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Last updated: 27 Aug 2002
PROPERTY INVESTMENT IN 1997
November 4, 1997 - report brought to you by Asia USA Realty (Singapore) asiahomes.com Pte Ltd -affordable rentals for expatriates
Australia has always been a dream country for many Singaporeans. Many wish to migrate there so as to own a bungalow (costing <S$200,000) and a BMW car without paying a bomb, bring up children without the stress of having to study the Chinese language, live in a "clean countryside" environment and own a farm. Smell the roses and work 4 days a week. Go fishing.
Singapores 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 Developers 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).
5.2 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
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