The idea of buying property overseas is quite a popular one because of a few reasons:
- Some foreign destinations offer a relaxed atmosphere and pleasant climate all the year round, enabling people to enjoy a very good quality of life. It is therefore easy to find tenants in these places.
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- Back to back global crises have resulted in extremely low real estate prices in certain attractive destinations
- Some countries offer special packages to induce foreign citizens to invest in property there, thereby ensuring that the best possible deal is available.
- Some of the more popular destinations offer excellent rental returns of around 15% with a very high rate of occupancy, ensuring that the investment is extremely profitable
There are a few things to be considered when buying overseas property in superannuation funds. In fact, the rules that govern how super funds and SMSFs can invest abroad have to be followed very scrupulously since any deviations will attract penalties. Apart from this, there are many commercial aspects that also have to be taken into account because the attraction of a seemingly sweet deal can make people act incautiously.
If you wish to buy property with super funds then you have to ensure that:
- The ownership by a super fund is recognized by the country in which you wish to buy property.
- You can demonstrate that the sole purpose of the investment is to provide retirement benefits for the members of the fund. The investment will have to comply with the Sole Purpose test.
- You or any other member of the fund cannot live in the property in question under any circumstance
- The property in question has not been bought from anyone related to any of the trustees. However, please note that this rule does not apply in the case of commercial properties.
- The investment, in property or anything else, is managed efficiently in order to ensure that members' retirement benefits are maximized.
- Any costs associated with managing the investment should be kept to the absolute minimum and should also appear to be reasonable. Be prepared to have these expenses scrutinized during an annual audit. As a matter of fact, it is best to check with one's auditor before incurring any expense ostensibly in connection with managing the investment. The best example of this expense is travel to a foreign destination in order to inspect the property or sign up a tenant.
Since there are quite a few restrictions applicable to super fund loans to buy property, you do need to be aware that the fund can pay for any renovations to the property but it cannot borrow money for this reason. Also, loans are generally not available for building construction. It therefore stands to reason that you should only purchase a property after factoring in these costs. However, is that expenses such as
An important point to be noted: The good news is that property related expenses such as repairs, insurances, taxes and even depreciation are tax deductible.
Buying Commercial Properties Overseas
Many people prefer to focus on commercial and not residential properties when they consider buying overseas property in superannuation funds. Commercial properties are easier to manage and tend to have longer leases. These are very important factors when the property is overseas since you won't have the resources to look after the investment. The various types of commercial properties that investors look at are shopping complexes, offices, supermarkets and the like. However, these commercial investments do have a few drawbacks as well.
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