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Saturday, April 14, 2012

Investing in foreign property seems harder now with changing rules and economic climate

With the permission from my friend, and with her thoughts on investing in London, this piece is about her considerations when buying into a unfamiliar foreign market.

For quite a while, she and her husband have been considering the option of buying a residential property in London. She attended seminars on properties and lettings, spoke to other potential investors and those who have already invested.

After a long deliberation with her spouse, they both decided to keep their money closer home.

It was not the 2012 Budget announced on March 22 by the Chancellor of Exchequer, equivalent to finance minister, and the slew of changes that govern foreigners buying British properties that made them change their minds. They had made up their mind to drop the idea before that.

They had other considerations. The first was the distance and they questioned the practicality of having to deal with long distance administration issues, be it ownership or tenancy. The second was the uncertainties that govern the world today. Uncertainties and instability exist all the time, but the last several years, the vagaries of the changing world seem to be coming fast and furious. Added to that were the changing rules and regulations by governments.

Foreign ownership, at one time welcomed, may cease because of national considerations. They also reasoned that at this point in their lives, if they did not sell the property, it would be left to their children.

This couple was not hoping to make lots of money with their overseas investment. Neither were they speculating. They just wanted to diversify while at the same time, preserve the value of what they have.

There are many who have invested abroad. And their reasons for doing so may be well justified. But there is something about changes in rules and regulations, at national level, that add to the current load of global economic, financial and political uncertainties that govern the world today.

“Just as there are changes in Malaysian government rules and regulations about what residential properties foreigners can buy, so are there changes in the United Kingdom,” she says.

She was referring to a report early this week that the Malaysian government was mulling over raising the minimum floor price of houses that foreigners were allowed to buy from the current RM500,000 to RM1mil. The move is to control the rise in property prices.

In the same way, other governments around the world too would make changes to suit their national agenda.

Last December, the Singapore government imposed a 10% additional buyer's stamp duty applicable to all foreign purchasers, bringing it to 13%. Foreigners were snapping up about 9,300 private homes last year making it a record one-third of total sales.

Early this month, Singapore government announced that it would end a programme that allowed wealthy individuals to gain permanent residence quicker by putting money in the island, after an influx of foreigners in recent years spurred property prices and fueled voter anger, Bloomberg reported.

Back in 2010, Australia tightened rules on foreign investment in real estate, and introduced penalties to enforce the changes, to ensure pressure was not placed on housing availability for local residents. Temporary residents required approval from the Foreign Investment Review Board to buy property, and had to sell them when leaving Australia.

About three weeks ago, the British government introduced a new Stamp Duty Land Tax (SDLT) rate of 7% for residential properties over £2mil, applicable from March 22 this year.

London-based property consultant Knight Frank in an initial note on the changes says there would be a new 15% SDLT application from March 21 this year for residential properties over £2mil purchased by “non-natural persons”, such as companies.

The British government is also consulting on the introduction of an annual charge on residential properties valued at £2mil owned by “non-natural persons” (that is, properties bought in the name of companies). The intention is to legislate this in the 2013 Finance Bill and if this goes through, this annual charge will commence April 2013.

A fourth issue is an extension of the capital gains tax to gains on the disposal of UK residential properties by non-residents, non-natural persons, such as companies, commencing from April 2013.

In other words, says Knight Frank, the British government was saying that if you bought expensive residential properties as individuals, rather than a company, you would pay 7% and not 15% SDLT, and avoid a future annual charge.

The rationale is to target rich individuals who buy in the name of a company. However, property consultants and lawyers say individuals may come using a company vehicle because they wanted to protect their privacy and not to avoid paying a hefty 40% inheritance tax.

Whatever it is, to avoid all that hassle, my friend has decided to just keep her money closer home.

Assistant news editor Thean Lee Cheng thinks the vagaries of today's global outlook, coupled with changing national rules and regulations, make any investment a colossal consideration.

By The Star (by Thean Lee Cheng)

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