Investing In Australia

Well over a year into the “biggest trade war in economic history” (as reported by CNN) and little is certain beyond continued uncertainty. But on the global front there’s more. Several Brexit deadlines have come and gone, but it’s not over. Three of the world’s major economic powers are embroiled in spats that are influencing the rest of us— but there could be a silver lining or two to be found among the market zaniness.

Heading Down Under

The Sino-US dispute has made investors cautious about diving headlong into American property markets, regardless of how historically strong locations such as New York and San Francisco are, as well as emergent markets like Seattle and Austin. The unsettled Brexit rules have similarly put some investors on their heels, with many choosing to wait and see how Europe eventually shakes out. Admittedly, many are charging into London as confidently as in the past, but high value markets like Manchester and Birmingham are feeling the pinch. All that leaves is room for other markets popular among Hong Kong and Chinese investors—markets like Australia.

Real estate remains the most popular single asset for Hongkongers and Chinese mainland investors. Several factors have made that the case going back years: a lack of substantial government pensions make property a stable retirement fund; children are and have always regularly headed overseas for education; and a traditional taste for investing as a few. But recent years have seen other equally strong incentives for buying overseas property. Chinese stocks performed badly in 2018; the Hang Seng took a tumble as well; equity funds have been targeted by government anti-corruption crackdowns; and buying property at home is difficult in China due to legal restrictions and in Hong Kong due to high prices and various cooling measures.

So, with Asian investors still looking for investment opportunities and the US and the UK currently iffy options, Australia has stepped into the gap. Not only is Australia geographically close—closer if you factor in jetlag—it boasts a lifestyle that, arguably, is superior to either the US or UK, and a favourable currency exchange. Nearly 25% of foreign buyers in Australia are Chinese. The most popular destinations are to be expected: Melbourne, the lifestyle leader, where Victoria’s foreign buyer stamp duty sits at 7% (as does Western Australia’s); Sydney, the familiar brand name, where New South Wales imposes an 8% foreign buyer stamp duty; and Brisbane, a hotbed of student accommodation investment and home to the country’s highest concentration of Hong Kong and Mainland students. Appealing new developments are plentiful—but they are also required for the Foreign Investment Review Board (FIRB).

Rules, rules, rules

As appealing a market as it may be, Australia’s FIRB is an outlier among overseas markets for international purchasers. In order to complete a real estate transaction, “foreign persons generally need to apply for foreign investment approval before purchasing residential real estate in Australia.” The idea is to funnel foreign dollars into new developments and underpin the construction industry as well as meet demand for supply. It’s rarely an issue, but FIRB approval is something potential buyers should be aware of. And even if an investor is only considering an Australian purchase, it’s best to get approval well in advance. It reduces waiting times and can prevent loss of a property to another buyer during the wait—though there are exemptions (the full regulations can be reviewed at firb.gov.au).

As a rule, existing dwellings—like a single family landed house that’s 100 years old—are among the properties restricted to Australians only. Temporary residents can purchase existing homes on the condition that they sell their property when they leave Australia, but most Hong Kong investors stick to new projects. That said, one of the most attractive aspects about investing in locations such as Canada, the US and Australia is the potential for freehold land ownership. Land can only be purchased if the buyer builds residential dwelling on it within four years, which can, however, be sold or rented out. Also, bear in mind that investors are limited to a maximum of 50% of new projects (similar to Thailand’s overseas threshold) and non-resident owners are subject to a vacancy fee if their residential property is unoccupied for more than six months each year. The fee is assessed by the Australian Taxation Office, which will also assess penalties for reporting failures.

Bondi Beach and North Bondi, one of the most famous beaches in Sydney

Finally, Australia made waves few years back, 2016 and then again, this year relaxing loan limits for borrowers, when it levied comprehensive new financing rules and lending criteria. The best way to navigate those rules with a qualified mortgage broker, as the process and regulations can vary from bank to bank. After 2016, non-resident investors have been limited in how much, if at all, they could borrow from Australian lenders. Financing is considerably more expensive, usually 6.5 to 8% at 70% LTV. The few banks that supply overseas mortgages also prefer to lend to buyers whose properties are in low-risk, high demand locations such as Melbourne, Sydney and Brisbane. Investors keen on that great ocean-view condo in Perth or a nice patch of land for a home in the Barossa Valley should be prepared with larger down payments—or to face a few slammed doors.

Source: Squarefoot.com.hk, Published on October 21, 2019