Expat Investors Beware Offshore Property Funds

It’s a well-known fact that property prices are heading south pretty much everywhere in the world!  Falling values are being attributed to everything from the credit squeeze to the fact that fewer people are willing to commit to a property purchase right now. 

This overall lack of confidence in residential property markets is being mirrored in the commercial sector as well, as rental vacancy rates rise and more tenants default on rental payments or go out of business and vacate properties.

As a result, expat investors should beware of offshore property funds at the moment.  Whilst it would appear the best time to perhaps buy in, with values of underlying assets falling and therefore every penny of an investment purchasing a greater share of the underlying asset, some experts are warning that prices have even further to fall.

A lot depends on the way the offshore property fund is secured of course.  Because funds with limited borrowings have less exposure to risk with less of the rental income being used to meet interest debt payments.  This means that if rental income falls the fund is still theoretically secure, if less successful of course.  However, funds that have borrowed massively in recent years to expand their underlying holdings are at greater risk if interest rates rise perhaps, and certainly if vacancy rates rise.

Therefore, any expat investor interested in buying in to a commercial offshore property fund right now needs to look very closely at the way the underlying assets are owned.  For the average investor this can be very difficult.  All financial institutions keep any less than favourable data well wrapped up in jargon and small print.  They of course meet all regulatory requirements in terms of disclosure, it’s just that it’s very difficult sometimes to weed out pertinent information upon which you should be basing your ultimate decision of whether or not to buy in!

The options open to most investors are avoid these sorts of funds altogether – but then risk a real opportunity to buy into some exciting opportunities, or enlist the help and support of a financial adviser who not only has their ear to the ground, but who is used to wheedling out key information from financial institutions, and getting to the crux of the matter when reading and understanding product literature!

In our opinion there are some property funds worth closer inspection, because after all, an investment made now can theoretically buy a greater share.  But unless you’re very investment savvy and switched on to the commercial property sector around the world, don’t venture forward without good advice first.  Of course you absolutely must do your own due diligence on any product or fund that a qualified independent financial adviser recommends to you, but at least they can take some of the leg work out of the desperately long process of finding the funds that are more worth an investment risk than others.