27-07-2014, 01:40 PM
Foreigners chase the Australian dream
Eryk Bagshaw
1349 words
26 Jul 2014
The Sydney Morning Herald
SMHH
English
© 2014 Copyright John Fairfax Holdings Limited. Factiva.Gateway.Messages.Archive.V1_0.ELink
NEWS FEATURE
Overseas investment in housing has nearly doubled in the past year, writes Eryk Bagshaw.
In glamorous five-star hotels in Singapore every weekend, property investors are lining up to buy a slice of the Australian dream.
Cashed-up investors are piling into packed presentations at venues such as the famous St Regis hotel about shiny apartments being built from Sydney to Melbourne. Newspaper ads spruiking waterfront developments are commonplace.
"Buy where the local Australians are buying," says one ad in Singapore's Straits Times.
Singaporean investors are being lured by a combination of new, prohibitive taxes on second homes in the island state, record low interest rates, a strong currency and promises of attractive returns from Australian developers.
"Singaporeans are hungry for Australian property," says Adam Sparkes, director of sales at property developer Crown Group International, which has $3.5 billion in development sites across Australia.
The Singaporean sales pitch comes amid increased focus on overseas buyers in Australia. This is stoking fears that prices in an already heated market could be pushed up further.
Foreign investment now accounts for about 13 per cent of turnover in the Australian real estate market, according to UBS economist Scott Haslam. He says overseas investment in housing nearly doubled in the past year - most of it from China.
Even so, there is often confusion about what overseas buyers can do. Under Australia's foreign investment laws, non-residents are permitted to buy only newly built dwellings - after gaining Foreign Investment Review Board approval.
The latest figures from the board, for the 2012-13 financial year, rank Singapore as the fourth-biggest source of foreign funds invested in Australian real estate, with about $2 billion spent. China was the biggest, with almost three times that much.
Adam Sparkes expects Singaporeans to make up as much as 10 per cent of its client base by next year, and Singaporean desire for a foothold in the Australian market has spurred it to open an office on the Asian island.
"All the right factors are in Singapore," says Brian Eng, a foreign real estate manager at Singapore real estate firm Jalin. "A strong exchange rate, a robust economy and a love for the Australian lifestyle."
New laws introduced in the city state last year slug a 15 per cent tax on second homes. The tax was designed to prevent first home buyers in Singapore, where land is restricted, from being completely forced out of the market. The rules do not apply to overseas properties.
And while Chinese investors may still be the biggest foreign presence in the Australian market, developers and property industry executives say Singaporeans are emerging as serious players.
Brian Eng believes it has as much to do with emotional ties as financial incentives.
"Singaporeans have a love affair with Australian properties," Mr Eng says. "They've studied there before, worked in these cities. It reminds them of good times. It's not uncommon for them to stay and work in Australia for 10 years after they have finished their studies."
Still, prospective buyers are also being told to do their due diligence.
Singapore-based property author Vina Ip is concerned that the rosy picture painted by Australian developers in glamorous presentations is tainted by rental guarantees and other incentives.
"I always warn people to actually go to see the properties themselves, go for a trip and see where it's located, talk to the landlords and see if the rental return is actually that good," Ms Ip says.
Some ads include location pitches that could best be described as generous.
The presentation for Mirvac's Harold Park complex, in Glebe, although not to scale, gives the impression that the site of the former harness racing track is bigger than Leichhardt and Annandale combined. It also says it is next to the harbour foreshore but, as most in Glebe know, access to the harbour can be tricky. Another ad on Singapore property site, Jalin, for Australand's Botanica complex in Lidcombe, describes it as being in the inner west. By most definitions, Lidcombe falls well to the west of the boundaries of the cosmopolitan suburbs of the inner west.
Offers of exclusive access also abound.
"Only available to Singapore investors through IP Global, exceptional terms" an ad for Brisbane development Newstead Towers read last week - just one of a number of similar offers on the Australian east coast.
Australian properties advertised in Singapore come with guarantees of at least 6 per cent a year rental return and a waiving of stamp duties and legal fees. By most measures, however, such figures represent a premium to the market.
Rental yields in apartments in Sydney and Melbourne ranged from 4.8 to 5 per cent in the March quarter, according to property listing business Domain.
"A 6 per cent guarantee would indicate a top-up from the developer," says Domain senior economist Andrew Wilson.
Tim Lawless, a director of property research firm RP Data, notes a yield of 6 per cent "is well above market".
"When the guarantee period expires, in all likelihood, the purchaser will be left holding an asset on a lower yield," he says.
The developers offering such guarantees, including Kokoda Property in central Melbourne, Newstead in Brisbane and their Singaporean agent, Reapfield Property Consultants, all refused to comment.
Even so, these risks haven't deterred Singaporean investors.
"In Singapore if you get a 2 to 3 per cent rental return it's considered very lucky," Vina Ip says, making the 6 per cent return on Australian properties look attractive.
But apart from the big-ticket promises of Australian developers and the new, big taxes on investment properties, there are other reasons for the Singaporeans' interest.
Singaporeans seeking to buy in Australia can borrow at much lower interest rates than their local counterparts. ANZ's Singapore unit is advertising a standard variable interest rate of 1.17 per cent. By contrast, ANZ Australia's standard variable interest rate sits at 5.88 per cent.
This interest rate differential looks likely to continue, with the Singaporean Central bank setting the cash rate in June at 0.21 per cent, compared with Australia's target of 2.5 per cent. At the same time, the Singapore dollar and Australian dollar have traditionally traded in a relatively tight range, minimising currency risk.
With Australian banks taking aim at foreign investors, a federal parliamentary inquiry this week raised questions about the checks they are conducting on overseas buyers.
ANZ bank and Macquarie Group were asked to provide details to a broader House of Representatives economics committee inquiry into residential housing. The banks were asked what steps they took to ensure various foreign investment rules were followed.
While there are concerns that overseas buyers could be pricing out first home buyers, many say this just doesn't reflect reality.
"Most first home buyers buy established, rather than new, dwellings; the first home buyer's average purchase price of $328,000 is far below the price point of most foreign purchases," UBS's Mr Haslem says.
At the same time Reserve Bank research found that first home buyers' degree of competition with foreign buyers was "likely to be fairly small".
"We're empathetic to the plight of first home buyers," says Jessica Darnbrough, from mortgage broker Mortgage Choice. "But the reality is that, at the end of the day, new properties are a good thing for the construction sector."
New properties aren't just coming from Australian developers. Singapore is bringing its own developers to town, with construction giant Hiap Hoe building two of Melbourne's CBD's largest developments, Marina Tower in Docklands and another on Lonsdale Street in the city.
As long as prohibitive conditions on the purchase of second homesremain in Singapore and the economic climate remains favourable, Ms Ip believes Singaporeans will continue to look to Australia as an investment haven, spurred by generous rental guarantees from hungry Australian developers.
"They have no choice but to look overseas," Ms Ip says.
Fairfax Media Management Pty Limited
Document SMHH000020140725ea7q0005u
Eryk Bagshaw
1349 words
26 Jul 2014
The Sydney Morning Herald
SMHH
English
© 2014 Copyright John Fairfax Holdings Limited. Factiva.Gateway.Messages.Archive.V1_0.ELink
NEWS FEATURE
Overseas investment in housing has nearly doubled in the past year, writes Eryk Bagshaw.
In glamorous five-star hotels in Singapore every weekend, property investors are lining up to buy a slice of the Australian dream.
Cashed-up investors are piling into packed presentations at venues such as the famous St Regis hotel about shiny apartments being built from Sydney to Melbourne. Newspaper ads spruiking waterfront developments are commonplace.
"Buy where the local Australians are buying," says one ad in Singapore's Straits Times.
Singaporean investors are being lured by a combination of new, prohibitive taxes on second homes in the island state, record low interest rates, a strong currency and promises of attractive returns from Australian developers.
"Singaporeans are hungry for Australian property," says Adam Sparkes, director of sales at property developer Crown Group International, which has $3.5 billion in development sites across Australia.
The Singaporean sales pitch comes amid increased focus on overseas buyers in Australia. This is stoking fears that prices in an already heated market could be pushed up further.
Foreign investment now accounts for about 13 per cent of turnover in the Australian real estate market, according to UBS economist Scott Haslam. He says overseas investment in housing nearly doubled in the past year - most of it from China.
Even so, there is often confusion about what overseas buyers can do. Under Australia's foreign investment laws, non-residents are permitted to buy only newly built dwellings - after gaining Foreign Investment Review Board approval.
The latest figures from the board, for the 2012-13 financial year, rank Singapore as the fourth-biggest source of foreign funds invested in Australian real estate, with about $2 billion spent. China was the biggest, with almost three times that much.
Adam Sparkes expects Singaporeans to make up as much as 10 per cent of its client base by next year, and Singaporean desire for a foothold in the Australian market has spurred it to open an office on the Asian island.
"All the right factors are in Singapore," says Brian Eng, a foreign real estate manager at Singapore real estate firm Jalin. "A strong exchange rate, a robust economy and a love for the Australian lifestyle."
New laws introduced in the city state last year slug a 15 per cent tax on second homes. The tax was designed to prevent first home buyers in Singapore, where land is restricted, from being completely forced out of the market. The rules do not apply to overseas properties.
And while Chinese investors may still be the biggest foreign presence in the Australian market, developers and property industry executives say Singaporeans are emerging as serious players.
Brian Eng believes it has as much to do with emotional ties as financial incentives.
"Singaporeans have a love affair with Australian properties," Mr Eng says. "They've studied there before, worked in these cities. It reminds them of good times. It's not uncommon for them to stay and work in Australia for 10 years after they have finished their studies."
Still, prospective buyers are also being told to do their due diligence.
Singapore-based property author Vina Ip is concerned that the rosy picture painted by Australian developers in glamorous presentations is tainted by rental guarantees and other incentives.
"I always warn people to actually go to see the properties themselves, go for a trip and see where it's located, talk to the landlords and see if the rental return is actually that good," Ms Ip says.
Some ads include location pitches that could best be described as generous.
The presentation for Mirvac's Harold Park complex, in Glebe, although not to scale, gives the impression that the site of the former harness racing track is bigger than Leichhardt and Annandale combined. It also says it is next to the harbour foreshore but, as most in Glebe know, access to the harbour can be tricky. Another ad on Singapore property site, Jalin, for Australand's Botanica complex in Lidcombe, describes it as being in the inner west. By most definitions, Lidcombe falls well to the west of the boundaries of the cosmopolitan suburbs of the inner west.
Offers of exclusive access also abound.
"Only available to Singapore investors through IP Global, exceptional terms" an ad for Brisbane development Newstead Towers read last week - just one of a number of similar offers on the Australian east coast.
Australian properties advertised in Singapore come with guarantees of at least 6 per cent a year rental return and a waiving of stamp duties and legal fees. By most measures, however, such figures represent a premium to the market.
Rental yields in apartments in Sydney and Melbourne ranged from 4.8 to 5 per cent in the March quarter, according to property listing business Domain.
"A 6 per cent guarantee would indicate a top-up from the developer," says Domain senior economist Andrew Wilson.
Tim Lawless, a director of property research firm RP Data, notes a yield of 6 per cent "is well above market".
"When the guarantee period expires, in all likelihood, the purchaser will be left holding an asset on a lower yield," he says.
The developers offering such guarantees, including Kokoda Property in central Melbourne, Newstead in Brisbane and their Singaporean agent, Reapfield Property Consultants, all refused to comment.
Even so, these risks haven't deterred Singaporean investors.
"In Singapore if you get a 2 to 3 per cent rental return it's considered very lucky," Vina Ip says, making the 6 per cent return on Australian properties look attractive.
But apart from the big-ticket promises of Australian developers and the new, big taxes on investment properties, there are other reasons for the Singaporeans' interest.
Singaporeans seeking to buy in Australia can borrow at much lower interest rates than their local counterparts. ANZ's Singapore unit is advertising a standard variable interest rate of 1.17 per cent. By contrast, ANZ Australia's standard variable interest rate sits at 5.88 per cent.
This interest rate differential looks likely to continue, with the Singaporean Central bank setting the cash rate in June at 0.21 per cent, compared with Australia's target of 2.5 per cent. At the same time, the Singapore dollar and Australian dollar have traditionally traded in a relatively tight range, minimising currency risk.
With Australian banks taking aim at foreign investors, a federal parliamentary inquiry this week raised questions about the checks they are conducting on overseas buyers.
ANZ bank and Macquarie Group were asked to provide details to a broader House of Representatives economics committee inquiry into residential housing. The banks were asked what steps they took to ensure various foreign investment rules were followed.
While there are concerns that overseas buyers could be pricing out first home buyers, many say this just doesn't reflect reality.
"Most first home buyers buy established, rather than new, dwellings; the first home buyer's average purchase price of $328,000 is far below the price point of most foreign purchases," UBS's Mr Haslem says.
At the same time Reserve Bank research found that first home buyers' degree of competition with foreign buyers was "likely to be fairly small".
"We're empathetic to the plight of first home buyers," says Jessica Darnbrough, from mortgage broker Mortgage Choice. "But the reality is that, at the end of the day, new properties are a good thing for the construction sector."
New properties aren't just coming from Australian developers. Singapore is bringing its own developers to town, with construction giant Hiap Hoe building two of Melbourne's CBD's largest developments, Marina Tower in Docklands and another on Lonsdale Street in the city.
As long as prohibitive conditions on the purchase of second homesremain in Singapore and the economic climate remains favourable, Ms Ip believes Singaporeans will continue to look to Australia as an investment haven, spurred by generous rental guarantees from hungry Australian developers.
"They have no choice but to look overseas," Ms Ip says.
Fairfax Media Management Pty Limited
Document SMHH000020140725ea7q0005u