We often hear of families with children studying abroad who prefer to purchase properties for their children to stay rather than pay high rents for less attractive accommodation. This is especially so in tertiary destinations popular among Malaysians, such as Singapore, where Malaysians are said to be among the major property investors, the UK and Australia.
According to Shayne Harris, divisional director of residential sales (New South Wales) of Savills Australia, Malaysians continue to show keen interest in Australian properties, given that there is a large Malaysian expatriate community there. “With many Malaysians studying here, as well as families residing in Australia, they often opt to purchase property rather than lease for long term,” he says.
For instance, a Malaysian residing in Melbourne, who prefers not to be named, owns an apartment there but recently purchased a A$2.5 million (RM7 million) landed property, which will soon be completed. He says he needed the “extra space”, especially when his family from Malaysia visits him.
Besides the growing Malaysian student population, the general population of Australia is also on the rise. “Not only is it increasing at a record level, but much of it is a result of immigration, so people need immediate accommodation. Last year, there were more than 190,000 new immigrants,” says Charles Yong of BW Cyans Advertising Sdn Bhd, who is organising The Australia & International Property Fair 2009 in Penang on July 28 and 29 and Kuala Lumpur on Aug 1 and 2.
While the population will continue to swell (the Australian federal government forecasts the number of immigrants to reach 230,000 per annum within the next 10 years), new housing supply has fallen short by 32% across the country, says Yong, quoting data from Australia’s Housing Industry Association.
“The housing market in Australia is experiencing an acute shortage of new homes in the face of an accelerating population growth,” says Susan Brozler, a spokesman of Prime Estate International Pte Ltd. She adds that the number of highly skilled immigrants has also soared. “Of the 203,500 immigrants this year, 133,500 are skilled.” She adds that about 1,500 migrants arrive in Victoria every week. These are good reasons why Malaysians are one of the targets for property investment Down Under.
What about investing during the current downturn? Lower interest rates, a more flexible foreign home ownership policy and weakening currencies are some of the attractions for both local and foreign investors, according to some property consultants and experts. They also shed some light on the Australian property market situation, what to look out for when investing while providing some ideas on some of the investment opportunities there.
Alistair Meadows, DTZ-Sydney regional director (capital markets), tells City & Country the commercial property market has been repriced by 20% to 30%, with yields registering sharp decompressions since the height of the 2007 property boom. “It is an excellent time for Malaysians to invest in Australian property. The Australian dollar has depreciated over the last 12 months against foreign currencies, making it a currency as well as a property play. The economy is still performing relatively well compared to other major Asian and Western economies,” he adds.
Low unemployment at 5.8%, low interest rates (official rate 3%) and continued consumer spending contribute to this stable outlook, says Meadows. He adds that Australia is now looking attractive to offshore investors, including German funds and high net worth individuals, who have been active buyers for the last six months.
“DTZ is seeing a marked increase in interest in Australia from Malaysian investors in the last six months, with the focus on offices and hotels in Sydney and Melbourne,” says Meadows, adding that in the past, Malaysians have been strong investors in the office and hotel sectors in these two cities. (Malaysian-listed TA Enterprise Bhd acquired The Westin Melbourne end of last year for A$160 million and also owns Radisson Plaza Hotel in Sydney).
“The Australian property market is stabilising due in part to recent capital-raising exercise by local real estate investment trusts (REITs). There is therefore a ‘window of opportunity’ for Malaysian investors, which is likely to close in the next 6 to 12 months as local institutional funds return to buy assets,” says Meadows.
Incentives, such as a reduction in capital gains tax, are also making Australia attractive to foreign investors, he points out. The current highest rate is 30%, which is expected to be reduced to 7.5% in 2010 (capital gains are taxable in Australia and subject to non-resident taxes).
Matt Whitby, Knight Frank national director (research), says besides German funds, investors from Singapore, Hong Kong, Japan and Malaysia are showing interest in commercial properties through the REITs. On the current market slowdown, he says, “I believe the market will be on a slow rebound in 2010 and then we will see it pick up in 2011.”
Whitby says it is important for foreign investors to seek good advice before making a move. “In Sydney and Melbourne, (you will find that) investors go for securely leased assets, with blue-chip tenants for steady income returns, and properties with high occupancy rates,” he says.
Sydney and Melbourne are the current hot spots for offshore investors, says DTZ’s Meadows. He adds that there is limited development in the country due to funding constraints and the requirement that at least 50% of a building must be pre-leased before construction can be financed. Faced with funding constraints, he says, offshore investors could embark on joint ventures with Australian partners, which can use their local banking ties to source funding.
Meadows says commercial properties are in relatively good shape, with low vacancy rates. For example, for offices in Sydney’s central business district, this stands at 6%, with limited supply available as the majority of the offices have been pre-leased. Out of 4.8 million sq m of office space currently under construction, only 3% is available. Meadows cites a new office development in Sydney called 1 Bligh, a six-star green premium office tower of 40,000 sq m, which has been largely pre-leased to Australian law firm Clayton Utz.
He also says Malaysians will be able to acquire high-quality assets in Australia at historically attractive pricing and yields, citing a DTZ research report that shows that long-term average office yield in Sydney’s CBD is 6.25%.
Online property research house Global Property Guide reported steep property price declines in Latvia, Dubai and Singapore for 1Q2009. The average price of apartments in Latvia declined 50% compared with a year earlier, while many developers have delayed or postponed construction of projects in Dubai as its economy is closely tied to the global market.
Singapore housing is reported to have suffered the most among Asian countries, with a 25% reduction in prices y-o-y, its biggest decline since 2000. The report also states that there is no clear sign of recovery in the US housing market. In comparison, the property market in Australia seems to be more resilient as property prices across eight cities there showed a drop of only about 9% y-o-y.
“While prices have dropped, the fall has been relatively small. Australia has generally stricter borrowing criteria, so we did not experience huge defaults on our mortgages,” says Savills’ Harris.
Harris says transaction volumes in the country, including auction clearance rates, were low in 2007, with some weeks recording 33%. The clearance rates have improved this year and as at end-February, it was around 65% to 70%.
However, he tells City & Country that the Australian market is doing considerably well, given the current worldwide crisis. The transaction volumes were almost unchanged over the past two years, with demand for low-end existing stock fuelled by increased government grants to stimulate the market.
Food for thought
Prime Estate’s Brozler says although it may seem like a good time to buy, making an informed decision means making sure the investment has the potential for optimal appreciation over the years.
Foreign investors should also update themselves on the latest incentives and regulations to take full advantage of them.
“If you are buying to house your children during the duration of their education in Australia, beware of the Foreign Investment Review Board (FIRB) rules in December last year that have been relaxed to encourage foreigners to invest there,” Brozzler adds. The changes include removing the A$300,000 cap for foreigners seeking to purchase a property on the secondary market, subject to the conditions set by FIRB. Brozler says many parents are not aware of the changes.
Brozler, a Malaysian residing in Melbourne, says the price range of new homes in affluent suburbs and private school belt areas are from A$950,000 to over A$2 million. She believes properties in this price range will continue to drop in the wake of the financial crisis. “There will be people who will be forced to sell their property holdings or even their place of residence. It is a good opportunity for foreigners who have to buy new homes to get into these suburbs,” she explains. Brozler adds that other factors, such as low interest rates, high rental yields, weakening property prices and the weaker Australian dollar will make it an opportune time for investors to go Down Under.
According to Global Property Guide, Sydney remains Australia’s most expensive city, with the median house price starting at A$529,000. Median house prices in Melbourne, Perth and Canberra are at A$435,000. Hobart has the lowest average house price of A$320,900.
“Sydney is the best place for growth. The median house price across greater Sydney is about A$536,000 (as of January 2009), down from its high of A$568,000 in early 2004,” says Savills’ Harris. According to Savills’ data, the median price for a unit/apartment in the same area is about A$403,000.
He adds that the CBD and harbour front property in Sydney continue to do well, citing the recent sale of a house near the harbour at a record A$45 million. Another unit was resold for A$16.8 million last year.
“This highlights the strong demand and strength of Sydney,” he says.
According to Brozler, Malaysians who are non-residents should look at house and land packages in new estates from developers that own large subdivisions (in the price range of A$350,000 to A$490,000).
“House and land packages are very competitive because Australia has a large land mass. Large parcels of land are held by national developers, and they constantly come up with better designs to meet buyers’ needs besides offering incentives for better market share,” she says.
Recent reports have forecast that Australian house prices will rise by up to 19% over the next three years with Sydney leading the way, Harris says. Given the constraints on development funding, there will be a shortage of quality developments hitting the ground over the short to medium term combined with solid population growth.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 761, June 29 - July 5, 2009.