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Aussie Dollar and Property Cycle

New data now shows that the Australian capital cities property cycle generally spans 18 years.That’s a 14 year upturn, followed by a 4 year downturn.

Well located properties have historically doubled in value over the upturn period. By the use of “gearing” returns can be extraordinary. Assuming a 20% deposit and borrowing 80 % (the figure readily available to foreign investors), simple maths tells us that if a property doubles in say 14 years, your return on capital outlaid and costs of 5% would be 380%.

Financing

To maximise returns, always consider the benefits of leverage as mentioned above. Foreign investors can choose an 80% "investors loan" (whereby the principal repayments are flexible). The rent virtually will cover most of the Bank interest.

With a new property, expect at least 50% of the price to be given back to you in the form of a tax deduction. Depending upon how fast rents rise, and the amount of your down payment, it will most likely cost investors very little to hold the property.

What about the high Aussie Dollar?

Some investors have delayed buying for fear the Aussie dollar is simply “too high.” Computer modelling clearly shows that even if the dollar were to collapse back to where it was 15 years ago, however unlikely, your return on investment (even if you bought in a foreign currency) can be in excess of 30% per annum, with only moderate price rises in the property, due to capital growth, leverage, and rental return.

And even though the AUD appreciated around 62% against the USD between 2001 to 2009, foreign investment into Australia increased by over 200% during that same time.

An analysis based on the Global property Guide data of purchase prices around the world, showed that Melbourne’s South Yarra, Sydney’s Mosman, Perth CBD and Brisbane’s West End or Woolloongabba for example showed price per sq. metre to be the lowest, four out of the bottom five of the world’s top 22 cities.

It is a fallacy that Australian house prices are expensive on a world scale. Aussie Rent returns are amongst the highest in the world. Data for the world’s cities rental returns from Global Property Guide has shown that Sydney sits at the seventh highest in the world at present for gross rental yield. (This is what a landlord can expect as return on his investment before taxes, maintenance fees and other costs.) And other Australian cities have even higher rent returns than Sydney.

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