I’m going to the UK for a spell, but it’s just a work opportunity and I don’t plan to settle. I’m looking
at a few years max. I have been looking at some comparisons between the UK and Australia on
Google and the UK’s national debt is very high. Apparently, it is about 86 percent of the country’s
GDP. Australia’s debt is 41 percent of GDP. Overall world debt is colossal.
I’m wondering whether a country’s national debt makes it harder for asset prices to rise. This is a
property buyer’s forum, so here I’m asking about whether property will rise faster in Australia
because of the lower national debt. I could sell my house here and buy one in the UK or keep my
house here and rent it out and just rent in the UK, so that’s why I’m asking.
Issues such as national debt only influence local prices when debt gets out of hand – look at Zimbabwe and Venezuela for example. There are so many other factors involved.
UK house prices are surprisingly buoyant despite all of the current uncertainty over Brexit. Countries can have very high debt and not be hit by financial crises if the world’s investors think that the place is a good bet. Another factor that influences asset prices on an international level is currency exchange levels.
By selling your property in Australia and buying a place in the UK, you are making a currency trade. It sounds like you are going to be coming back in a few years and so you will be working through the currency market in the other direction as well.
In your case, the currency market will be a bigger factor on your profit or loss than the influence of the UK’s debt on property prices. Things are getting even more complicated at the moment because much of the world seems to be moving into recession. The debt of each nation is a big factor when an economy is shrinking,
Both the UK and Australia are expected to avoid recession over the next few years and will both grow at roughly the same pace. The UK coming out of the EU will likely grow its economy faster and the positive noises in the UK over trade deals with Australia means that we will probably do very well out of the move. The two economies seem to be moving in synchronisation.
So, national debt won’t lose you money on your property investments. The British pound is very depressed right now because of uncertainty. Once the UK leaves the EU, the pound will shoot up. So, by moving your money to the UK now and then moving it back in a few years, you will make a profit regardless of whether you put the money into property or just park it in a bank.
I’ve dabbled in overseas property and it’s exciting, but you also have to take into account local purchase tax. If you are going to renovate a property, then you will have to charge sales tax on the market value when you sell it. You can’t expect buyers to pay that tax on top of your sale price, so you will have to absorb that. Sales tax in the UK is 17.5 percent, so be careful about trying to make money out of a renovation, like a barn conversion over there. One good thing, though is that you can offset the VAT element of all of the materials that you purchase.
Overall, unless you’re sleeping with an international tax consultant and can get free advice, I would caution you to stay out of markets that you don’t understand fully. I know the market in Melbourne very well and I know where I can get value in up-and-coming suburbs, but I wouldn’t be so confident in Geelong, or Albury, or anywhere else outside of my home area. Moving money into far away places is an even bigger risk. I only bought abroad once because of other factors – I was in love and stupid!
My main advice, tying in with Terry is that international factors really don’t matter. There could be a terrorist attack in Japan tomorrow or a big bank in Germany might go bust, but if people in Melbourne need somewhere to live, I can still make money regardless of big national statistics or shocks.
The current climate looks bad for those big international cities like Sydney, London, and New York. However, people in those cities will still buy and sell and make money when they know where the hotspots are. I would tell you to ignore international factors like debt-to-GDP ratios and concentrate on local knowledge. If you know a major employer is moving into your area, or if your local school is moving up the league table, then stick with your current property.
Another very good idea is to sell your home and buy off-plan in a new development. Swanky developments usually sell at a premium once they have finished and offer big discounts before they strike ground. Big apartment buildings can take two years from conception to completion and that might be the perfect delay for your situation.