The risks of an “Offshore, Off-Plan Investment Property"

My clients are constantly asking my advice when it comes to various investment opportunities presented to them, by other professionals in the field. From individual stocks, bond portfolios, trading platforms, paintings, etc, I’m constantly asked for my views and I feel privileged to have such a valued opinion and to be the trusted view when it comes to their next financial steps.

In the last 6-7 years, a constant “opportunity” presented to all my clients was the “offshore, off -plan investment property”. Main areas where these so-called opportunities are about to be built, can usually be found in the UK (London, Manchester, Liverpool, Birmingham etc), Germany (mainly around Berlin) and Australia (Sidney and Perth being the most common cities).

I have always said that properties are not a bad asset to invest into, for the medium–long term and I also always said that real estate it is without any shadow of doubt, one of the asset classes that should be part of anyone’s portfolio however, what we buy, why and how we buy it, can make a massive difference between “good” or “bad” investments.

The main dangers with this type of investments are around pricing (usually way overpriced, just looking at the number of hands involved in commission payments for a deal) and the fact that they are pushed through false and unrealistic promises.

If you ever came across such “opportunity”, you would have been asked for a down payment of around 20% with the difference to be ready at the completion date (2-3 years down the road). You would have been promised to be assisted with getting a mortgage at the time of completion. You would have also been presented with all the good reasons why that particular project or projects look very attractive and they are a great “opportunity”. In some cases, there is logic and truth to these aspects but I tend to believe that in most of them, it nothing but a load of nonsense (to be polite).

In some cases, I even came across clients which are being advised to sell out some of their existing financial investments (for which they have already paid set up/advise and arrange fees and charges) in order to go into such risky alternatives, while paying again set up (introduction or advise and arrange…) fees and charges (most commonly, undisclosed to the buyer) which are included in the property price (and that’s why I stated they are overpriced). That in our industry is called and considered CHURNING of commissions.

Let’s clarify something; the person advising you to buy such property will receive a commission from the developer at the point of exchange of contracts, a commission representing a fixed percentage of the PROPERTY VALUE and not your down-payment value.

In the world of wealth and investments, the professionals which are advising and arranging solutions for you, are usually rewarded according to the investment tickets given by their clients (higher amount of money to be invested, higher pay… lower amount of money, lower pay). In order to obtain the high tickets, advisors need to build the right networks, credibility, trust and demonstrate constant performance therefore, it is hard and consistent work in order to get the big tickets from clients. In this particular case, when you get paid according to the asset value (property sale value), while the client paid only 20% of it, it means you earn (as an adviser) 5 (yes, that’s FIVE) times more than you would usually do, while the client carries all the risks (of not getting a mortgage, of losing their jobs and not being able to afford a mortgage, or buying an overpriced asset that will not return what was ambitiously presented to them etc).

When offshore, off-plan investment property is being presented to you as an “alternative”, please make sure you are happy with the answers to the following questions:

- Can I pay it at the completion date, no matter what?

- Do I need to sacrifice other investments in order to do this one?

- Am I confident that I will be able to manage the property remotely (find tenants, get the rent paid, make all the repairs and maintenance work, etc)?

- Am I aware of and happy with the taxation system of the country that I am about to invest in (rental income tax, asset tax, capital gains tax, succession/death tax, etc.)?

- Was the advice given in my best interest?

- Do I know how much the adviser earned from this arrangement (called commission disclosure)?

If you are happy with the answers to the above questions, start doing the homework on the area, city and country presented and if everything seems to make perfect sense, go for it.

Always available to take questions and hear your views. Good luck investing and stay safe while doing it!