International investors have received a stern warning about putting their cash into property from Singapore’s central bank.
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As house prices start to rise in many countries around the world – like the USA, UK and many Asia Pacific rim nations – the Monetary Authority of Singapore (MAS) has become the first official voice to speak out against investing in a housing bubble.
Property investment is a real concern in Singapore, where the government has stepped in with tough rules to restrict foreigners buying homes.
The nation was flooded by wealthy Chinese and Hong Kong investors looking for a safe, profitable place for their money.
As a result, house prices surged due to speculation and the government acted to cool the market.
Consider the risks
Now, MAS is urging Singapore investors priced out of their home market to exercise caution when buying overseas property.
However, what the bank says should flag a warning to overseas property investors in other countries as well.
“Buying overseas property comes with a set of specific risks,” said a MAS spokesman.
“Investors should factor in risks like the rise and fall of foreign exchange rates and overseas interest rates before entering into a contract to buy a home in another country.
“They should also investigate any legal restrictions imposed on foreign nationals before making their investment as well.”
MAS explained that risk was more difficult to identify and deal with when an investor was unfamiliar with overseas property markets.
A particular worry is a sudden oversupply of properties leading to a fall in prices or quick changes in another nation’s economy.
“We have issued this warning because we want to make sure investors from Singapore do not over extend their finances and make sensible investment decisions,” said the spokesman.
Singapore investors target Britain, Australia and New Zealand as overseas property investment destinations.
In Britain, the government is proposing to scrap a capital gains tax exemption for non-residents. Sellers will have to pay tax at a rate of between 18% and 28% on sales of property.
The government has also tightened up stamp duty restrictions on companies buying residential property.
Many Singapore investors look outside their home country for property because the government charges a 7% stamp duty rate on second homes and requires them to pay a 25% deposit.
Commercial sellers also have to pay stamp duty on industrial property to discourage speculators.
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