Property investment overseas might generate higher rental yields and capital gains, but foreign exchange losses can cancel out returns if investors fail to factor in the risk, Jones Lang LaSalle Taiwan (仲量聯行) said in a report.
The report came in response to the advice of major property brokers for Taiwanese to invest in real estate overseas given that the nation ranks poorly in terms of rental yields globally.
Rental yields are at about 4 to 7 percent in Tokyo, and 10 percent in Kuala Lumpur and parts of Cambodia, Jones Lang LaSalle investment manager Sherry Wu (吳瑤華) said.
The figures represent three to five times the rental yields in Taipei, where property prices have risen significantly in recent years, squeezing profitability, Wu added.
However, property investment abroad poses foreign exchange risks that are unpredictable and might neutralize rental yields if volatility is excessive, she said.
The yen fluctuated 60 percent against the US dollar from 2006 to this year, and depreciated 30 percent against the New Taiwan dollar over the past three years, Wu said.
The yen’s fluctuation might result in end-losses for Taiwanese who have invested in Japanese real estate since the economic downturn in 2008, the report said, adding that institutional investors would have to book losses.
Surveys indicate that Japan is the nation most favored for overseas investment among Taiwanese, due to its proximity, its popularity as a tourist destination and its cultural attractions, the report said.
Japan’s ongoing economic reform lends support to the investment trend, but the stimulus measures have not yet achieved the intended effect and the economy is in recession, the report said.
“Investors must not overlook foreign-exchange risks when making property investment overseas,” Wu said.
It is safer to invest in nations with healthy GDP growth and stable exchange rates, Jones Lang LaSalle said. Compared with Japan, developed markets such as the US and the UK have lower economic and foreign exchange risks, the agency said.
The British pound is less volatile than the yen against the US dollar and housing supply is set to remain short of demand in the long term, the broker said.
The pound fluctuated 38.89 percent against the US dollar from 1996 to this year, Jones Lang LaSalles said.
In Taipei trading yesterday, the NT dollar rose 0.1 percent to NT$30.952 against the greenback.
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