Pitfalls of Buying Off-Plan Overseas

Buying Off-Plan Property is a well established practice in Hong Kong. Buyers enjoy a discount, staged payments, and more choices to choose from. This popularity is built on the foundation of regulations that protects the buyers, results of painful experience of yesteryears. With the current surge of outbound investments, especially in residential markets that are familiar to many, investors should examine these opportunities when buying Off-Plan. 

Many assume that the Common Law countries would provide the same level of protection as does Hong Kong, being a former British colony. However, selling Off-Plan Properties was not a common practice, and such sales are much less regulated than in Hong Kong. There is no shortage of examples where overseas buyers lose money on these deals due to lack of oversight. These issues may range from delays in completion, over budget, building quality, developer solvency issues, or even outright cheating investors. Oftentimes, the process of planning permissions and other government approvals may take much longer than in Hong Kong.

Taxation and law differences are often overlooked by oversea investors. Unlike Hong Kong, many countries do not experience a high rate of value appreciation in real estate, and have policies to keep the residential market from overheating via fees and tax, wiping out the bulk of the investment return. In addition, mortgages may be easily obtained, especially for foreign investors. Local law may have material impact on the investment as well. In Australia, when the S&P agreement is signed, the buyer is on the hook to complete, and there is no simply forfeiting the deposit like in Hong Kong. 

When investing overseas, many have the same assumptions from their hometown. In Hong Kong, apartment flats near public transportation are desirable and can fetch a premium. The opposite is true in Japanese suburbs. In Western countries, houses are preferred over apartments located in busy districts. Buyers may find it difficult to exit their investment if they were equipped with wrong assumptions.

Overseas investors may still enjoy the benefits associated with pre sales, or buying Off-Plan. However, one must fully understand the local market, laws, fees involved, and proper due diligence on the developers. 

 

Real Estate Woes in the Digital Age

Why spend time and money to travel to places to do something that can be done in the comfort of home? Many find themselves asking this question as they acclimate to staying and working from home with the virus outbreak, by both employees and business owners. Internet connectivity has allowed the comfort of residential to compete with other sectors of real estate. For technology companies, the Coronavirus may even be a blessing in disguise in the long term, allowing them to eliminate most of their office space needs and overhead costs.

Real Estate’s historical performance has perhaps enabled landlord’s complacency.

As the internet becomes increasingly accessible, the rate of digitization and technological integration across companies and industries becomes exponential. Yet real estate remains very much a lagger. Partly due to QE stemming from the previous crisis, real estate has generally enjoyed decent ROI regardless of their level of technological adoption. As a result, landlords are not incentivized to invest in technology as much as they should. The situation brought on by Covid-19 shines a harsh light on real estate’s inadequacy in connectivity. Sectors like retail are among the worst hit, whose cannibalization by e-commerce is further exacerbated by the virus. Like many industries, real estate needs to reposition itself in the “Next Normal”, and technological integration could be the key in unlocking its dormant values.

 

 

 

 

Telemedicine, among a host of various digital service, is decreasing doctors’ demand for physical space.

Over the years, numerous technologies were employed to enhance real estate’s connectivity and value, such as VR for inspection, shared economy platform in the form of Airbnb, IoT sensors for development and maintenance, monitors for customer analytics, to name a few. Nevertheless, the real challenge lies in its connectivity with the online world. Numerous online services are now replacing our traditional way of life; Zoom replacing the need for office, telemedicine replacing clinics, etc. While these online services do not completely remove the need for real estate, they are more than capable of significantly dampening demand and therefore crippling valuation.