The demand for Australian residential properties sees no signs of abating despite the record high prices. Nevertheless, prospective buyers should weigh the rewards against the risks.
MALAYSIANS’ love affair with Australian properties does not appear to be waning despite the rising prices. The country’s real estate market has been booming and its stable economy has attracted investors from all over the world.
HSBC noted in a report last year that the Land Down Under was one of the top three destinations of choice for affluent Malaysians, with 26% parking their cash in Australian properties, amounting to about RM125 million annually.
The report pointed out that Malaysians were investing in Australian properties because — apart from wanting to diversify their wealth portfolio — the country is a preferred destination for Malaysian emigrants, who are said to be migrating for economic, political or social reasons. In the last two years, Australia’s Department of Immigration and Border Protection granted 4,207 permanent residency visas to Malaysians.
One such individual is 32-year-old Lee (not his real name), who pursued a degree in mechatronics engineering at the University of Adelaide in South Australia and decided to remain in the country after getting a permanent residency visa eight years ago.
Lee chose to park his savings in a medium-density apartment building project located near Melbourne’s central business district (CBD), while he worked in the Western Australian iron ore industry, nearly 2,500km away.
“It is for investment … and perhaps for future residential purposes, depending on the circumstances ... the property [which will be ready in 2016] cost around A$762,000 (RM2.1 million),” he tells Personal Wealth in an email interview.
Like Lee, many are buying properties in Australia for the purpose of investment and for the future of their children, says Asia One Pty Ltd managing director Roger Lim Swee Kit, whose three residential projects in Melbourne have all sold out.
“Most of them buy to diversify their investment portfolios. Most of the Malaysians or permanent residents who are buying the properties are in their late thirties to sixties, and are buying for their future generations because their children might be coming here for their tertiary education,” he adds.
“Many parents are investing now so that once the property is completed, they can leverage the rental income. And by the time their children move here for their tertiary education, the home would be paid off and available for use.”
The significance of Australia as a higher learning hub can be seen from the growing number of Malaysian students enrolled in its tertiary institutions, which stood at 21,208 in 2013, says Lim.
Nearly 40% of Asia One’s residential projects, which includes two high-rise apartment buildings in the CBD and semi-detached homes in a suburb less than 20km from the city centre, were bought by Malaysians.
Australia, says Lim, is one of the few countries in Asia-Pacific where people can experience a Western lifestyle. “Australia is the closest country for Malaysians wanting to experience such a lifestyle – everything is organised, everything is structured … This is also one of the reasons families send their children here to pursue higher education. All you have to do is just follow what is here and enjoy your life.
“Demand is very high, typically among Asians. We Asians love that lifestyle ... it is what we would call ‘the life’ — it is the ideal lifestyle.”
Property investment adviser Alka Doshi, who has been working in the Australian property market for the past four years, concurs that the country’s proximity to Malaysia makes it even more appealing. As far as the property market is concerned, the strong migration of a highly skilled workforce into Australia has triggered demand for housing, which is outpacing supply.
“People who are looking to migrate to Australia want to buy their own homes or want to invest in one before they get here so that they are able to build some equity in the property before buying their own,” she says.
“It is easier for people to fly in and out … Australia offers economic stability and is rich in natural resources, so we can expect another 20 to 50 years of growth. When demand surpasses supply, rental returns appreciate. There is capital growth and capital appreciation ... obviously, it becomes an attractive market.”
This is despite regulations prohibiting foreigners from buying on the secondary market. Non-resident buyers are only permitted to purchase new properties and can only sell their properties to Australians.
Nevertheless, residential property prices grew the most — a 390% increase — among 22 countries since 1997, according to Fitch Ratings. In its Global Housing and Mortgage Outlook 2015 report, Fitch says current home prices are among the most expensive of developed countries, with Australia’s affordability high above its long-term average, as measured by its price-to-rent and price-to-income ratios.
“Australia’s residential property market is among the highest growing in the world. This is because the country has not had a recession in 24 years,” says Dominique Grubisa, CEO of Australian Investments and Migration Pte Ltd (AIM), which helps foreign investors to look for local resale properties.
“Demographically, people are also staying single longer, which means the need for more dwellings. We see families fracturing, more divorces,” says Grubisa.
“I think also, with the global situation being the way it is, people are coming to Australia because of our tight laws, stable government and economy, and strong property laws. We have never crashed ... our property market has only steadily gone up.”
According to the Knight Frank Global House Price Index, which tracks the performance of mainstream national housing markets around the world, Australia was ranked No 14 in the list of countries that saw the highest increase in house prices last year. The residential market grew 6.8%, making it the third highest growing residential property market in Asia-Pacific after Hong Kong (11.7%) and Taiwan (7.1%).
In fact, in the last quarter of 2014, Australia’s residential property market recorded an increase of 1.9% despite the overall decline in the index over the same period, which fell by 0.6%.
Demand has consistently outpaced supply in Australia, largely due to immigration, according to Ian Chen, founder and group CEO of real estate agency Jalin Realty. “Australia is not producing enough properties to cope with demand. Each year, we are seeing more and more emigrants in the country,” he says.
The Australian government has been supportive of immigration to encourage an influx of working professionals, skilled labour and foreign investment. Last year, it also achieved its target of 190,000 emigrants under its 2013-2014 Migration Programme.
The average annual net overseas migration numbers into Australia between 2007 and 2014 stood at 233,000 people, data from the Australian Bureau of Statistics (ABS) show. As at June last year, the 153,900 Malaysia-born residents represented 2.3% of the 28% of Australians born outside the country.
In keeping up with the appetite, the Australian government has ensured that housing approvals keep pace with the rising demand. In the 12 months ended September last year, housing approvals reached an all-time high of 195,000. This is expected to continue in 2015, according to Fitch Ratings.
Another factor that plays into the growth of its residential property market is the low interest rate environment and wide availability of easy credit, says Grubisa. “I believe that the demand comes from our lowest ever interest rates for the longest ever period of time. Our interest rates were [previously] at 2.5% ... that’s higher than most countries, but for Australia that’s very low.
“In February, the Reserve Bank of Australia dropped it by another 0.25% and indicated in its minutes that there will be further drops. We have easy credit that we haven’t seen since the global financial crisis, and it is just the start of another cycle.”
Mulpha International, which is Malaysia's largest real estate investor and developer in Australia, echoes similar sentiments, adding that foreign buyers are at record levels. The company’s international sales and marketing general manager John Hughes says that while Sydney and Melbourne have performed “exceptionally well” — driven by overseas buyers entering the market — Brisbane and the Gold Coast have performed moderately well. These two locations are now being targeted as “great value” with a “great capital gain” opportunity compared with Melbourne and Sydney.
In the first quarter of this year, foreign investors bought one out of every six new homes sold on the market, the National Australia Bank says in its 1Q2015 Residential Property Survey. Apartments, which made up 53% of the purchases, were largely preferred by foreigners, followed by houses (30%) and land for redevelopment (17%).
The numbers could potentially increase if reforms to the government’s Significant Investor Visa (SIV) and Premium Investor Visa (PIV) are passed. The visa programmes aim to help boost the Australian economy and compete for high net worth individuals who are seeking to migrate to another country.
This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on May 4 - 10, 2015.
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