So which is better: foreign or domestic property investment? The value of a real estate investment, and the growth of that value, is determined by a number of factors. These include desirability, security, popularity, improvements, and area preference. In terms of land, things like transferability, demand, scarcity, and utility come into play. Make the right investment, and you will be able to enjoy what can be substantial passive income. In many cases, investing in real estate is one of the most stable and secure forms of investment which sees steady growth, both in terms of property value and returns on the investment (most notably rent), in the long term.
As more and more investors are discovering the benefits of putting their money into real estate, so too are they discovering the range of opportunities, in both foreign and domestic markets. Some investors are drawn to the amazing opportunities which can be found in foreign markets, whereas others are convinced of the advantages of investing in domestic real estate.
In order to determine whether foreign or domestic real estate represents the best investment, it is necessary to consider the different factors influencing the value and strength of each investment. These fall under four broad categories:
• Economic factors: these include employment, wage and salary levels, natural resources, strength of currency, taxes and interest rates.
• Social factors: such as population growth, dependency ratio, and the standard of living.
• Government policies: for example zoning laws, rent control, building codes, and taxes.
• Environmental or physical factor: these include land topography, climate, amenities (schools, health care, transportation) and infrastructure.
All these factors influence the value of any piece of real estate. Therefore, while deciding on whether to invest in either local or offshore property, all these factors must be considered. After conducting thorough research and weighing up each factor, you will be able to determine what represents the best investment for you. Let’s dive in.
- Environmental factors
The nature of the local environment influences the value of real estate, whether domestic or overseas. Just as when you choose a house to live in yourself, an investment property must be desirable to live in in order to attract tenants who represent the return on your investment, as well as securing property value over time. When we talk about the “environment” of a property this means many things: security, amenities, accessibility, transportation, the natural environment, and more.
Proximity natural features like the beach, parks, rivers, forests and so on can greatly increase property value as well as its potential to grow in value over time. Equally, man-made amenities nearby such as malls and recreational centers generally mean property values which are likely to grow over time.
When considering overseas real estate, security is also a concern. Unstable or unsafe countries, or those which may deteriorate at any time, can make poor investment decisions. This is not the case in all foreign markets, however. Most of Europe as well as specific markets such as Panama and Dubai are considered very safe and secure. It is important to seek advice: check online resources like Bayut to check local trends and predictions.
Affordable housing is always in high demand, and no more so than in countries with high population growth and urbanization. Countries which attract a large number of foreign workers due to business expansion also represent high demand for rental properties, and thus good opportunities for investment. Where this growth is predicted to continue over time, this will mean high returns for investors.
High demand for housing exists in some domestic markets also, of course. However, in many cases the market has experienced stagnation or even a drop in demand in recent years, and therefore foreign markets can represent a much more promising investment in this case.
- Government Policies
Policies like a tax, rent control and building regulations also affect investment in real estate. Some countries such as the UAE have amended the freehold property laws which now give foreign investors to buy and sell property in the UAE on a freehold basis without paying any taxes on the transaction. This is obviously a major incentive compared to the taxes payable when buying or a selling a property domestically. On the other hand, foreign nationals may be restricted when buying a property depending on the country, so this should be investigated thoroughly.
- Economic Factors
Factors like the unemployment rate, interest rate, salary scale, standard of living, dependency ratio and so on also impact on the value of a real estate investment and its growth over time. Countries with a low unemployment rate can indicate a good market for investment, whereas a high dependency ratio should be a red flag. Thoroughly research the return on investment (ROI) of the real estate markets you are considering, with some countries offering a high ROI compared to others.
- Practical Factors
In addition to the factors above which influence the value of an investment, and its potential for growth over time, as an investor it is also worthwhile considering practical factors. These are the things which will directly impact on your ability to secure and manage your investment.
For example, if you invest in a property overseas, how easy will it be to visit the location in order to secure your investment, and how often will you be able to check in on it once you have bought your property? Will you be able to make a fair assessment of what is a good investment in the foreign market? What legal process will you need to go through in order to buy a property there? None of these things should necessarily deter you from making an investment overseas, but they are all important to consider when deciding where to purchase your investment property.
The decision of whether to invest in foreign or domestic real estate should depend on a wide variety of factors, which should be researched thoroughly and considered carefully. These factors range from those traditionally considered when buying a property, such as its location, environment and amenities, to some more applicable to foreign markets such as general security and property ownership laws.
There is no one true answer to this question, because fantastic investment opportunities can be found in both foreign and domestic markets. It is also a very personal decision and depends greatly on your portfolio, the level of risk you are willing to take, as well as your personal situation and ability to travel. Whether you choose to invest in local or foreign real estate, if you make a careful decision after weighing up all the options and considerations you are most likely to be successful!