Sean Tan

Singaporean property investors: Look down under for higher returns


Over the past six months, Australia's property market trends have had investors, including those in Singapore, rethinking their plans. In December 2015, harsher punishments for violating foreign investment rules were implemented. Figures for Q1 2016 showed a marginal quarter-on-quarter increase of 1.6 percent for home values in Australian capital cities compared to Q1 2015 which saw a 3 percent increase (CoreLogic).

These developments might have changed investors' perception of property investment in Australia, either due to uncertainty regarding the new regulations, or belief that the country's property market is slowing down.

This could not be further from the truth. Australia property remains appealing and the country is an attractive residential property investment destination. It is an attractive migration destination with a stable economy and year-on-year prices are rising in cities such as Melbourne and Brisbane (CoreLogic). For the property market, demand is present and prospects look bright.

Furthermore, Australia property continues to remain popular among Southeast Asian investors, including Singaporeans. The Australia Foreign Review Investment Board1 reported that Southeast Asians are top investors in Australia property. iProperty Group's latest Asia Property Market Sentiment Report (APMSR)2 also shows almost all respondents from Singapore are interested in investing in Australia residential property.

Australia remains an attractive location
Political processes in Australia are highly transparent and well-established, and the country has a strong legal system with a professional bureaucracy.

Complementing Australia's political stability, the country is also known for its high quality of life. A retirement-friendly environment with a highly advanced healthcare system, Australia is definitely high on the list for migrants and investors looking to relocate.

In terms of education, Australia is fast rising as a global education superpower. According to Minister for Tourism and International Education, Mr Richard Colbeck, Australia is one of the world's largest international education providers on per capita basis. In the first 11 months of 2015, Australia saw 640,000 foreign students enrolled, and has plans to double foreign student enrolment by 2025. Over 40 percent of Singaporeans studying overseas are living in Australia and Singaporeans form the seventh largest group of international students in the country.3

The strengthening of the Singapore dollar against the Australian dollar in the past 24 months is expected to draw even more Singaporean students to the country. This increase is bound to bring in greater demand for residential property in Australia. With access to quality education, Australia truly is an attractive option for both the young and old.

What should investors know?
For investors who are keen to invest in Australian residential property but are unsure where to look, Melbourne and Brisbane are two cities with good investment potential and relatively higher ROI. According to Knight Frank, the median prices of residential apartments in Melbourne and Brisbane are A$454,000 (S$469,547) and A$485,000 (S$501,609) respectively, close to the average price of A$473,500 (S$489,715) for Australia. Residential properties in these cities make good investments.

The gross rental yield per annum of residential apartments in Melbourne and Brisbane are above Australia's average of 4.64 percent, at 5.49 percent and 6.18 percent respectively. Demand for residential apartments in these cities is also strong; sales volume grew 11 percent in 2015 and 7.2 percent (year to September 2015) in Melbourne and Brisbane respectively. These factors make investments in Melbourne and Brisbane worthwhile – property prices are not overly inflated, there is the potential to grow and expected ROI is on the higher side – conditions prime for investment.

Previously one of the worst performers among Australia's capital cities, Perth's residential property market is now attracting investor attention. In October 2015, values of dwellings in Perth dropped to their lowest since June 2013, offering investors a good alternative to saturated markets like Melbourne and Sydney. Perth properties are providing good returns, with rental yields at 3.8 percent. According to CoreLogic and Moody's Analytics, property prices in the city will rise 5.08 percent in 2017.

To prevent violating Australian foreign investment law unknowingly, investors need to be up-to-date regarding legislative changes since 1st December 2015 before they make their property investment.

Particularly worth noting, non-residents are not allowed to purchase established dwellings in Australia. In addition, a fee of A$5,000 (S$5,171) will be levied on foreigners purchasing residential property valued at A$1 million (S$1.03 million) or less. For residential property valued above A$1 million (S$1.03 million), the fee is A$10,000 (S$10,307). Every additional A$1 million (S$1.03 million) in property value translates to an increase of A$10,000 (S$10,307) in fees levied.

Punishment for violating Australia's foreign investor legislation is now harsher. Investors can read more about the details through Knight Frank’s Foreign Investment in Residential Property: Australian Market Insight 2015/16 report.

Look out for bargains and good deals
Despite legislative changes and the property market sending mixed signals, Australia remains a key market that investors pay attention to. Being an attractive destination for migration, demand for Australian residential property is not going to die down soon.

Furthermore, potential high ROI improves the chances of investors finding themselves a bargain through their investments in Australian property. With an understanding of the revised legislation on foreign investments and keen observation of market trends, who says property investment is going south in the land down under?

1Australia Foreign Review Investment Board FY14 Annual Report
2iProperty Asia Property Market Sentiment Report H1 2016
3UNESCO Institute for Statistics

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.

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Sean Tan

Sean Tan

Sean Tan is Singapore General Manager and Chief Business Development Officer at iProperty Group. He has extensive overseas exposure and has worked in several multinational and cross-culture corporate environments. Sean holds a Master of Project Management from the University of Adelaide, Australia.

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