The UK may be, like its airline, the world’s favourite but it’s certainly not the only stable, transparent market with a high standard of living and strong investment opportunities. Right now, one of the most active among overseas investors is Australia. There’s plenty that’s put Oz at the top of the charts of late, including a resilient economy, a low interest rate environment, good rental demand and strong population growth. Thatss population growth has been spurred by factors that fall well outside economic fundamentals: the high quality of life, good schools, abundant sport and recreation and thriving cultural industries in safe, cosmopolitan cities. There’s a lot to like and investors are indeed showing their affection. According to Real Capital Analytics, 74 percent of overseas residential investment into Australia in 2013 came from Hong Kong, China, Singapore, Malaysia and India.
Staying the Course
Most of those factors have contributed to, “An overall well performing Australian property market. In the year ending June 2014, Australian apartments recorded 7.7 percent growth in capital values, whilst houses were slightly lower at 7.1 percent,” begins Michelle Ciesielski with Knight Frank Residential Research for the Australian residential market. During the same period rental growth rose and gross yields are currently sitting at just under 5 percent for both flats and houses.
“On a national level there’s an enormous amount of confidence from offshore [buyers] and an enormous amount of marketers,” states McAndrew Properties Managing Director John McAndrew. “There are a lot of pre-sales off the plan in all the major east coast capital cities.”
Not surprisingly Sydney and Melbourne — both frequently landing in the top ten on liveable cities surveys — are the stars. The country’s business and cultural hearts respectively provide the best immediate returns for investors, though outliers like Brisbane and Perth (perhaps the fastest growing centres) are wise long-term investments. “Brisbane and Perth have relied heavily on natural resources in recent years with multiple projects still in the pipeline, but easing from the peak of past times, now becoming reliant on other sectors to increase production,” points out Ciesielski.
Undersupply and a trend toward urban living for everyone has kept Sydney at the top of the heap for capital and rental growth: 13.3 and 4 percent to June according to Ciesielski, and capital values are strong in Melbourne as well. In Perth, rental yields are among the strongest in the country, flirting with 5 percent, right behind Brisbane at 5.43 percent. Perth — with its ideal location on the west coast making it attractive to both Asian and South African investors — and Brisbane are Australia’s dark horses, with all the same advantages of the more iconic cities at better prices.
Like the UK, Australia has strong transparency rules and clear, simple foreign investment regulations, but when Tony Abbott was elected prime minister last year, many wondered if his hard right policies would scare away investors. Added to the hysterics of the PUP (they fear a Chinese invasion) and Australia suddenly seems less welcoming to overseas buyers than it has been in the past. As Ciesielski sees it, the inquiry into the policies of the Foreign Investment Review Board (the findings should be announced late this year) is an examination of the current framework for foreign investment and its economic benefits to Australia. The current policy is designed to restrict overseas buyers to new build projects only and ease the pressure on local first time buyers. With so many foreign buyers, concern is concentrated on occupancy — or lack of it — and the willingness of Asian buyers to make purchases above market value and avoid taxes and restrictions in their home countries.
The hue and cry becomes one of inflated prices and thus the FIRB review. “These factors continue to misrepresent the data collected locally across the industry, skewing the housing stock available for the projected population growth across Australia while further fuelling the fear of unsustainable current prices for the local market,” notes Ciesielski. We’ve heard this refrain before.
But policy is only one part of an international purchase, and McAndrew — the majority of whose overseas clients come from Greater China — is quick to point out property types are as crucial as FIRB rules. “I think with the Chinese market in particular it’s the … combination of bringing the kids out for school and getting money out of China for security.” Asian buyers are fond of the city too, and usually look for properties convenient to transport, schools and work. “Chinese investors are favourable toward land/house packages, though it’s harder to provide that product from a logistics point-of-view,” adds McAndrew. “They are normally a two-part contract: a block of land and then a builder. It’s more difficult when doing that offshore. Most find it more practical to buy a unit and also townhouses, which are a compromise between a house and a unit.”
For the time being however, the cycle is running in Australia’s favour. Record low interest rates should keep investors interested in addition to the other strong fundamentals and all purchasers are likely to stick close to major transport hubs. “Coming off heated markets in Sydney and Melbourne, the Australian residential markets have eased to a more sustainable rate of growth for capital values and rents,” finishes Ciesielski. “There is a full supply pipeline of new apartments coming on-line in Melbourne, Sydney and Perth, but with strong population projections currently set by the Australian Bureau of Statistics, there will be the demand to accommodate those moving into these capital cities.” Australia has proven somewhat resistant to the financial woes that have gripped the rest of the world in recent years and it is firmly considered Asia-Pacific’s safe haven. Ciesielski: “With safe, transparent investment regulations complemented by the federal government’s incentive for foreign investment into the local market, have all aided to sustain demand in the Australian residential market.” How ya goin’? Pretty well.