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The shattered myth: High yield overseas property Investment is the safer option

This is not a good era for people to save.  With interest rates approaching zero and a roller-coaster stock market, it’s no wonder that most of us are turning to an old-fashioned, traditional and less risky option: property investment.


I assume that at this point you respond: a safe investment? Consultants and columnists have argued that property investments are “risky” because the capital invested in the property is not liquidize and cannot be withdrawn if the property’s value falls. The reality almost everywhere is that property values double every few years and in the long-run always increase. In practice, as with any kind of investment, you must be level-headed even in the event of losses. Therefore, the difficulty in selling property hastily might actually be an advantage. We should remember that the value of shares and currencies may plunge by 70 percent or more but that the probability that the value of property will fall by such amount is quite small. In addition to an increased value, property usually yields a positive return even when prices are falling, due to modest monthly fee, called “rent,” that the property owner receives every month.

“Property investment provides a double return: the increased property value and payments down on the mortgage’s principal and rental fees”

says Sophie Carter , the Managing Director of CityR , a property investment firm  in the United States

Although investing in property, in general, is considered safe, there are still disparities in how safe property investments may be. Property in the UK might seem to be a safer investment than property abroad, since in the UK “you can actually see the property with your own eyes.” This is a common misconception: the property’s visual appearance won’t tell you much. It’s possible to make a  great deal without visiting a property and the opposite is also true: it’s possible to make a terrible deal close to home.

“Today, much more easily than in the past, investors have the tools available to remotely check important parameters of a deal,” says Ron Szekely, Partner at CityR.  “Who is selling the property – a well-known, listed company, or a private, unknown seller? Has the transaction been reviewed and approved by a distinguished financial institutions? Is it a single, private dwelling? Where is the property market heading? where in the area in which you are considering buying? There are also legal processes and other measures that make a property deal secure even when the purchaser lives far away from the property.”

When assessing these parameters and comparing between property acquisitions in the UK and the United States, the following picture emerges: property prices in the U.S., which declined sharply during the 2008 economic crisis, are now seeing moderate gains, while UK property prices have almost doubled, meaning that in the UK there is a property “bubble” that could pop at any moment. The UK rental market is not regulated, with the potential for problematic tenants who do not pay their rent; the U.S. rental market has strong regulatory oversight.

A large number of rental flats in the United States are part of what is called “multi-family housing complexes” and are marketed to property funds or groups of investors who together acquire the entire housing complex and all its financial yields, but also bear all the risk together so that no one investor is “stuck” alone with an empty flat. Pension funds and insurance companies’ nostro accounts also invest in these multi-family housing complexes.

Equally important: all these transactions receive bank financing, and American banks, which were burned in the economic crisis, now examine every transaction carefully.

All the aforementioned parameters indicate that property investments, in general, may be an excellent alternative to a market with interest rates of zero, and with the right safeguards, geographical location should not be seen as an obstacle to such an investment.


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