Overseas property investments: the grass isn't always greener

Singapore

WHEN Justin Harper bought a two-bedroom unit outside of London in 2014, the last thing he expected was for the £270,000 (S$503,702) investment to possibly go down in flames - literally.

But the 68-unit luxury apartment building located in Slough and completed in 2015, was found last year to be a major fire risk due to flammable cladding and other substandard fire safety features.

The Guardian reported in January that the current freeholder, Ground Rent Estates 5, is refusing to foot the bill for fixing the building. Meanwhile, the building's warranty provider, BLP, has not decided if they will pay out.

Mr Harper, a financial writer and a Singapore permanent resident, fears leaseholders could be on the hook for footing the total estimated £1.5 million for the repairs for the building, which was converted from an office block.

In January, he was billed over £15,100 for the first half of 2018 by the building manager.

About £3,430 will go to service charges, which include round-the-clock fire services, and will have to be paid even if the warranty providers accept the claim. Usually, he pays less than twice that amount for service charges, he said.

The rest is meant to be set aside for the building repairs and paid up should the claim not be accepted.

The full amount would be more than a year's worth of rent. Mr Harper collects £1,000 a month in rent.

While his tenants are staying on, he and other investors are worried about the fate and value of their property.

"People dont want to live in this building, and a lot of leaseholders want to sell but no one is going to buy when it's a fire risk," Mr Harper said.

The Business Times reported on Feb 8 that IP Global, the firm that worked with the building's developer in 2014 to sell Nova House, told The Business Times six units were sold to clients based in Singapore, two of whom are Singaporeans.

Is the grass greener?

Numerous buildings across the UK have been found to have dangerous cladding in a wave of inspections made in the wake of the Grenfell Tower tragedy in London.

In June 2017, a fire ripped through Grenfell Tower, a public housing block, which was found later to have flammable cladding.

New tests conducted afterwards across the country found that about 228 buildings had needed replacement or modification, as of August 2017.

For some council housing blocks, local authorities could face bills totalling hundreds of millions of pounds for safety work, reported the Evening Standard in January 2018.

Residents at other private residential blocks in the UK, such as Cityscape in Croydon and Fresh in Salford, which have been found to have flammable cladding.

They have also faced increased service charges to pay for fire wardens, and have been asked to pay to replace their cladding as well.

The Nova House case is not the first time overseas property investments have gone awry for Singapore investors.

In 2014, the Monetary Authority of Singapore (MAS) put EcoHouse, a London-based firm that promised annual yields of 20 per cent on social housing in Brazil, on its investor watch list after investors here complained they were not being paid.

It began voluntary winding-up in 2015, but not before sweeping up S$65.55 million from 1,500 Singapore investors.

Closer to home, in 2001, the developer for Villa Temasek in Bintan vanished before work was completed, leaving about 90 Singaporeans investors high and dry.

In August 2015, the Advertising Standards Authority of Singapore (ASAS) released guidelines on ads for overseas property investments.

For instance, such ads should not contain claims that give the impression that an investment is safe, low-risk or risk-free or can generate quick, easy or high profits with little or no risk. They also cannot mislead or exaggerate the property's location, physical nature, legal titles and the developers' financial position.

Pitfalls

Ku Swee Yong, chief executive of International Property Advisor, said cheaper prices abroad and a belief that property can cushion against inflation drive Singaporeans to look to foreign shores.

But overseas property investments can come with its hidden pitfalls.

While buying properties in vacation spots like Batam and Bangkok might feel comforting and familiar to Singaporeans, Mr Ku warned that the different language and legal systems in such countries could make resolving issues down the road harder.

He added that investors tend to forget about the "after-sales service" with units abroad that they buy to rent out. That includes putting systems in place to solve problems faced by tenants, such as broken pipes.

Moreover, after they have sold their property, remitting the money back to Singapore could come with withholding taxes and other fees, he added.

"People often think about how they would enter the market, but they don't think about full cycle of investment," he said.

Legal recourse

While the first port of call would be insurance, residents at developments such as Nova House could consider seeking legal recourse against stakeholders, which could include the developer, contractor, consultants and building inspectors, said Melvin Chan, partner and head of litigation and dispute resolution at TSMP Law Corporation in Singapore.

He said a claim against the developer or contractor might arise if the cladding and other issues with the building were not built in compliance with the original building plans and specifications at the time.

If it was built according to plan and the fault is due to the original design of the building, then a claim may lie against the architect or engineer responsible for the design, he added.

A local paper, the Slough Express, has reported that the material used on the building was different from the type specified by the developer and independent building control inspector. Mr Chan said: "Investors need to be aware of the building codes and regulations overseas, which can sometimes differ even within the same country, before signing the cheque."

Due diligence

Mr Harper had purchased his unit, which was marketed by IP Global, as he was looking forward to healthy rental income.

A crossrail station is due to open in the town in December 2019, as part of a line that will link areas to the west of London with those in the east.

He wishes he had been even more careful, perhaps by paying more attention to the size and track record of the developer rather than just trusting IP Global's bullish outlook.

Jennet Siebrits, senior director for residential research at CBRE, United Kingdom, said: "Buying a new build property is always a safer and a more secure investment because of the new build guarantees that come with these."

For instance, the National House Building Council provides 10-year warranties to about 80 per cent of new homes in the UK for some structural defects.

"Always buy from a well-known developer, through an agent so you have recourse if things do go wrong. If you are buying a second hand property you don't have this security of purchase. Always employ a lawyer who would be able to advise."