Current Trends in International Real Estate / Better Investment Than Domestic?

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The US real estate market is finally beginning to cool off after a long, sustained period of house price rises. Rising interest rates coupled with fears of a recession have impacted demand and property prices are already beginning to falter. Clearly, it seems that the US is not the best real estate market now and as such, investors are increasingly investing abroad, and seeking out international real estate opportunities. In this post we shall take a look at the realities of investing internationally and buying property abroad including the challenge of transferring money internationally.

Most commentators will point out that a market correction has long been overdue. Ever since the COVID-19 pandemic global real estate prices continued to rise at unprecedented rates calling many to warn of a real estate bubble. Let’s look at the figures, in April house price growth peaked at 21% (completing a rise of 30% on average since the pandemic began) but the usual August slump saw prices decline by 0.44% as the median American property price sank back to $356,054. With the FED indicating that it intends to raise interest rates further, the housing market looks set for a period of stagnation as mortgage rates rise in excess of 6% for the first time in over a decade.

The cooling down of the US housing market is already causing some investors to look elsewhere for opportunities. Afterall, with the US dollar still riding high, Americans Investing internationally are able to get square footage for their buck right now. Problematically though, many other major global real estate markets are also entering decline so finding the right one to invest in can prove to be a bit challenging.

Where Is The Best Real Estate Market Now 

That said, at the time of writing these global real estate markets are not yet showing signs of cooling.

Switzerland

Switzerland remains the epicenter of global banking as well as a byword for wealth so naturally the country has some seriously pricy regions including St Moritz, Gstaad and Geneva. Nationally the country has seen 5 year growth of 27.5% and the median property price is currently around CHF 1,150,000 ($1,146,82.33).

While many European governments have begun raising interest rates, the Swiss have so far kept their lows in an effort to offset the powerful Swiss franc which has led to what the Swiss National Bank has even called “excessive mortgage lending”! 

Malaysia

Malaysia remains one of Southeast Asia’s fastest growing economies and its real estate market is set to continue to rise dramatically over the next 12 month period with increases of 11.8% forecast.

Malaysia’s interest rates are still relatively low ranging between 1.85% – 2.5% and the nation continues to attract foreign investors despite a minimum property price.

Colombia

It’s fair to say that many investors are still wary when it comes to Latin America. However,  anybody looking for real estate abroad would do well to remember that Colombia has now demonstrated 2 decades of political stability and economic growth. A fast growing middle class continues to fuel a real estate boom in cities like Medellin and Barranquilla where the market has risen by nearly 40% during the last 5 years.

However, in an attempt to curb inflation, Colombia’s central bank has set interest rates at 10% so it’s very much a cash buyers market right now.

Israel

The Israeli real estate has been on something of a  steroid-fueled, decade- long growth spurt now that has led to domestic protests and calls for government intervention (which failed to materialize).

Israel’s house prices rose by an average of 22% between July and August causing some market experts to enthuse that Israel may even be downturn proof! Israel has not managed to escape the current inflation crisis which continues to blight global economies – the rate reached 9.1% earlier this summer – but as long as interest rates remain low the housing market will retain its place as one of the best international real estate markets in the world.

Singapore

The city state of Singapore’s real estate market did suffer pretty badly following the financial crisis of 2008 where some prices contracted by 25%. However, owing to a unique  exchange rate-based approach to matters of monetary policy, and low interest rates, the little nation may well swerve a crash this time around. 

Costs of Transferring Money Internationally

Investing in a foreign real estate market presents many exciting opportunities but also carries an entire myriad of complications and risks. Firstly, foreign investors need to address the reality that they are engaging with a legal and regulatory framework they cannot fully understand, not to mention facing down issues of negotiating a complex transaction via a language barrier.

One of the more often overlooked challenges of investing abroad however, is the costs associated with transferring money internationally and sending large amounts of money into a foreign country.   

You may already fully appreciate this, but in order to buy a property overseas the buyer needs to transfer the sale monies from their bank account in their home country, to the seller’s bank account in the country where the property is located. Along the way, the sale funds also need to be converted from one currency into another. 

All of this carries hidden costs. For example, if the buyer relies upon their bank to handle the transfer, the bank will charge a transaction fee which could range from a few dollars, to a percentage amount of the value of the transfer. More significantly though, when banks handle international payments, they also handle the currency conversion which means they get carte blanche to set the foreign currency exchange rates used and usually seize the opportunity to make themselves as tidy little profit by applying a “mark up” of anywhere between 2 – 5%. 

As a rule of thumb, relying on a bank to send a large sum of money abroad can easily end up costing 5% of the transaction – in the case of a property purchase that’s $5k for every $100k sent.

Of course, there are more cost effective ways of sending money internationally and most investors have accounts with at least one money transfer specialist as these companies offer lower fees and better foreign currency exchange rates than banks offer.

Final Thoughts on Buying Property Abroad

As the US housing market cools, investing abroad and getting into international real estate is becoming increasingly tempting. As we have seen there are many hot locations for buying real estate abroad although the best real estate market now may well be Israel.
Just remember, investing internationally does carry a unique set of challenges including navigating an unfamiliar regulatory framework, not to mention the costs of transferring money internationally.

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