Singapore’s bungalows are beyond the reach of the average Singaporean and Australian residential properties have always been ‘affordable’ and therefore attractive to own. This article shares my personal experiences with first-time investors in Australian residential properties.

What makes a good property investment have been written in my article - Surfers’ Tips for Foreign Investment - Orlando Bungalows. Here are few more considerations:

1. Depreciation of the Australian Dollar for the past few years. Yesterday, November 3, 1997, the Australian Dollar was worth much less due to the regional currency crisis. You will probably not make money out of your residential property investment in Australia in the medium term i.e < 5 years.

For example, I bought an apartment in the inner city of Melbourne at A$130,000 2 years ago and recently sold it at A$144,000. It seems I make a gross profit of A$14,000 in 2 years or A$7,000/year. Another apartment in Gold Coast was sold to me at A$200,000 and buyers now offer A$120,000 after 3 years. Much still depends on location.

2. Resale to foreigners not allowed. You are allowed to sell your properties only to Australians and Australian Permanent Residents. The purchasing power of the average Australian is low; many are divorced singles and have little money to support their families.

3. Resale to foreigners allowed if the property has INTEGRATED RESORT STATUS (ITR). Such properties, built adjacent to golf courses with hotels cost much more, at least A$300,000 in the past although sales prices have dropped in the past few months. They usually do not provide good rental returns and the Developer’s hotel competes with you for the same tenants.

4. Rental guarantees for 2 years. This is a sales gimmick as the "rent" is actually paid from your own pocket. The Developer marks up the sales price.

4.1 For example, if the bungalow costs A$100,000 (valuation by an Australian bank), the Developer sells it at A$116,000. You think you have a rental return of A$16,000 for 2 years i.e. $16,000/$100,000 x 100 or 16% of sales price (gross rental return of 16% for 2 years or 8% per year).

4.2 You put your money down at $116,000. The Australian bank will tell you that the house is valued at $100,000. Your loan will be 70% of $100,000 or $70,000. In addition to bank valuation charges and legal fees, you will have to pay $30,000 cash plus the $16,000 extra cash, totalling $46,000 which may be affordable for a thrifty Singaporean in his late 30s.

4.3 You will find that some competitors who do not give rental guarantees will advise that such rental guarantees are not genuine. If you research carefully, you will find that the rental may be A$500/month or A$6,000 a year, if your house is rentable. Your gross rental return is actually $6,000/$100,000 x 100 or 6% for a $100,000 house.

4.4 However, since the Developer has taken your money up front, he does not bother to rent out your place but simply pays you the rent every month.

5. Rental guarantees of net 8% for 10 years. Do not fall for this trick. A net rental guarantee means that the Developer pays all your operating expenses including the ever increasing corporate and council rates and Management fees (sometimes the Developer omits the Management fees).

5.1 This 10-year type of rental income has been a common strategy in the marketing of some China, Canadian and Malaysian properties. Usually first-time buyers do not think of getting an independent professional valuation. The net 8% is just too attractive and for 10 years and has had attracted many investors!

5.2 10 years are too long for any guarantee and assume that there will always be rental income. What the Developer will do will be to make money by selling the rights to management to a party (usually a retired husband and wife team eager to manage a small development) and disappears after some time. He will close his Development company too.

5.3 We know now that the "guarantor" is a private limited company which may have $2 share value. If it closes down, after selling you the property, there is nothing you can do legally. Do you want to pay several thousand dollars to engage a lawyer and you must be in Australia to attend court. We have a real case of such an instance of a 10-year guarantee by an Australian Developer, reported in the newspaper few months ago.

Above Nov 97 report not amended.


Updated on : 27 Aug 2002

Singaporeans are more sophisticated in 2002.  Many have had bought apartments in Melbourne and Sydney, probably because their children are studying in these 2 cities.  As regards capital appreciation, there is some gain in the last two years, as high as 10% per annum in well located properties. 
 
http://www.residex.com.au/
has more updated information on Australian properties.

The Sydney Olympics, a selling point and known to cause capital gains in properties in some countries did not  work their magic in Australian property investments. 

Australian dollars have had depreciated against the Singapore dollars and therefore, there is a double blow to many investors who had put in their money 3 years ago. They lose in foreign exchange and in a lower selling price for their properties. The same situation of lower selling prices exist in Singapore properties too if one takes the short term view.

Endowment insurance policies can be used as collateral for foreign property purchase, with the policy used to hedge against the principal while the investor pays just the interest.   Unit trust funds can be used.  There are so many ways to finance foreign property purchase unlike the inflexible system for Singapore properties.

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