Should I Buy Property?

The urge to buy real estate is deeply embedded in most cultures. Putting money in "bricks and mortar" was always seen as a secure long-term investment and brings status and other social benefits. However recent events and the rapid development in the international property market have challenged that perception.

Effects Of The "Credit Crunch"

Spectacular profits were made due to rapid rises in property prices fuelled by easy credit, low interest foreign currency mortgages and the popularity in buying rental and retirement property, often in foreign countries.

However the "credit crunch" resulting from the global financial crisis has caused a downturn in property markets around the world. Furthermore, If you accept that the availability of credit determine property prices as much as supply and demand, then there may only be a slow recovery.

Issues When Buying Foreign Property

Many have been seduced by the prospect for buying foreign property. The cheap prices and promised gains in value, high rental income, and the idea of a place in the sun or by the ski slopes have been very tempting.

But many of these dreams have turned into nightmares, and some lessons need to be learned about buying foreign real estate, especially in developing countries. Here are some important  factors to consider:

• Low Prices: foreign property may appear cheap to us, but credit availability and low incomes may mean that they are out of reach of the local market and dependent on less stable foreign demand

• Building Quality: design, workmanship, materials and maintenance are areas for concern

• Lifestyle: different cultures have varying levels of things like noise, tidiness and privacy that may be frustrating, uncomfortable or even a source of conflict, especially when in warmer climates people live outside more
  

• Planning: rules controlling the type, quantity and location of new development can be weak or prone to corruption

• Excess Supply: over-production due to the unpredictability of demand or lack or control over development 

• Future Prices: apart from over-production, many developing markets favour new buildings, causing price depreciation

• Legal Ownership: the law in some countries may not favour foreigners, and be prone to corruption or political change

• Liquidity: property is not a liquid asset, and it months or even years to convert to cash, and should not dominate a portfolio    

Of course one way to invest in property is via property funds within an offshore investment bond. However, they are not necessarily the best investment at all times. But that's the point - it's  good exercise to regard property like any other investment - without emotional interference. But unlike property itself, property funds are liquid and you can regularly assess and if necessary reassign your holdings.

For our latest thoughts on where your money can work best for you, see Where To Invest?