Singaporeans' growing appetite for overseas property investments

Earlier this week, it was reported that a group of 30 Singaporeans who lost their investment in United Kingdom real estate projects were suing the lawyers who had represented them in the venture. These 30 Singaporeans are among 200 investors from various countries who are suing as they allege that the law firms did not inform them about the risks of the investments.

More specifically, the investors claim that Scott Fowler Solicitors and Graham & Rosen did not tell them that the projects' insurer, Northern and Western Insurance Company, is registered in the Caribbean island of Nevis instead of Britain. Also, these investors were allegedly not told that the insurer is not regulated by the UK financial authorities.

The Singapore investors are reported to have paid an average deposit of £40,000 for units in seven unfinished hotel and student hostel projects built by now insolvent British developer Key Homes. If there is one thing that is easy to find in Singapore, it is people offering real estate investment opportunities in other countries.

An article in a New York Real Estate publication earlier this month said that while Canadian and Chinese investors dominate in NYC, Singaporeans dominate overall real estate investment in the US. Because of my team's area of expertise, I tend to hear from many Singaporeans who are considering investing in real estate in the US in particular.

According to NGKF Capital Markets, Singaporean firms invested US$8.1 billion in the US property market in the first quarter of 2015 - well ahead of Canada's $3.6 billion and China's $2.5 billion. Australian and German investors completed the top five with $1.7 billion and $1.4 billion.

It is noteworthy that Singapore did not even make the top five in 2014, when Canada led the ranking ahead of China and Norway. So if they did not know it before, now property developers in the US know that Singapore is a force to be reckoned with.

The reality is that while there are countless success stories of Singaporeans doing well in overseas investments, there are unfortunately many stories where investors did not do as well as they expected. Investors sometimes get caught up in the excitement that comes particularly with real estate, and they forget that as with everything in life, we need to be cognizant of the potential downside.

A popular saying is that the three rules of real estate are location, location, location. My three rules of investing are due diligence, due diligence, and due diligence.

In the case of the 30 Singaporeans negatively affected by the now insolvent UK developer Key Homes, a red flag was the insurer not being regulated by the British financial authorities. Ideally, every member of the value chain should be well regulated and every professional should be properly accredited by a recognised professional body.

But despite these hiccups, real estate is one of the sexiest investment plays available now. The recently announced Blackstone / GE deal highlights this. Blackstone is now the largest private sector landlord in the US. Of the $272 billion that Blackstone now oversees, $81 billion is related to real estate, followed by private equity, high-yielding debt, and hedge funds.

According to a recent New York Times article, over the last two years, 50 percent of the firm’s $7.8 billion in core profits have come from what it has made from buying properties, sprucing them up, and reselling them. The article goes on to say that about 200 real estate professionals at Blackstone (out of a companywide 2,300 people) have delivered $4 billion in cash to the firm in just two years.

So in short, it is now an amazing time for Singaporean investors in overseas properties. Just remember to do your homework, be clear about both the upside and the potential downside, and get the advice of a qualified third party particularly when it comes to US situs real estate. The US tax regime can be complex and it makes sense to consult a properly qualified US tax professional before writing that check. Happy hunting!