to have a depressing impact upon every economy. The extent to which a depressed worldwide economy will impact a local economy will vary from country to country with for example Europe struggling in the aftermath of the 2008 US mortgage crisis while Australia has never even moved into recession during this period. These are two very different sides of the worldwide economy coin and perfectly illustrate there is no one scenario fits all.

Timing

If we all had a crystal ball we would make perfectly timed investments and we would all walk away with profits time and time again. However, this is not how it happens in the real world and timing is of the essence whatever you are looking to buy whether this is real estate, stocks and shares, etc. The fact is that you will never buy at the bottom of the market and you will never sell at the top of the market although many people do use the cost averaging approach. This involves buying chunks of property on the way down and slowly reducing their exposure as markets recover and they are able to take profits.

Conclusion

There are many different factors to look at when investing in real estate around the world, some of which we have touched on above. The fact is that you will never buy at the bottom of the market and you will never sell at the top of the market, if you can buy nearer the bottom than the top and you can sell nearer the top than the bottom then there is every chance you can make good money. Look at the local factors, worldwide factors and specific factors to the properties you are looking to buy and take into account the risk/reward ratio.

Only then will you really know whether buying real estate in a particular region of the world looks worth the risk.