Thoughts of a Financial Idiot- Property Investment in Australia

Many people have asked me about buying Australian property, since I studied there. There are many details but I w ill try to summarize the important issues.
We have seen many advertisements in Singapore papers selling Australian property to Singaporeans.

The main reason to buy Australian property as a Singaporean foreign investor is to get capital gain over the years, which is no different from buying any investment property in Singapore.

However as compared to the Singapore market, the Australian market does not fluctuate so wildly. People claim that Australian property almost certainly doubles in value every 10 years.

While you wait for the property to increase in value, you rent out the property. People claim that rental demand in Australia is almost certainly guaranteed, as more than 60/70 percent of Australians rent. The agents always use this as their big selling card.

You will be able to get quite a few government reliefs and tax benefits as a foreign investor. Some of the interesting ones which you cannot get much in Singapore are stamp duty relief and tax relief on depreciation of property. Singapore does not have this concept that a property physically depreciates as it gets older, which can be calculated in the form of relief.
Singaporean investors actually have an advantage over the Aussies as Singaporeans can get interests rates pegged to Singapore banks which is much lower than the interest rates of the Australian banks in Australia. The agents always use this as their big selling card.

Now for the not so good stuff....

When you want to sell, there are certain restrictions on who you can sell the property to.

You have to pay for the local real estate agent to manage your property, which is normally about 7 to 10 % of the monthly rental.

You can probably get only about max 70 to 80% loan from the banks and you have to pay the rest in cash. This also depends on the agents relationship with the Australian banks.

The agent will claim that Australia is undergoing an urban revolution now. Traditionally families did not like living too near the city, as they want big houses in the surburbs. Now as property prices are increasing over the years, units are getting smaller and there are more and more highrise apartments (to combat sub-urban sprawl), young people who live away from their parents do not mind living in an apartment in the city, which is nearer and they do not have to get through traffic jams to get to their office.

If you are not Australian, you can only buy a property which an agent officially ‘brings’ into Singapore with the permission of the Australian government, and these are normally apartments or townhouses which has no space for redevelopment or extension. What I am trying to say is, if you find a big stand alone house by the beach that you like through your personal friend staying in Australia, you are not allowed to buy, unless you go through a tedious government approval process, which is likely to be rejected anyway.

The other factor to consider is of course the exchange rate, which fluctuates, and could cause a decrease or increase in the valuation of your property. This is made worse in bad times, when the banks tighten their belt and starts to revalue their properties. If somehow the valuation of the property falls below the price that you originally bought it for, then they may ask you to top up the difference in cash. I thin this is known as margin call. (http://www.salary.sg/2008/margin-call-on-your-housing-loan/) This is also common in Singapore but for Australian properties this risk can be magnified by the fluctuating exchange rate. The agents will claim that this seldom happens if the difference is not more than 10% or something.

All in all, for Singaporeans, I think the idea of owning a house in Australia by the beach is more’ romantic’ than the actual returns of the investment itself.