Amid the global asset allocation trend, overseas real estate has become a highly sought-after asset for high-net-worth individuals due to its advantages in risk diversification and inflation hedging. “Freehold ownership,” a core selling point of overseas real estate, is often packaged as a “one-and-done” wealth-building secret, attracting countless investors. However, property rights systems, holding costs, and legal risks vary significantly across countries. Blindly pursuing the “freehold” label can lead to investment traps. Unveiling the truth about the duration of overseas property ownership is the first step towards sound investment.
Freehold Ownership: Not a “Safe Haven”
Many believe that “freehold ownership” of overseas real estate means that the land and house can be passed down indefinitely, but this concept needs to be interpreted within the specific legal framework of each country. While there are no time limits for the use of real estate in the United States, owners are required to pay property taxes annually (usually 0.5%-2% of the assessed value). If taxes are overdue, the government has the right to auction the property to offset the taxes. For example, an investor who purchased a villa in California suffered significant losses because he failed to pay property taxes on time, resulting in the property being auctioned off by the government at 60% of the market value. Japan practices private land ownership, with both houses and land having permanent ownership rights. However, buildings themselves have “lifespan limitations”—while ordinary residential properties have no time limit, they require regular renovations due to earthquakes, aging, and other issues; otherwise, they may be deemed “dangerous” and forcibly demolished. Land ownership is retained, but the house’s value becomes zero. The UK divides ownership into “freehold” and “leasehold.” Freehold, such as detached houses, allows for permanent ownership of the land and house, while leasehold, such as apartments, typically involves 99-999 year leases. Upon expiration, high renewal fees are required; otherwise, the land and house revert to the landlord. One London investor, failing to pay attention to the apartment lease term, faced millions of pounds in renewal fees upon expiration and was ultimately forced to sell the property.
Leasehold Ownership: Hidden Costs and Risks of Long-Term Leases
While some countries lack “freehold” ownership, they simulate similar rights through extremely long leases. However, the hidden costs and legal risks cannot be ignored. In Australia, except for Canberra, most properties are freehold, but the rental market operates on a “99-year lease” model. Tenants pay a one-time land rent upfront, but are still required to pay property management fees and council taxes. If land value increases during the lease term, tenants may face rent increases or lease non-renewal. In Thailand, property ownership is typically 90 years (with 30-year leases renewable twice), but foreign purchases must be held through a Thai company, and land ownership always belongs to the Thai citizen or company; investors only have the right to use the building. If the Thai company encounters operational problems, investors may face the risk of property seizure. Singapore implemented a “99-year land lease” policy after independence. Residential land must be returned to the government upon expiration. While renewal is possible, a land premium must be paid at market value, potentially exceeding the property’s current value. One Singaporean investor, failing to plan for land lease renewal in advance, faced high additional fees upon expiration and ultimately chose to abandon the property.
The Holding Costs Behind Property Rights: The Triple Pressure of Taxes, Maintenance, and Law
The “freehold” status of overseas properties often comes with high holding costs, which, if not planned for in advance, can erode investment returns. While most Canadian properties are freehold, owners are required to pay annual property taxes (0.5%-1.5% of the property value) and bear the costs of home repairs and insurance. One Vancouver investor, failing to set aside a maintenance fund, had to spend tens of thousands of Canadian dollars out of pocket to repair a leaky roof, significantly reducing their annual return on investment. European countries like France and Germany have even higher property tax rates, and vacant properties are subject to an additional “vacancy tax.” One Parisian investor, due to a long-term vacant property, had to pay tens of thousands of euros in vacancy tax annually, ultimately being forced to rent or sell. Legal risks are equally significant: in the UK, failure to pay rent on leased properties can lead to legal disputes; in the US, if a property is illegally occupied, the owner must undergo lengthy litigation to regain ownership, potentially incurring high legal fees.
Rational Investment: Seeing Through the Appearance of “Perpetual Ownership” and Focusing on Long-Term Value
The “perpetual” label on overseas property ownership is essentially a difference in the definition of property rights under different legal systems. Investors need to abandon the simplistic thinking that “perpetual is best” and assess the true holding costs and appreciation potential of the property by considering the tax policies, legal environment, and market cycles of the target country. For example, although Japanese properties offer perpetual ownership, frequent earthquakes lead to high reconstruction costs, so priority should be given to areas with good earthquake resistance. In the United States, property taxes may increase with rising property prices, so it’s necessary to choose areas with lower tax rates or stable property price growth.
The “perpetual” label on overseas property ownership is essentially a difference in the definition of property rights under different legal systems. Investors need to abandon the simplistic thinking that “perpetual is best” and assess the true holding costs and appreciation potential of the property by considering the tax policies, legal environment, and market cycles of the target country. Only by seeing through the appearance of “perpetual ownership” and rationally analyzing the details of the system and potential risks can steady returns be achieved in global asset allocation.
