SINGAPORE: Two recent charges against local real estate firms promoting overseas residential investments have put the spotlight back on such risky purchases.
A financial penalty was imposed on property agency Square Yards last month after it failed to to provide a written note to an investor telling him about the risks involved in a foreign purchase, according to a media release by the Council for Estate Agencies (CEA) filed on Jan 19.
The company was fined S$7,500 and will not be able to sell or promote any overseas property for six months from March of this year.
Just in the month prior, CEA announced that a former agent from SQFT Global Properties Singapore was given a S$6,000 penalty when she misrepresented one of the ventures in Auckland, New Zealand. SQFT also had to pay S$10,000 in damages.
SQFT declined to be interviewed, while a representative from Square Yards could not be reached.
CEA said it received 20 verifiable complaints related to foreign property purchases from 2012 to 2016. The complaints logged include inaccurate advertisements, the involvement of unregistered agents, misrepresentation of information and failure on the part of the property agent to provide a written advisory to the buyer on the risks involved in a foreign property purchase.
However, these cases do not encompass all the deals that had gone south in Singapore. The CEA's regulatory framework only allows them to investigate and take action against intermediaries like property agencies and agents, but not developers.
Mr Chan Mun Kit, the deputy executive director of the CEA, said that estate agents have to put in more effort to make sure retail investors know about all the risks involved.
The companies have to do their own due diligence before making any promises, he said, and “the property agents and agencies need to (check) on the background of the developer, making sure that the property title is valid".
"(Also, look at) the tenure of the property, and ... the claims that the foreign developer may have promised to the purchasers," he added.
The Consumers Association of Singapore received six complaints in 2016 regarding overseas property transactions as well, although the organisation does not handle such disputes.
Last year's complaints are lower than the 16 cases in 2015 and eight in 2014, according to the consumer watchdog's figures.
HOMEWORK FOR INVESTORS
Nonetheless, retail investors have to read the fine print and study the risks involved before they put their money down, especially if they are unfamiliar with the city that the house is located in, Mr Chan said.
Since every country’s laws and culture are different from Singapore's, foreigners could be subjected to additional taxes or there could be minimum buy-in sum, for example.
Additionally, the initial downpayment may appear low but progressive payments may add up to a heavy commitment, while foreign exchange rate risks may affect the overall financial commitment in the long run.
Mr Chan added that amenities in the area may also seem closer than they really are and that one should also talk to the land and planning authorities for the land use surrounding the property, as planning perimeters for development sites may change over time.
And with the introduction of the Total Debt Servicing Ratio, or TDSR, framework in June 2013, loans taken from local financial institutions (FIs) to refinance a property abroad are covered under the scheme. The framework does not apply to loans taken from overseas FIs.
Investors that have been misled should first find out which country's laws the contract is under, and if they need to seek local or foreign legal help, said Mr Kenneth Szeto, a real estate lawyer and partner at Colin Ng and Partners LLP.
"The investor should probably speak to the agent helping them, whether it's the developer's agent or their own agent. If they can't resolve it with the agent then they might need to take the dispute to the country where the developer is based and speak to the lawyers there in that country," Mr Szeto said.
OVERSEAS INVESTMENTS POPULAR AMONG SINGAPOREANS
Nonetheless, such unsuccessful investments are a minority among the foreign property deals marketed in Singapore.
In fact, according to real estate firm Cushman and Wakefield and Real Capital Analytics, Singaporeans’ appetite for homes offshore is the second highest among Asian investors.
Singaporeans invested US$3.5 billion in residential properties overseas in 2016, making up 16 per cent of all overseas property investments.
Analysts pointed out that this could be due to the possibly larger yields in other countries.
Mr Stephen Ho, the regional director of international project marketing in Asia at CBRE, said that Singaporeans are searching for locations that will give a higher return and “in Singapore it is probably slightly limited”.
He added that more Singaporean families are sending their children to study abroad, so buying a place overseas rather than renting one during their stay make more sense to some of them.
The strength of the Singapore dollar and current housing policies have also pushed Singaporeans to look outside of the country, Ms Christine Li, the director of research for Cushman and Wakefield, said.
"I think in recent years, particularly in the past three, four years, it is more policy-driven because of the push factors… (such as the) Additional Buyer’s Stamp Duty and the Total Debt Servicing Ratio,” Li said.
She added that some of the popular destinations include the United States, United Kingdom, Australia, and Japan, although those with a larger threshold for risk also look at Malaysia and the Philippines.