Should we buy an overseas home for living after retirement?
Salespeople often market foreign properties as high return investment or affordable luxury homes. The latter appeals to buyers looking for value-for-money homes overseas, either for vacation or for retirement.
After all, we work hard all our life and deserve a comfortable living in our golden years. And buying or building a dream home overseas sounds like the ultimate reward.
4 reasons for buying an overseas home
There are four common reasons for buying a home outside the country one resides.
Reason#1: Finding a cheaper housing option for retirement
“It is expensive to live in Singapore. We have high inflation, high housing cost and high cost of living. In contrast, our nearby countries can offer the same quality or even better retirement life at a fraction of Singapore’s costs.”
– “Overseas retirement – what you don’t know“, PropertySoul.com
Reason#2: Property is an asset and a safe investment
It is a good money habit to put aside money for twilight years. Bricks and mortar is considered a safe asset that won’t be easily wiped out during a financial crisis.
Besides, it is a good way to hedge against inflation. We can buy an overseas home when the costs of land, construction and living are still low in a foreign country, in case it becomes unaffordable in the future.
Even if we don’t move in, the rent can serve as passive income over the years. Alternatively, profit from selling the property can add up to our retirement fund.
Reason#3: Location with a special place in one’s heart
A home we call our own fulfills our emotional need. It can be any location that has a special place in our heart – the hometown where we came from, the country we went for college, a town we visited for honeymoon, or a city we once relocated for work. As we age, we treasure loving memories and the strong sense of belonging.
According to Juwai IQI, the most popular countries for Singaporean homebuyers looking for the purchase of an overseas home include Australia, Thailand, Malaysia, Japan and the United Kingdom.
Reason#4: Spending retirement years in one’s hometown
Many of us are immigrants from foreign countries before we become naturalized citizens, permanent residents or non-residents of Singapore. We come here to work, make money, and send money back home, often leaving behind families, relatives and friends.
Returning to one’s hometown for retirement is a common consideration. That is why Singapore’s foreign talents, domestic workers and foreign workers are often sending money home to buy properties or buy land to build houses.
3 traps of buying an overseas home for retirement
Below are the traps of buying an overseas home. Obviously, marketing agents will never mention any of them in their sales pitch when selling you an overseas home in a foreign country.
Trap#1: Property is an illiquid asset
In the last 25 years, Singapore experienced economic downturns during the 2001 recession, global financial crisis in 2007-8 and covid-19 outbreak in 2020. Many run into financial difficulties under unemployment, failed businesses or losses in investment.
Some tried to sell their overseas home in an attempt to raise money to repay mortgages, debts and other outstanding payments. That was when they realized that properties that target foreign buyers are not easy to sell in the market. This is especially true in a slow market.
It takes time to find a buyer, to pay all the outstanding taxes and payments, and to wait for the completion of the transaction. The property is not in Singapore. Everything is not as efficient.
What’s more, Singapore is one of the few countries in the world that don’t have inheritance tax or estate duty. For instance, the inheritance tax rate is 40 percent in the UK. The beneficiary must pay the tax to the British government before being able to sell the property.
Want to leave behind an overseas home for your children? Do them a favor. Leave them cash or other assets, not a property in a foreign country.
Trap#2: Can you get your money back?
Even if the owner sells below value and manages to find a buyer, transferring a big sum of money is not so straightforward. When you buy an overseas home, you only need to issue a cheque. But when you sell, whether you make a profit or a loss, you may not be able to get all your money back.
This is what your agent didn’t tell you when he marketed the foreign property to you. That is exactly what Hong Kong buyers of China homes found out too late.
(Note: Hong Kong and China are often used as examples in my blog to avoid repeating “Any resemblance to real persons is purely coincidental”. I am sure that clever readers like you can easily relate to Singapore buyers and properties they purchased in other countries.)
After Hong Kong property prices fell 30 percent, banks started recalling existing housing loans. Some tried to sell their second properties in China. They wanted to remit the sum from the sale back home to settle their outstanding mortgage in Hong Kong. That was when they faced the brutal reality.
Under the remittance restrictions, if you are lucky, you may be able to do so batch by batch over a period of time. Of course, there are other underground channels. But do it at your own risk. You may risk losing all your money, being blackmailed by the middleman, or being charged by the authorities of the foreign country.
Trap#3: An expensive purchase you can never enjoy
A friend’s retired parents work as house caretakers in a Southeast Asian country. They spend their time looking after luxury houses while the foreign owners seldom visit the country. Apparently, they are paid to enjoy these beautiful homes, not the owners who bought them.
About eight months ago, there was write-up circulating on facebook titled “Retirement Mansions Are Useless – Living Abroad and Building for Caretakers to Enjoy”.
“Typically, an African will build a beautiful house back home while residing abroad, employing a caretaker to live in the house, enjoy it, and oversee its maintenance on a daily basis.”
“The legal owner visits once a year for about 2-3 weeks to enjoy the property, while the caretaker enjoys it every day. Interestingly, caretakers get to relish the property right from its completion when everything is fresh and beautiful. In contrast, the legal owner may return home after 10 or 15 years, if fortunate, to find the property diminished in style, taste, and beauty.”
“In 2018, a certain 43-year-old man died in the USA from a heart attack while he was asleep. He was found three days after his death. He was living in a small room, working 16 hours a day for six days a week, putting all his money into building a nine-bedroom house on a piece of land he had purchased. After his death, his family sold the house, as it was too large for them to maintain even if it had been completed. It was not finished.”
“When older adults in Western countries reach retirement, they often sell their large homes to downsize, while we seem to want to live like rats when young and energetic, only to live like kings and queens when we are nearing death.”
3 considerations before taking the plunge
Buying an overseas home is very different from buying a home in one’s own country. There are three important things to consider.
#1: Total cost of ownership and net return
The price of an overseas home may look affordable. However, the government taxes, repair costs, maintenance and housekeeping fees can add up to a huge sum.
If foreign buyers have a local bank loan, when interest rates go up, they risk paying higher mortgage installment and receiving lower rental return for their overseas rental property.
Most foreign countries have capital gain tax, especially on foreigners selling properties. After property taxes, stamp duties and capital gain tax, it may leave nothing much for profit (if any).
#2: The second-hand market
When you are doing your research, don’t just focus on the new projects in the country. Study the second-hand resale market to see how big the market is. Above all, how easy and how long it takes to sell a home in a project like yours to the next buyer.
#3: Future value of the property
Unlike Singapore, the value of properties in some countries do not appreciate in the long-term. Prices can go down or remain unchanged for many years. Worse still, changes in politics, economy and currency exchange can be unpredictable.
The bottom line is: Don’t lose money. Because it will have a negative impact on your retirement sum. You don’t want to end up losing money for a white elephant that you haven’t even got the chance to enjoy it. We can plan for the future. But don’t forget to live for the moment.
My friend’s story of buying an overseas home
During the boom of the Malaysia property market in early 2010s, a friend bought a new sea-facing condominium unit in her hometown. It could be a vacation home, a rental property, or a home for retirement next time.
Like most high-end residential projects there, first-hand buyers pay the highest price in the transaction history. Developers keep launching new projects. The project she bought is considered old now.
Despite this, she counts herself lucky to be able to rent out the unit. Though the rent has never managed to cover the mortgage, maintenance fees and taxes. Not to mention the initial costs of renovation, furnishing, and repair due to quality issues.
In addition, the exchange rate of Malaysian ringgit was 2.4 back then. Now it is 3.3. So any rent from the tenant converted back to Singdollar is a negligible sum.
“I should have listened to you when you told me not to buy,” she lamented.
There is no absolute right or wrong for most decisions in life. But if you choose to believe in something, make sure you are aware of all the facts and can bear the consequences.
If you need advice on property matters or residential properties in Singapore, you can check out my one-to-one consultation service.
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Good article. Just rent, don’t buy, very tempting to buy in MY (JB now, CIQ, SEZ), AU and NZ (no tax) but nothing compares to convenience in SG and … laksa and curry puffs
Thank you. I am not against others buying overseas homes. Just have to weigh all the pros and cons of the purchase decision.
I have been a long time reader & inspired by your properties journey. Similarly, I acquired multiple properties in SG & AU. Recently, I made a decision to purchase a JB condo (cash buy) near CIQ for investment purpose as a foreigner after studying information available on media and evaluating the future prospects with RTS, JS SEZ, & Sunway Mixed Development at Bukit Changar station. It is a calculated risk decision to put money in MY as I have used RM in SG when it was in parity with S$. Similarly, I seen many people criticizing MY properties as “uninvestible” when they don’t have the “skin” (which you have used) in properties. Yes, MY didn’t have a great history with the flip flops, sudden decision (CLOB cessation), etc.. But looking forward, what will be your view on JB itself especially near CIQ area properties? I have read a previous article by your goodself on near CIQ properties at COVID. It is a fantastic article.
Thank you for following my blog. It’s a personal decision whether one should buy properties in any foreign country. For myself, I prefer to rent (hotel, service apartment or condo) rather than buying for the flexibility and cashflow.
Thank you for the article. I wish to add that the foreign exchange difference may work against you as foreign owners.
Next, the government or province always considers foreign owners are low-hanging fruit, which can be harvested anytime in terms of levies or taxes without incurring the wrath of its electorate. As foreign owners you just pay up quietly because you don’t have a voice.
Can’t agree with you more. Just look at the 60 percent ABSD imposed on foreign buyers of Singapore properties. When a country needs foreign investment, they promote overpriced properties to foreigners. When locals complain about high housing prices, the government slap property purchase ban, restrictions, higher stamp duties and taxes on foreigners to please voters.