ASIA FOCUS: Why Australian investors should consider Malaysian real estate

Petronas Twin Towers, Kuala Lumpur

Petronas Twin Towers, Kuala Lumpur

In my previous post, I highlighted some real estate opportunities in the growing economies of Asia. In this article, I zoom into one country within ASEAN where strong economic performance since the Asian financial crisis in 1997 has translated into strong growth in its job markets and real estate values and its emergence from the global financial crisis relatively unscathed.

Malaysia, with all its natural resources, relatively efficient and language-friendly workforce, stable government, healthy foreign investments and good standing within the ASEAN and international community, has somewhat lagged behind neighbouring Singapore in terms of economic growth and prosperity. However, this country has its own unique investment propositions that other developed nations may be lacking.

This article examines some key issues and why Australian property investors may consider investing in Malaysia.

What are the benefits of investing in Malaysia? – The Malaysian story

Over the last fifteen years, Malaysia’s economy grew by an average of approximately 6.4% per annum. It is the third largest economy in ASEAN behind Indonesia and Thailand and the twenty ninth largest in the world. The late 1980s saw significant foreign investments into the country where its industrial sector experienced significant growth into the mid 1990s.

Malaysia has significant natural and agricultural resources and is one of the largest oil palm producers in the world.

Harvesting oil palm (Photo courtesy: RSPO)

Harvesting oil palm (Photo courtesy: RSPO)

It also has a very strong and vibrant oil and gas industry. In recent years, Malaysia has developed significant capabilities in knowledge-based  services and manufacturing of high-value technological goods such as semi-conductors, IT and telecommunications equipment which have contributed to its growth in GDP and productivity.

During this time, Kuala Lumpur was also bestowed with the Petronas Twin Towers which has since become an iconic symbol for the Malaysian capital. History will show that it is powerful to invest in what is now a new term called “dramatic architecture”. Symbolically, it defines a destination, lends credence and puts it on the world map.

Singapore has yet again proven this to be true with the Marina Bay Sands. This S$8 billion integrated casino resort and hotel investment has been so successful, its financial commitments have been recouped in less than a couple of years. But the implications of success goes beyond financial terms.

ASEAN Country GDP $USmil GDP per capita US$
Indonesia 511,765 3,980
Thailand 273,313 8,478
Malaysia 221,606 15,384
Singapore 181,939 51,226
Philippines 166,909 3,515
Vietnam 89,829 2,793
Myanmar 26205 1,156
Brunei 14,553 50,198
Cambodia 11,250 2,082
Laos 5,374 2,127

Source: International Monetary Fund at at October 2009

So what are the pros and cons? Lets take a closer look as each pertinent element.

Investment climate and first home ownership

The dream of owing a home in Australia since the withdrawal of the First Home Owners Grant and the recent property boom is almost non-existent for first home buyers who are  choosing to live within a radius of 10km of Sydney, Melbourne, Brisbane and Perth. The entry costs of a first home in Australia is now beyond many first home buyers because our markets have moved beyond the growth in wages. With the impending carbon tax, mining tax, increase in energy, petrol and food prices, many investors are spooked about where the economy is headed. This is not helped by Australia’s current two-speed economy where BHP Billiton has just reported a $23.5 billion net profit while the retail, manufacturing, export, tourism and education are experiencing one of its toughest years on record.

Gallery at U-Thant: High-end luxury condominiums in the heart of Kuala Lumpur

Gallery at U-Thant: High-end luxury condominiums in the heart of Kuala Lumpur

Malaysia has similarly experienced a real estate boom albeit this boom has been experienced predominantly around parts of its capital city. Generally, wages growth in Malaysia has also not kept pace with its economic growth and inflation. As a result, first home buyers in Malaysia are doing it tough just like our own. An average terrace or town house in and around Kuala Lumpur now cost upwards of around RM1,000,000 (approximately A$320,000).

Luxury condominiums in the heart of Kuala Lumpur

Luxury condominiums in the heart of Kuala Lumpur

Malaysian property prices

Unlike Singapore and Hong Kong where scarcity of land and demand has driven private property prices to levels unaffordable even by a majority of their locals, Malaysian property prices are still relatively affordable.

The average Singaporean wage earner will generally be limited to purchasing Housing Development Board (HDB) flats which are essentially government housing because private property is well beyond their means. On the other hand, their Malaysian counterparts are able to afford private landed properties because prices are at affordable levels to middle class Malaysians.

Malaysians and expatriates are also enjoying the “best of both worlds” of inexpensive cost of living, idyllic lifestyle of cheap domestic help and chauffeur services whilst being able to take advantage of the close proximity of Singapore’s local attractions and amenities such as dining, shopping and quality healthcare. Singapore is approximately a 5-hour drive from Kuala Lumpur.

Real estate growth history

Selected areas in and around the capital cities of Kuala Lumpur, Penang, Johor Bahru, Kuching and Ipoh have experienced good growth in recent years. This has been due to the growth in population in recent years. Malaysia and Australia used to share similar population numbers of about 18 million. While fertility rates in Australia has been declining until recent years with the incentive of the baby bonus, Malaysia’s population has grown to approximately 28 million compared to 22 million for Australia.

Many locals in Kuala Lumpur favour inner city living although large housing estates have opened up in Kepong, Puchong, Serdang, Salak South, Taman Tun Dr Ismail, Kota Damansara and Cheras. These developments have spread the population over wider areas of the Klang Valley where Kuala Lumpur is located and has resulted in numerous highways and new ring roads being constructed to cater for this growth in transportation demand.

As a result, real estate in prime locations have significantly appreciated in value which is not dissimilar to the growth in  and around Australian capital cities.

Lifestyle, cost of living and retirement

Royal Selangor Golf Club, Kuala Lumpur

Royal Selangor Golf Club, Kuala Lumpur

The capital city of Kuala Lumpur is a melting pot of the Chinese, Malay and Indian cultures. It is highly developed in terms of infrastructure, public amenities and telecommunication facilities. Internet wi-fi is more readily available in public places such as the Kuala Lumpur International Airport, hotels, cafes and restaurants than in Sydney or Melbourne.

Bukit Bintang shopping precinct, Kuala Lumpur

Bukit Bintang shopping precinct, Kuala Lumpur

The cost of a meal consisting local Malaysian fare in Kuala Lumpur is anywhere between A$1 in hawker stalls up to approximately A$5 in cafes and restaurants. Mid-tier and fine dining restaurants are also widely available in large shopping malls and international hotels.

Middle class Malaysians and expatriates enjoy an idyllic lifestyle of strong public amenities and a range of social and entertainment options.

Many locals and expatriates have full-time domestic help to assist with all the household chores. A domestic maid or nanny for childcare costs approximately RM500 per month (approximately A$160 per month). A full-time chauffeur from 8.00am  – 6.00pm Mondays to Fridays (who is also responsible for keeping the vehicle clean and tidy) costs approximately RM1,000 per month (A$320 per month).

As a consequence of these factors, the cost of retirement in Malaysia is relatively inexpensive due to cheaper housing and cost of living. In contrast, a recent article by CNN found Sydney and Melbourne to be among the top 20 most expensive cities to live in the world.

Unspoilt and calm waters, Penang beach

Unspoilt and calm waters, Penang beach

Owing a brand new 3-bedroom apartment outright and free of mortgage with all the modern facilities for less than A$300,000 in idyllic beachside locations with public amenities and relatively low cost of living becomes a very real option for those who are unable to do so in their home country.

Political stability

Just like any government today, the Malaysian government is not free from its criticisms. Most notably, its handling, dismissal and subsequent jailing of its former Deputy Prime Minister and now Opposition proponent Anwar Ibrahim was widely critisized as being unjust and a violation of human rights by the international community.

Malaysia practices positive discrimination for its bumiputra and indigenous Malays and hence, its government machinery is widely seen by the minority locals and the international community as flawed because of the absence of a system of meritocracy.

Under its former prime minister Tun Mahathir Mohamad who held the post for 22 years from 1981 to 2003, Malaysia experienced considerable economic progress although is it widely argued that a lot more could have also been achieved should Malaysia had adopted a pure democratic society. Under Mahathir’s “guided democracy”, wealth was widely redistributed from the majority of business capitalisation held by the minority Chinese to the majority Malay population through various government-sactioned laws and regulations. It was the government and its ruling party, Barisan Nasional’s so-called “stabilizing” factor to avoid “unhealthy” undercurrents where a minority sector was holding onto the majority of the nation’s wealth. Nevertheless, Malaysia has progressed economically over the last fifteen years albeit less impressive compared to its former state of Singapore. Like Australia, it has also emerged from the global financial crisis relatively unscathed.

It is widely accepted that it will be difficult for Malaysia’s economic progress to rival that of  its neighbouring Singapore but on the other hand, Malaysia’s standard of living is also considerably higher than most of its ASEAN counterparts.

Malaysia My Second Home (MM2H) program

John Jones, a retired firefighter, and his wife Samantha who have moved to Malaysia under the Malaysia My Second Home programme. MM2H has so far attracted about 12,000 participants (Photo courtesy: The Star newspapers)

John Jones, a retired firefighter, and his wife Samantha who have moved to Malaysia under the Malaysia My Second Home programme. MM2H has so far attracted about 12,000 participants (Photo courtesy: The Star newspapers)

One of the key incentives that foreign investors can take full advantage of is the Malaysia My Second Home (MM2H) program. It is a government incentive administered through the Ministry of Tourism where the Malaysian government is actively encouraging eligible foreigners, expatriates and foreign investors to work, live and retire in Malaysia.

Some incentives include ease of opening bank accounts, repatriation of funds to and from Malaysia, tax free car repatriation, discounts for golf memberships and the eligibility to live indefinitely in Malaysia subject to certain criteria.

As the cost of living and retirement soars in Australia, I believe good Malaysian real estate presents very real opportunities for Australians who cannot afford to retire in Australia. Indeed, the paradox of Singapore having the highest number of millionaires per capita in the world is that many of its citizens are unable to retire simply because of the escalating cost of housing and the high cost of owing a private motor vehicle.

Finance, legal and tax

The ease of obtaining finance for buying real estate in Malaysia vary depending on ownership status. Foreigners with a work permit are generally allowed to borrow up to 85% while foreigners who are eligible under the Malaysia My Second Home (MM2H) program can borrow up to 80% to buy propertues with a minimum value of RM500,000 (approximately A$160,000).

There is generally no legal or government restrictions for foreign ownership of private property.

Real property gains tax of 5% is payable on disposal of private property held for less than five years as per the Malaysian budget 2010 announcement. Private property held and disposed after five years are exempt from RPGT. This imposition is favourable compared to Australia’s RPGT regime.

Stamp duties rates are as follows:

First RM100,000                                1%
RM100,001 –  RM500,000               2%
RM500,001 – RM2,000,000            3%
Above RM2,000,000                          4%

Stamp duty for home loan agreements is 0.5% for any amount of loan taken.

Conclusion – should Australian investors consider Malaysian real estate?

The question of whether to invest is obviously more easily answered if we are purchasing a first home to live in where the risks are significantly reduced. It is near impossible to spot the lowest point of entry into a property market because of so many factors. Personally, the best time is when opportunities present themselves when we are in the market to invest. Such opportunities are usually brought about by a combination of economic cycles, market inefficiencies, market knowledge and experience.

As a property investor myself, I would naturally be very cautious investing in a market which I have little knowledge about.

There are numerous factors which weigh against a foreign investor and this includes a lack of understanding and local knowledge of the Malaysian real estate market. This can significantly increase the risks which include purchasing a property in the wrong location and from poor quality developers. However, these risks can be mitigated through collaboration with parties who have knowledge of the local market and a strong network of financiers, brokers and reputable developers with quality and track record.

My own property investment experience in Malaysia

Having spent my formative years in Kuala Lumpur and having been a senior executive with one of Malaysia’s largest most successful conglomerates for many years, I have the benefit of local knowledge and networking. I believe this is the single most important factor in minimising risk and making mistakes in real estate investments. The English language is widely spoken throughout the country which makes it easy for foreigners and tourists alike to do business in Malaysia.

Most importantly, having lived and invested in real estate in both countries, I am able to draw parallels and decipher the pros and cons about real estate investment in Australia and Malaysia.

Favourable factors that give Australian investors a distinct advantage:

  • Current favourable exchange rate of A$1 to 3.2 Malaysian ringgit is at its highest in almost twenty years. The Australian dollar was buying as low as 1.75 Malaysian ringgit in May 1993.
  • Australian real estate values are at all time highs. Refinancing equity to invest in a growing market coupled with the added advantage of the strong Australian dollar makes overseas real estate extremely affordable.
  • Relatively lower entry and transaction costs into the Malaysian real estate market. Deposit rates for off-the-plan properties are usually 10% of the total sale price. For a typical Malaysian investment property worth the equivalent of A$300,000, the deposit to be paid based on current exchange rate is merely A$30,000.
  • Relatively easy process to obtain financing for foreign investors who are eligible to purchase private property. We can arrange finance through local Malaysian banks at competitive interest rates of between 5 – 6% per annum.
  • After sales and property management services. Our team of real estate agents and property managers will ensure efficient procurement of quality tenants and maintenance of your investment properties.
  • No exit restrictions and capital gains tax is minimal at 5%. Private properties held for more than five years are not subject to capital gains tax.
  • Relatively inexpensive retirement option under the MM2H whilst taking advantage of Malaysia’s idyllic lifestyle around beach locations such as Penang, Port Dickson and Kuala Lumpur.
  • Close proximity to Australia and the financial centres of Singapore and Hong Kong. Malaysia is also central to the growing economies and tourist hotspots of Thailand and Vietnam.

Who should consider investing in Malaysian real estate?

  • Investors and high net worth individuals who are looking to diversify their investment portfolios.
  • Investors who are within retirement age and are not able to retire on existing funds and are looking for a lower cost alternative without compromising living standards.
  • Investors with high levels of  savings and disposable income.
  • Investors who are planning retirement within the next five years.
  • Expatriates who are working in Malaysia.

wealthruproperty’s customised, one-stop solution and services:

  • We assist you in navigating the process of sourcing and shortlisting quality real estate by reputable developers who have a proven track record of many decades in Malaysia.
  • We assist you by arranging competitive financing and co-ordinate conveyancing and legal services to execute contracts and loan agreements.
  • We assist you by finding a tenant and establish on-going property management services for your property.

Investors and interested parties are invited contact Albert Wong on +61 413 660909 for more information and details.

Albert has an extensive network of real estate professionals, property developers, bankers, insurers, legal advisors, accountants and tax experts in Malaysia. He and his team of real estate professionals both in Australian and Malaysia provide an integrated approach to assisting property investors seek out choice investment properties with strong capital growth as an over-riding objective.

Read some of our clients’ testimonials here.

Albert Wong CPA is Head of Commercial & Research for wealthruproperty in Sydney, Australia.  All his views and opinions expressed above are personal in nature and do not constitute investment, financial or legal advice.

ASIA FOCUS – Real estate opportunities in the growing economies of Asia

Marina Bay Sands, Singapore

Marina Bay Sands, Singapore

As the economies of Europe and the US remain in the doldrums, Asia is providing the impetus for global growth where some of its economies are powering ahead.

From a recent trip to Singapore and Malaysia, and notwithstanding reports from financial institutions, analysts  and experts, my own personal observation is that consumer sentiment is confident albeit cautious, government spending is strong where the focus is on providing better infrastructure to lay foundations for sustained growth whilst retail and commercial activities are vibrant.

Construction of new public parks and amenities on reclaimed land, Singapore

Construction of new public parks and amenities on reclaimed land, Singapore

Some key Asian growth indicators:

1. Performance of Asian Real Estate Investment Trusts (REITs)

Asian REITs have outperformed global REITs by up to three times in the past five years. Mr Ng Cheze How, AmInvestment Bank’s director of retail funds says that Malaysian REITs provided an average return of 7 – 8% compared to the average of 6.3% returns from Asia-pacific property trusts. Malaysian indices give out 3.5% in dividends,” Ng said, adding that each business cycle averaged between seven and eight years and that Malaysia is in the third year of recovery.

More investors are gradually using real estate as a hedge against inflation. Rising costs of living across developing nations in Asia and Australia means that inflation is Deposit rates are generally low and and interest earned are subject to tax. Coupled with inflation rates of between 3 – 4% each year, keeping money in the bank may be prudent but inflation may eventually erode savings.

2.  Singapore’s costs of living overtake Hong Kong for first time

Singapore has overtaken Hong Kong as a more expensive city for expatriates for the first time, driven by a stronger currency and higher rents, according to Mercer’s Worldwide Cost of Living Survey.

Singapore’s GDP growth for 2010 was 14.5%, the highest in the world and now, the island nation is ranked the eighth most expensive city in the world, rising from eleventh spot last year due to a susbtantial increase in housing costs. The record GDP growth last year also helped Singapore become the world’s highest proportion of millionaire households at 15.5% of the population, according to a Boston Consulting Group report in May 2011.

Axis REIT Managers Bhd chief executive office Mr Stewart Labrooy said that real estate prices in Malaysia are relatively inexpensive compared to its regional neighbours such as Singapore. Although both countries have seen solid growth in real estate values over the last few years, Malaysia is still relatively attractive given its stable economy, abundance of natural resources and its strategic location within Asia’s financial powerhouses of Hong Kong and Singapore.

Watching Singapore's skyline from a 150-metre infinity pool on top of Marina Bay Sands

Watching Singapore's skyline from a 150-metre infinity pool on top of Marina Bay Sands

Inflation was 4.5% in May 2011 as food and transportation costs increased. The island nation uses the exchange rate as its main tool to manage inflation and has allowed its currency to appreciate to a record in an attempt to contain price increases.  The Singapore dollar has risen by 13% in the past year against the US dollar, matching the South Korean won as the two best performing currencies among the 10 most actively traded currencies in Asia excluding Japan. Singapore’s economic expansion has pushed the unemployment rate to a 3-year low and economists including Irvin Seah from DBS Group Holdings Ltd said rising labour costs were contributing to the risk of higher inflation. Singapore’s real estate prices climbed for eight straight quarters to a record high, prompting the government to introduce new measures to curb speculative buying.

Local and guests enjoying the pool at Marina Bay Sands, Singapore

Local and guests enjoying the pool at Marina Bay Sands, Singapore

3. China’s economic growth engine

China’s economy grew by 9.5% in the second quarter, slightly lower than the first quarter but still showing no signs of any slow down despite housing curbs and five successive interest rate hikes since October 2010. The efforts of the Chinese government in putting on the brakes on its economy may have a dampening effect on Hong Kong, although its dollar being pegged to the weak US dollar had little effect on the city’s ranking against Singapore above.

4. India’s emerging economy

India’s real estate prices have also been growing steadily over the last few years although there is a word about a property bubble brewing for real estate prices in Mumbai where prices could fall by up to 35%. The reason for this is a large number of developers who have bought land at higher prices  need to correct prices and the recent residential sales of 65% and 35% apartments in Mumbai and Delhi respectively being sold to speculators according to Jones Lang La Salle.

However, its economy is still powering ahead at 7.8% for the first quarter of 2011 and is expected to grow strongly into the future. Foreign direct investments stood at US$32 bilion and India is experiencing a growing middle class, strong urbanisation and government spending where US$46 billion has been allocated for infrastructure upgrades. It has a solid banking and financial system and its demographics shows a very young country where 51% of the population is below 25 years old.

So what does this all mean for the Australian investor?

It is clear that recent gains on the Australian dollar has made it extremely difficult for businesses in the tourism, education, manufacturing and retail industries where the relatively expensive dollar has been curbing international visits, foreign investments and real estate growth. As I write this article, major retailers David Jones and Myers have reported sharp decline in profits.

Real estate agents have reported a marked slow-down in foreign investors. The official 2-speed Australian economy is well and truly underway and as long as China continues to demand raw materials, our resources sector and associated industries such as transport and logistics will continue to be strong.

No doubt our real estate prices have seen very solid growth in the last 24 months and are now taking a breather. It is generally a buyer’s market in Australia and a good time to review portfolios. Manufacturing your own equity through upgrades, improvement and construction are a strategic moves in the current flat markets.

Australia needs to improve its competitiveness

To remain competitive and attractive for foreign investments due to the strong dollar, Australia needs to focus on its key drivers of growth. No longer can we rely on real estate predicated on the natural beauty of harbour and river settings because prices are now beyond the reach of international investors and growth will slow. Local investors have squirrel away A$80 billion in the last financial year due to uncertainty around the world.

From a tourism point of view, there are so many attractions around South East Asia that can rival the Sydney Opera House and its band of attractions around Australia that are far more cost competitive due to the location of these attractions in cities with a high density population and spending-power. The international airports in Shanghai, Beijing, Hong Kong, Kuala Lumpur and Singapore are miles ahead of Sydney and Melbourne airports in terms of efficiency, customer-focused conveniences such as high-technology wifi, telecommunications, banking and forex, shopping and hospitality.

Space and abundance: Kuala Lumpur International Airport (KLIA)

Space and abundance: Kuala Lumpur International Airport (KLIA)

Overseas opportunities

In addition to strong infrastructure growth,  real estate investment opportunities are looking ever so attractive in these new Asian markets due to the strong Australian dollar. These investment opportunities include:

  • Investment in strategic locations in Malaysia for the dual purpose of investment and retirement where the standard of living is relatively high whilst the cost of living is low. Modern and highly developed infrastructure such as international schools and hotels, hospitals, transportation systems and English being widely used throughout the country make it easy for English-speaking foreigners to relocate to Malaysia.  An idyllic lifestyle such as beaches set around tropical real estate with access to high-quality broadband, health care, relatively cheap international and local cuisine, domestic assistance such as maids and chauffeurs make this a very real and attractive proposition.
Gallery at U-Thant: High-end luxury condominiums in the heart of Kuala Lumpur

Gallery at U-Thant: High-end luxury condominiums in the heart of Kuala Lumpur

  • Malaysia My Second Home program where strong incentives are given by the Malaysian government to foreigners who choose to make Malaysia their home. This program is now attracting a significant number of foreigners from the UK, China, Japan and South Korea who are relocating their families to Malaysia (Stay tuned for more about the incentives, tax concessions, real estate opportunities on this program in my next post).
Kuala Lumpur International Airport (KLIA)

Kuala Lumpur International Airport (KLIA)

  • Indian real estate in top cities such as New Delhi, Mumbai, Chenai, Kolkata, Hyderabad, Pune, Gurgaon and others.
  • Private apartments in Singapore where scarcity of land is pushing up property prices.

Look out for my next few posts to give you more information about these overseas investment opportunities which are set to rival Australian investment and retirement options due to the changes around the Asia Pacific region.

Panoramic view of beaches along Batu Ferringhi, Penang

Panoramic view of beaches along Batu Ferringhi, Penang

Australia needs to be very serious to remain competitive and relevant to rival the business and investment opportunities that is being presented to the world by cities such as Shanghai, Beijing,  Hong Kong and Singapore.

Readers, property investors and interested parties are invited to call Albert Wong on +61 413 660909 to discuss real estate investment opportunities to take advantage of our strong Australian dollar.

Related posts:

Disclaimer: Views, opinions and comments expressed in this article are general in nature and do not constitute investment, legal or financial advice. Readers are advised to seek their own professional advice as and when required.

Property Update – June 2011

Darling harbour, Sydney
Darling harbour, Sydney

In my last update in December 2010, we observed a year of robust growth in 2010 although much of the surge in property prices happened in the first half of the year. The successive interest rate rises eventually took hold of the surging market in the second half of 2010 and we predicted that 2011 will be a year of consolidation. That is, a year where prices will stabilise as the market takes a breather from the boom.

It may be a opportune time to now examine the state of the property markets as we hit the half way mark in 2011.

Key Observations

Some key observations during the first half of 2011 include the following:

  • Fragmented markets and the two-speed economy in Australia

There has been a marked slow down in the property markets across Australia which has been widely expected. The boom which started in late 2009 was predicated on very low interest rates and pent up demand from earlier periods. What is worth noting is that, in general, property markets in Australia are currently flat and  further pressures on households will dampen prorperty prices.

It is also official that Australia is in a two-speed economy where the mining and resources sectors have been powering ahead whilst manufacturing, retail, education and tourism industries are experiencing very difficult times from a combination of the strength of the Australian dollar, consumer sentiment whereby people are more cautious and have curtailed spending to a large extent.

Mounting debts of $440 million - Colorado Group

Mounting debts - Colorado Group plans to close 140 loss-making stores nationwide (Source: The Daily Telegraph)

As I write this article, the retail chain, Colorado Group which owns iconic Australian brands including Mathers, Williams & Shoeman, Jag, Diana Ferrari and Colorado is riddled with a $440 million debt and its future is hanging on the balance. Receivers Ferrier Hodgson is expected to close 140 loss-making stores across the country and shed more than 1,000 jobs.

The evidence is mounting that consumers are cautious and sentiments remain fragile because people are still uncertain about the future of the world economy. The spending culture of Australians has been reversed where it is reported that Australian households have saved some $80 billion dollars over the last 18 months.

  • Strength of the Australian dollar

The Australian dollar has seen a jump of 25% in the last 15 months and is currently trading at around US1.06. The dollar traded to as high as US$1.10 in recent months. As a consequence, real estate agents have also reported a significant slow down in foreign investor interests due to the high exchange rate.

During the second half of 2009 where the recent boom began, foreign investor interests were at its highest where anecdotal evidence showed cashed up overseas investors, especially those from China were snapping up Australian properties when cash rates were at a 49-year low of 3%.

Although this level of investment has dwindled in recent months, prices have already surged and first home buyers are still finding great difficulty getting into the market. In general, investors are more selective whilst developers are having issues securing finance and this is sustaining price levels in certain areas.

  • Accelerating costs of living

Over the last 18 months,  food and petrol prices have increased in general which was due in part to the Queensland floods. GIO has increased premiums for most segments of its general insurance to recoup claims and losses from the natural disasters. The debate on the carbon tax, mining tax and impending increase in electricity prices and council rates are also making households think twice about getting into the property market.

Rising costs of living have been keeping many would be buyers out of the market. The difficulty of getting into the property market is generally sustaining rental markets across Australia. Most states have very low vacancy rates of around 1% although it should be remembered that markets are fragmented. Popular suburbs are always in demand while less popular areas are experiencing vacancy rates as high as 10%. This augurs well for investors although it is also not an ideal situation where renters are always under pressure from rent increases.

  • Strength of the Chinese economy

The Chinese economy has performed well and the government is concerned about its property markets which have seen a tremendous boom over the last 24 months. Measures are being taken to contain property price growth as well as inflation which some analysts are tipping to accelerate to more than 6%, bringing the full-year CPI to around 5%. The impact for Australia is obvious in the event of a slow down in the Chinese economy. However, there is little signs that a slow down is imminent as the Chinese government is generally looking to gently apply the brakes on the economy. Investors would be prudent to factor the potential of this issue happening in their investment strategy.

When and where to buy?

The million dollar question is still be asked as always. Hindsight is always easy and the best time to buy was obviously in early to mid 2009. My research at the time pointed to strong fundamentals in the Australian economy but what put investors off was the looming GFC and an uncertain future.

However, interest rates were at record lows and investors would have done extremely well had they invested in suburbs and properties with good credentials, that is areas where there is a solid growth history that is in demand from both owner-occupiers and tenants alike, strong public transport and amenities such as shopping centres, parks, beaches and other local attractions. Buying off-the-plan then was a good strategy provided the developments are in strategic locations and have strong developer credentials.

It is a generally a buyers’ market at the moment because prices are generally flat and some suburbs have retreated from its highs. But it should be remembered that prices have boomed in the last 24 months. First home buyers can drive a harder bargain for certain strategic locations where stocks have increased because it is now taking a longer time to sell a property.

Special reports

I would still caution investors about areas which have been touted as boom areas such as mining towns. I have received numerous emails over the last 6 months and a marked increased in the demand for the special reports in towns like Gladstone in Queensland and Orange in New South Wales. I have carefully reviewed these reports and the long term fundamentals of investing in these areas have generally remained unchanged. That is, one needs to do the hard yards by researching strong growth history and fundamentals for suburbs within these areas, choose the right location, then the right type of property and finally the right price. However, the short term risk profile is a little different because markets have softened and the future of the world economy is still uncertain.

In general, I would avoid house and land packages and off-the-plan projects because the boom is over and it is a lot more risky when the future is uncertain unless one is looking to be an owner-occupier and is taking a much longer term view.

I believe investment strategies in light of all the above have not changed from what I found in December 2010. These strategies include:

  • Exercise prudence and reduce risk by reducing debt and leverage and value-add to property portfolios, if at all possible. Renovating your properties, subdividing and developing are great ways to “manufacture” equity and grow your portfolio during flat markets.
  • Research and target emerging suburbs with good credentials. As markets are flat, it is crucial for investors to take a longer term view rather than looking for short term gains and buying properties off-the-plan. Real estate in popular areas around the CBDs with good public transport and amenities will continue to hold its value in the long term. These properties are also popular with tenants.
  • Consider alternative markets overseas. Due to the strength of the Australian dollar, many Australian are taking advantage by going overseas for holidays and considering investing in overseas markets. This option is strategic provided research and due diligence is carried out and the relevant laws and regulations of those foreign countries are understood and its implications factors into the equation.

Related posts:

Disclaimer: Views, opinions and comments expressed in this article are general in nature and do not constitute investment, legal or financial advice. Readers are advised to seek their own professional advice as and when required.

Where to find competitive home and content insurance

GIO’s fire and home content insurance premiums recently soared by up to 35%. I was told by a broker that GIO, being owned by Suncorp, was trying to recoup losses it suffered from claims payout as a result of the recent floods in Queensland.

I did some research and found that Real Insurance had some of the most competitive quotes for fire and home content insurance which rendered my renewal notices from GIO to be ridiculously expensive. One can choose from different excess amounts to suit the premiums to be paid and policies have a 30-day cooling off period from inception provided no claims are made during this period. I found the service of staff to be knowledgeable and helpful and the renewals of my policies have saved hundreds of dollars from the switch to Real Insurance.

Contact real insurance to find out if your current premiums are competitive.

Real Insurance

Record high Aussie dollar – implications for property markets

Aussie dollar hits record high

In high demand - Australian currency

On the back of a successful US $29 billion auction of US Treasury bonds, improving sentiments in the local equity markets combined with China’s announcement that it is cutting the export quota for rare earths by 35% in the first half of next year,  the Australian dollar has hit a new 28-year high of 101.98 US cents at 12.45pm eastern daylight time, the highest level since the currency was floated in the early 1980s.

As a result, Australia’s emerging rare earths producers and explorers are enjoying a year-end surge in value as investors chased down their stocks. ASX-listed developer Lynas Corp surged 11% or 17.5 cents to $1.795 while Arafura climbed 13.5 cents to $1.355.

This development is adding more fuel to the strength of the dollar which has been widely seen as being overvalued by many analysts. Local businesses and corporations involved in tourism, education, manufacturing and exports are already feeling the wrath of the Aussie dollar as their products become less expensive in international markets.  The emerging rare earths market will further drive a wedge between Australia’s 2-speed economy whereby the mining and exploration industries are powering ahead with strong sales performance whilst the rest of the economy is lagging behind.

Job activity, increase in new property sales and the influx of new workers in some mining towns are already putting pressure on prices of certain type of properties. Investors have started investing in these towns some of which have seen house and land package developers increasing prices as each new phase is rolled out. Property markets across Australia will become even more fragmented whereby there will be an increasing number of suburbs and locations with strong growth, plateauing and declining, all at the same time albeit at varying degrees. Interest from overseas investors have declined steadily as the dollar grew from strength to strength.

Related posts:

It’s official – Australia in a 2-speed economy

Glenn Stevens - Governor of the Reserve Bank of Australia

The economic imbalance of Australia’s economy is official. Governor of the Reserve Bank of Australia, Mr Glenn Stevens had previously warned of the massive demand pull generated by Australia’s booming mining industry whilst the rest of the economy is stuck in the slow lane. Official employment figures from Access Economics for the year to the end of August 2010 showed that employment in the mining industry rose by 16% and construction by 3% as more workers are drawn to the resources boom. At the same time, more than 22,000 jobs were lost in manufacturing, down 2% in the past year and the arts and recreation sector, which takes in the embattled tourism sector, fell by 4.5%.

Whilst workers are flocking to the mining industry in droves, the high Australian dollar is pushing some of the nation’s most iconic industries to the brink.

It is not new the mining boom in the early to mid 2000’s has created more wealth in mining states like Western Australia. However, coupled with the high dollar as a result of the boom, firms which are exposed to the export market are severely affected as their products become less competitive in the international market.

John Haines, chief executive of Haines Group, one of the nation’s largest boatbuilders, says his manufacturing operation will soon switch to a four-day week.

“We are down 60 per cent and we are pulling back to a four-day week,” he said. “We are taking extended holidays over Christmas hoping that we might see some more work come in. I speak to a lot of our competitors, and they are all the same.” . The issue is complicated by cheap imports from the US. Mr Haines said a 6m Australian boat that would normally sell for up to $60,000, was facing competition from second-hand US boats selling for as little as $15,000. He said this would affect the market for years to come.

Brad Teys, the chief executive of Teys Brothers Holdings, which kills about one million cattle a year in Queensland and South Australia, said the high dollar was squeezing beef producers because contracts were written in US dollars. “I’d say it would be very marginal for them – their costs are increasing diesel power, fertiliser, water, rates and I’d say most people would be finding it very difficult in the cattle industry,” he said.

Graham Packer, whose Packer Leather makes the covers for Kookaburra cricket balls, said the company was being squeezed by a high dollar on the one hand and high interest rates on the other. It was looking at taking some production overseas and finding cost savings.  “We’re getting pressured to reduce prices as a result of our currency and our internal costs,” Mr Packer said.

“They don’t want to pay the increased prices and what the currency is doing to us, we are feeling a horrible squeeze. Between the banks and their wretched interest rates and their risk margins . . . and the high dollar, we are getting squeezed from both sides.” He said the company could survive with a dollar at US85c but at near-parity “you just keep believing that things will change”.

Treasurer Wayne Swan outlaws bank exit fees

Treasurer Wayne Swan

Treasurer Swan - mortgage exit fees to be banned

In a move to create more competition among lending institutions in Australia and to provide disgruntled bank customers to switch home loans without penalty, the Federal Treasurer has announced plans to ban mortgage exit fees which has been largely blamed for dampening competition by making it prohibitively expensive for mortgage holders to switch to cheaper loans.

The new ruling is to take effect from 1 July 2011. This new banking competition package also includes a plan to give the Australian Competition and Consumer Commission greater powers to stamp out anti-compeititive behaviour by the big banks such as price signalling.

In  a bid to help the smaller rivals of the big banks to reclaim a larger share of the lending market, the government is launching a “government-protected deposits” symbol – designed to provide comfort to customers that their money is just as safe and secure with credit unions and building societies as it is with the big banks. The symbol is part of a broader plan to make smaller lenders a “fifth pillar”, in addition to the big four banks. The measures are anticipated to anger the banking sector, which argues that banning mortgage exit fees would merely force smaller lenders to raise other charges to offset the lost revenue. But Mr Swan said he wanted to empower customers to “get a better deal and help smaller lenders put more competitive pressure on the big banks to do the right thing by their customers”. Under the changes, the ACCC will get new powers to crack down on so-called price signalling, an anti-competitive behaviour where the banks publicly announce their intentions to lift interest rates.

ACCC chairman Graeme Samuel said the practice, which has been outlawed in several countries, removed a level of competition from the lending sector by giving rivals a ”degree of comfort” to also lift their interest rates above any Reserve Bank rate without suffering a competitive disadvantage. ”It gives them a comfort level that avoids the sort of competitive tensions that we like to see take place,” he said. Consumer groups and the Greens have backed strongly the idea of banning mortgage exit fees in Australia, where they are the highest in the world. A Fujitsu Consulting report found that Australian lenders had charges for exiting mortgages early, with an average fee of $1500, compared with $400 in Britain and $550 in the US.

The Australian Securities and Investments Commission has already announced a crackdown on excessive fees. But the measure to ban them will be contested by the big banks. Australian Bankers Association chief executive Steven Munchenberg said most mortgages exit fees reflected genuine costs and banning them would hurt smaller lenders most. ”It is much harder for smaller lenders to distribute costs across their business, unlike the major banks,” Mr Munchenberg said. He was also concerned about giving the ACCC extra powers on price signalling. He said lawyers of big banks would be warning executives not to comment about funding for fear of attracting negative headlines and accusations of anti-competitive behaviour.

The opposition also remains opposed to banning mortgage exit fees, although shadow treasurer Joe Hockey favours stronger powers for the ACCC.

Bank penalties

  • Commonwealth Bank $700 in the first four years.
  • Westpac $700 in first fouryears.
  • ANZ Nil (was $700 in  first fouryears but  scrapped last month).
  • NAB Nil (was $900 in  first fouryears until this month).
  • CitiBank First year $1500, secondyear $1200, third year $1000.
  • AMP $1000 in  first fouryears.
  • ING Home Loans First year $1500, second year $1050, third year $700, fourth year $350.
  • Suncorp $1400 to $800 in  first fouryears.
  • St George $1000 in first three years.
  • RAMS 1% of  original loan amount in  first three years.
  • Bankwest Nil.

Why we Aussies love our properties

Top 3 melbourne $400kTop 5 Melbourne $700k top 5 melbourne $500k

A recent study by Mortgage Choice 2010 Consumer Sentiment Survey has revealed that Australian’s passion for property has not waned despite seven interest rate rises since October 2009. In fact the survey indicates that we are more worried about the rising price of electricity and water over the prospects of more interest rate rises in 2011.

The majority of respondents in the survey believed that banks will increase rates before June 2011, many anticipating a rise of between 0.25% to 0.5%. One third of respondents are still hoping to buy a property in the next two years. Of these respondents, around 35% will be buying an investment property, 30% will be purchasing their first home and 34% will be relocating, that is, buying their next home. We are also a renovation nation with a third of respondents planning to renovate their existing property within the next twelve months.

More than half he respondents in both Victoria and NSW / AT believed that property prices will increase in Australia over the next twelve months and just under a third believed prices will remain stable. In regards to the ongoing debate that claims house prices are unaffordable in Australia, about 50 per cent of respondents believe the argument is ‘about right’ while around 30 per cent think it is ‘underrated’ (that is, that housing is even more unaffordable than is being debated), while 12 per cent believe the argument is ‘overrated’.

So what is it that we love about property? Here are the top reasons:

1. “I want to set myself up financially for the future” – 50% of respondents

2. “We trust property investments more than the sharemarket” – 28% and 35% of respondents from, NSW / ACT and Victoria respectively

3. “I want to or need to relocate” – giving us a reminder that property is not only a financial investment but a very practical and fundamental part of our lives

Other popular reasons include:

4. “I want to get my foot in the property market door”

5. Rising rents make purchasing property more attractive”

6. “Tax benefits”

Many respondents were willing to make major sacrifices to get into the property market and these include:

  • Cutting back on spending to make a property purchase possible – 90% and 80% for NSW / ACT and Victoria respondents respectively
  • Forgoing an overseas trip / holiday (we also know how we Aussies love our vacation!) – 56% and 49% for NSW / ACT and Victoria respondents respectively
  • Trying to remain in their current job – this may imply  people being in well-paid jobs which they are not enjoying
  • Take on an additional job – 15% and 20% for NSW / ACT and Victoria respondents respectively
  • Change jobs to get higher income – 10% in both NSW / ACT and Victoria respondents (26.8 per cent in NSW/ACT and 37.3 in Victoria), or purchase in a non-ideal location (26.8 per cent in NSW/ACT and 21.6 per cent in Victoria). Around 10 per cent of respondents said they will move towns or move interstate to a more affordable property market.

Many are also realistic about their desires and said they will be purchasing a less expensive property than desired. Starting a family was also being sacrificed because of the push for property, with 7.3 per cent in NSW/ACT and 13.7 per cent in Victoria saying they were delaying starting a family as their sacrifice for property.

What are your views and concerns?

Heidelberg West and Melton South–Melbourne’s star performers

Top 3 melbourne $400ktop 5 melbourne $500k Top 5 Melbourne $700k

Melbourne’s property market showed mixed results in the June quarter where more affluent suburbs close to the city experiencing massive price drops whilst more affordable second-tier and city fringe suburbs recording strong growth.

The Valuer-General’s data is derived from compulsory sale notices and is therefore the most accurate available. It can differ significantly from other data sources provided by property analysts because it takes longer to compile and is released in a less timely fashion. The latest snapshot from the Valuer-General shows the following:

Price falls in inner city areas (June 2010 quarter):

  • Middle Park – median value fell 39% from $1,910,000 to $1,170,000
  • South Yarra – median value fell 32% from 1,920,000 to $1,300,000

Price rises in city fringe suburbs (June 2010 quarter):

  • Heidelberg West – median value increased 32% from $420,000 to $555,000
  • Melton South – median value increased 7% from $255,000 to $273,000

In this regime of upward pressure on interest rates, I believe affordability will be key and I foresee the rise of more affordable suburbs within Melbourne’s city fringe in 2011 as first home buyers and investors alike start to search for even better value. The reality is that most people aspire to live in inner city areas but can ill-afford these locations as prices have surged over the last 18 months. The higher end suburbs in cities like Sydney, Melbourne and Perth are experiencing decreases in value due to the lack of demand whilst second-tier suburbs with good transport links, public amenities such as schools, universities, hospitals, shopping malls and commercial centres are proving to be more popular to a wider range of buyers as these locations are a lot more affordable.

The three reports above identify locations which ticks all the boxes for  transport links, public amenities, strong capital growth history, gentrification and potential upward price pressures as well as strong investment yields.

The article above are excerpts from House prices slump near city, The Age, 2 December 2010

Related posts:

Resort living at the Sanctum by Crown, Rhodes Waterside

Sanctum by Crown at Rhodes, Sydney, New South Wales

Artist's impression - Sanctum by Crown at Rhodes waterside, Sydney

Sanctum by Crown at Rhodes, Sydney

Located on the Rhodes peninsula on the waterfront of Homebush Bay, Sanctum by Crown offers a selection of 1, 2 and 3 bedroom apartments, some with study / sunroom plus a limited selection of spacious, immaculate, open plan living penthouses.

Large terraces and balconies offer a seamless integration of indoor and outdoor living, taking full advantage of the expansive water views, while the selection of finishes and fittings provide state of the art kitchens and bathrooms.

Prices for these luxury apartments:

  • 1 bedroom + study from $490,000
  • 2 bedroom from $610,000
  • 2 bedroom + study from $620,000
  • Penthouse from $1,300,000

This location offers the convenience of the Rhodes Shopping Centre and commercial complex and the Rhodes train station all within a 5-minute walk from the water foreshores. Other local attractions include the walking and cycling trails that lead from the Homebush Bay water foreshores to Bicentennial Park and sporting facilities at the Sydney Olympic Park at Homebush Bay.

Taking shape - Sanctum by Crown, Rhodes Waterside, Sydney

This project is developed by Crown International Holdings Group, a leading property development and investment company. This developer has successfully developed a range of luxurious developments throughout the Sydney suburbs of Bondi, Bondi Junction, Ashfield, Epping, Eastwood, Five Dock, Homebush, Pennant Hills and Rhodes.

Related Posts Plugin for WordPress, Blogger...