Investment Property in Australia
Why Invest in Australia?
Despite some investor misgivings regarding property in Australia, many key areas of Australia offer fine opportunities for high returns on investment.
Not only is Australia an outstanding country in terms of lifestyle and climate, it offers many economical and political advantages to today’s overseas property investors. Australia offers profitable opportunities for city investment as well as property for sale in current property hotspots. The following are the main reasons that make Australia such a strong investment today:
Stable both economically and politically, combined to create a peaceful and secure lifestyle option. GDP on par with most European countries. Australia’s strong economic growth rates are higher than most OECD countries, including the US and UK. English is the national language and the legal and business environments are based on the British system. Well established legal and property buying process, similar to that of the UK High capital returns of around 30% or more in key investment areas.
Foreigners are Keen to Invest in Australia
Australia has always been a favourite holiday and relocation destination due to its great quality of life and value for money and still today, carefully selected investment property in Australia offers great potential to overseas purchasers. With a well established and growing tourist industry in operation and increased economic activity in the major cities from foreign investors, many real estate investments are providing excellent opportunities.
Property prices are generally high in relation to income levels in Australia, creating a great demand for rental properties. In fact this demand is so high in some major cities that rental prices are firmly set to increase, making any purchase into a buy-to-let property market potentially profitable. While the population grows and incomes rise, the demand for housing now outpaces supply, causing prices to continue rising.
Capital Growth
Australia still has certain areas offering great investment opportunity. For example, in 2006 Perth property prices rose by between 36.6% and a staggering 42% and commercial properties in cities such as Brisbane and Perth are also currently offering many excellent returns on investment.
Off-Plan Property in Australia
Off-plan properties in Australia have provided huge returns, particularly within cities such as Melbourne and Sydney as well as those located in coastal regions where returns can be around 30% per annum. The growth in apartment, units and townhouses has been dramatic and off-plan is still a profitable investment option in Australia.
Benefits of Buying Off-Plan in Australia
Only 10% deposit is required to secure your chosen property. This can be invested into an interest bearing account or be borrowed using products like deposit power or bank guarantees. You do not settle until after the development has been completed and title is issued. If the development is not due to be completed for say 12 months, then you have secured a property at today’s price but don’t really start paying for it for 12 months. It is not uncommon for an off-plan property to be bought and sold again prior to completion. Many developments are built as holiday accommodation. These provide better security, higher income potential and the opportunity to take holidays in your unit every year if you so choose. Good tax incentives which, with good advice, will increase your overall investment.
The Buy-to-Let Market in Australia
The term "buy-to-let" simply means the purchase and ownership of a property through normal purchase procedures and when completed, the owner seeks to rent this property out for a regular income often exceeding annual mortgage repayments.
Australia offers a strong rental market for investors. The fact is that most Australians are finding property beyond the boundaries of affordability, with prices at prices some three or four times their salaries. Consequently, investors are identifying an opportunity for potential profit from rental investments, while the private rental market provides housing for about 29% of all Australian city households, far outweighing the public sector, that accommodates a mere 6%, according to the Australian Bureau of Statistics.
An additional factor in favour of investors in the buy-to-let market in Australia is the increasing interest rates and consequent consumer inactivity that leaves some properties unsold. These slow to move properties offer the opportunity to buy at reduced prices that investors can negotiated down, and many present great rental investment opportunity. Investors must of course be sure to have selected within popular locations, for example where schools are good, commuter links are easy and lifestyle is desirable, or where a good tourist infrastructure is in place in a year-round resort.
Today, demand for rental accommodation in certain pockets across Australia is outstripping supply, creating the perfect environment for buy-to-let investments, increased rental rates and strengthened rental yields for investors in the right locations.
Buy to Let (Example Only)
Case Study
John decides to purchase an investment property and he decides that the buy-to-let investment strategy is for him.
John has savings of around €80,000.
Investment property X is a new development with beautiful sea views and priced at €250,000.
Initially John pays his reservation fee of €3,000 to hold the property.
Next John pays a 30% deposit of €75,000 (minus his €3,000 reservation fee already paid)
John takes out a mortgage for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5,772.00 over 12 months.
John starts to rent his new property immediately and during the 3 months "High Season" he receives €2,000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leaves John with 9 months of rental potential to make a further profit.
If we assume that average rental rates for John’s new property are as follows (conservative figures):
High Season - €2,000 Per Month Low Season - €1,300 per Month
Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 Months during the high period earning €2000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 Months only.
3 Months x €2,000 6 Months x €1,300
Total Rental income = €13,800 after subtracting the €5,772 Mortgage repayments John has made a profit of €8,028.
* During this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable.
Short-Term Letting v Long-Term Letting
The final decision to be made by the buy-to-let investor is which letting strategy to use. It is obvious that the highest income is made by the property owner by short term letting during the high season. However you must bear in mind increased overheads due to constantly finding short term rental clients, as well as maintenance costs between clients.
Long-term rentals typically pay less per month but usually require far less input from the property owner. Some property owners choose to rent long-term during the low season, then short-term to higher paying tourists during the high season. The decisions to be made regarding your letting strategy are usually answered in part by the type of property you purchase.
The buy-to-let strategy is an important formula to get correct as even in a very busy market there is still competition. In order to maximize occupancy rates it is vital that you correctly select your location, property, unit and monthly rental charge as these factors will directly effect occupancy and, in turn, your rental income.
This type of investment brings the added benefit that during the time your property is being rented out and earning you an income, it is still appreciating in value at one of the fastest rates available, while someone else is paying your mortgage. Meanwhile it is providing an off-peak holiday home for your personal enjoyment.
Low-Cost Commercial Property
Australia’s cost-competitiveness has led to a growing number of foreign companies using Australia as a headquarters for their Asian operations. Between January 2002 and March 2003, 54 foreign companies established or relocated their operating centers in Australia, making it one of the most successful countries in the world in attracting such investment. Today Australia consistently emerges as a low cost base among developed nations.
Currency Exchange
Currency exchange rates against euros, dollars and sterling are very favourable in Australia today, making property investment an attractive option to foreign investors who avoid losing vast amounts of money in their exchange transactions against the Australian dollar. In addition, foreign purchasers are generally able to buy much more for their money than “back home”.
Cost of Living
The cost of living in large cities such as Melbourne, Adelaide, Brisbane and Perth is dramatically less than that of the world's most expensive cities. At the same time, Australia's major cities are all ranked among the world's top 30 cities in terms of quality of life.
Economic Stability
Australia’s strong economic growth rates are higher than in most OECD countries including the US and UK. Currently the country’s GDP is higher than that of the UK, Germany and France for example. There is a low degree of risk in the Australian economy while it boasts consistently strong GDP growth, stable interest rates, rising exchange rates, relatively high levels of employment and a low rate of inflation.
In the main cities unemployment is relatively low and on average the national unemployment figures stand at around 5%. The country receives many applications each year from those wishing to immigrate to Australia and enjoy the high standard of living and general opportunities the country has to offer.
Natural and Cultural Factors
Sun-baked horizons, rugged mountains, unspoiled beaches and dense tropical rain forest make it a popular holiday and lifestyle option.
Due to fantastic beaches and countryside, sporting activities such as diving and surfing are to be enjoyed as well as great opportunity for all types of ecotourism. Large cultural cities, such as Sydney, where opera and other musical events can be enjoyed, as well as world class cinema, theater, art galleries, and much more. Temperate year-round climate, with an average of 3,000 hours of sunshine per year. Relaxed and healthy lifestyle in the sun English is the national language, greatly facilitating a move here Well served by six major international airports
Economic Factors
High capital growth in areas such as Perth. Low cost commercial properties and a growing international business presence in major cities, due to good value for money and a foreign investor friendly environment. High demand for residential and commercial real estate to accommodate growing expatriate working community. Due to high interest rates and property prices, many Australians are increasingly seeking rental accommodation, making this a healthy growth area for investors. Currency exchange rates against the euro, dollar and sterling are favourable, making property purchase in Australia a valuable option. High growth rate, superior to that in most OECD countries, including the UK and the US.
Summary
Not only is Australia an outstanding country in terms of lifestyle and climate, it offers many economical and political advantages to today’s overseas property investors. Australia offers profitable opportunities for city investment as well as property for sale in current property hotspots in coastal resorts such as those in Western Australia and North Queensland.
Intelligent investors are making the most of today's real estate market in Australia, while opportunities still last, for land, buy-to-let and pure investment options.