The Best Countries to Invest in Property in 2021 Part 2

 So to achieve the BRRR successfully in residential real estate, we need to operate in countries which have the following characteristics:


1. Cashflow positive at 75% LTV. 

The net rental yield should be at least three percentage points above mortgage rate. Interest only mortgage should ideally be available. On average, net yield in UK is about 7 - 8% if you know how to find the right class of properties. Mortgage rate is 4 - 5% interest only. Singapore's is 2.5%, mortgage interest 1.5% but it is a repayment mortgage. At 75%, it is usually negative cashflow. The more you buy the poorer you get. Australia does not allow interest only mortgage now. The net yield is around 4.5%, which is almost the same as the mortgage interest. In New Zealand, the net yield is around 6% outside Auckland and 4% in Auckland, and the mortgage interest around 3 - 4%. We don't have to talk about China, Thailand, Vietnam and all the exotic third world countries because local mortgage is not easily available and if they are, the interest is well above net yield. 


2. Capital appreciation > 5% per year. 

Singapore fails this test again because the government usually slaps on anti-speculative measures once it rises above 3% per year. UK achieves around 5 - 7% per year. The rest of Europe hits 6 - 10% per year but mortgage is NOT easily available for foreigners. New Zealand, especially Auckland achieves an incredible 10 - 20% per year. Australia 4 - 7% per year, but mortgage terms are difficult and you are expected to buy only new and sell to locals. 

3. Tax friendly

Again, Singapore fails the test. The second property onwards you are slapped with Additional Buyer Stamp Duty like a tonne of bricks. LTV also drops.

https://www.dbs.com.sg/personal/articles/nav/my-home/considerations-before-buying-a-second-property

UK has capital gains tax, stamp duty of around 3.5%. But if you incorporate a UK limited company a lot of the taxes can be reduced legally. NZ and Australia have conducive tax regimes, especially NZ, with no capital gains beyond a certain holding period. But NZ is going to implement tax changes where you are taxed for rental at the gross level, and mortgage interest is NOT tax deductible for existing properties. 

4. Equity Release

Singapore has a TDSR calculation which requires you to return money to CPF before equity release. The LTV drops to around 45% for your second property as well. Again, it fails the test. 

UK meets the requirement. For Australia and NZ, lending to foreigners is getting more difficult. I'm not even going to mention China, Japan etc where mortgage to foreigners is non-existent. If you wish to buy a property fully with cash, time and again I repeat, just buying the bloody ETF or largest market cap stocks! Less hassle and lower taxes!

5. Strong Rule of Law

Singapore passes the test. Most first world countries pass the test. You will not have problems with land titles, corrupt and unprofessional solicitors, agents who misrepresent information, or poorly maintained condos, apartments and townhouses. Avoid third world countries like India, Philippines, Malaysia, Cambodia at all costs. 

6. Ability to Add Value and Buy Below Market Value

The last two are perhaps the most important factors. You cannot "force" capital appreciation when you buy from a developer. The developer has earned all the capital appreciation. In fact you buy ABOVE market value and will take twice as long to release mortgage or get capital appreciation. Australia is out for this reason. 

You can force a limited amount of capital appreciation by buying old apartments, refurbish to make the kitchen and toilets more modern. But you can certainly force a lot more capital appreciation by adding square footage to an old house. You can do that in most of Europe, the US, UK. You can do it in Malaysia. I managed to force about 20% capital appreciation within 7 months by buying an old house in Glasgow, refurbishing and selling it brand new to a couple. 

Conclusion:

with all the factors mentioned above, only UK, maybe the US and NZ fulfil the criteria. Singapore, China, Malaysia, Australia and the rest fail. I will focus my BRRR efforts on the UK. Where would you focus on ? Singapore? That's called "home-bias" effect.

https://www.investopedia.com/terms/h/homebias.asp#:~:text=Home%20bias%20is%20the%20tendency,of%20diversifying%20into%20foreign%20equities.

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