In the media...
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May 22, 2016
Lately, it is being reported by some Chinese blogger that Simon Yam and Sammo Hung have been spotted in the suburbs of Melbourne. Simon Yam was seen shopping for a property in Glen Waverley while Sammo Hung was said to have bought a property in Box Hill. Both suburbs have a huge Asian/Chinese/Korean population.
What does that tell you about the property prices in these two suburbs? In a bubble, maybe?
Click here for the Chinese blogger's report, in Chinese.
Ten common mistakes new migrants often make when purchasing a property in Australia - by Ken Soong
The information presented below is taken from Chapter One of the book Buying a Residential property in Australia: Eight Things You Need to Know Before Doing It written by Ken Soong, Ilja Thomas Gull and Michael Soong.
1. Giving too much information away to real estate agents.
Because real estate agents’ job is to sell the property for their clients, it is not in their interest to help the buyers at all. While some are genuinely nice, friendly and personable by nature, most only appear as such because they want potential buyers to like and therefore trust them enough to enter into a business transaction with them. They understand the logic of the line – before you can sell anything to anyone, he or she has to like you first – all too well. Thus, there is no need to tell the agent anything that is more than necessary namely the properties that you have inspected and the offers that you have made. You should not be telling them the upper price range to which you can stretch. For example, if they know you can stretch to an upper limit of $500,000, they may very well try to market to you what they truly believe to be a $450,000 property at $600,000 to create the illusion that you will have a great bargain if they can go back to persuade their client to sell at $500,00! Moreover, it is never a wise decision to stretch ourselves too much financially unless realistically justified.
2. Not providing enough information for real estate agents to help them, namely show them properties that fit their criteria.
On the other hand, if you do not provide enough of the necessary information that will enable the agent to help you, both you and your agent will be wasting each other’s time. So, you should expect experienced agents to be asking you the following questions:
- Are you prepared to buy now? If yes, does it mean your bank has somewhat approved your finance? If not, when are you looking to buy?
- What is the maximum amount you can afford to spend for your purchase?
- While there is no need to be too elaborate, you need to at least provide definitive answers to the above questions so that the agent can get you the kinds of properties that you want.
3. Deciding to buy the first or second property that is being shown to you without going through their entire list of listed properties.
There are generally two ways of finding properties to inspect. First, you can go to the real estate agent office to get a list of properties that are open for inspection. Normally, they are open for inspection on weekends. There are however also properties that are open for inspection on week days although the numbers are not many.
Second, you can call up an agent on a weekday and ask if he or she will be able to show you around some properties that they have to sell. If you choose the latter approach, be wary of the fact that most agents will show you the least sellable property first before they go one showing you the second least sellable property. Therefore, you should never settle for the first or the second property that has been shown to you. Make sure you have inspected all the properties they have on hand before shortlisting them and making the final decision.
4. Buying a property in an auction without understanding the rules of the game.
By not making an effort in in understanding how an auction works, we are giving away our power to the agents and auctioneers who will notice our lack of knowledge in less than two minutes into the conversation.
5. Taking on a loan that is too large to service or pay off especially in the event of a downturn and interest rate hike.
Never stretch your budget to buy a property that you cannot comfortably afford. And this is definitely a potential disaster that is within your power to avoid.
6. Do not ignore your ‘feeling’ toward the property as they are often quite accurate.
No amount of data and facts can replace the instinctive ‘judgment’ you have on a property the very first moment you step into it. The rule of thumb is this – buy only when the facts tally with your instinct. When either one (ie. good feeling or good data) is missing, do not buy.
7. Buying a home that is too near a train station.
While ‘conventional’ wisdom suggests that having a train station nearby a property is a good, convenient and therefore an added value to a property, there are shortcomings of having a train station in an overly close proximity, say, five to ten minutes’ walk away. There are certain suburbs in Australian cities where having a train station nearby means more exposure to hooliganism and all the related problems besides just the noise.
8. Buying a property without considering its immediate and not-so-immediate surroundings.
Most buyers know enough to pay close attention to the street or neighbourhood their interested property is in. That is, they do pay enough attention to it immediate surroundings. What they might fail to realise is that although the very suburb in which they find their interested property is quite a good suburb, it may be the case that ten kilometres, or one or even two suburbs away, there is a public housing project that is built to house newly arrived immigrants and refugees. While most refugees are decent and law-abiding, there are some that might be quite problematic where they would frequently run into trouble with the laws of the country.
9. Assessing the value of a property without knowing the market history.
Most buyers are not educated enough to understand how the economy really works. Since buying a property could be the single most expensive item most of us would ever purchase in our entire lifetime, it is worthwhile to have some basic knowledge about how the economy really works. Property price movements are too indicative of the pulse of the economic that for us to ignore them - unless we do not mind over-paying our property.
10. Thinking that owning a property that one lives in is better than renting one.
Most of us have been too hardwired and even brainwashed to think that property ownership is the most important things in life. Nothing can be further from the truth. Apparently this truth is not yet obvious to most of us. This truth has been poignantly pointed out by Robert Kiyosaki in his book Rich Dad Poor Dad. There are indeed some situations whereby we could actually be better off not owning any property at all. The key here is of course to learn about these situations so that if at all we find ourselves in such situations, we can identify them and would know better what we should be doing.
Should You Invest in Australian Properties Marketed in KL 5-star hotels? - by Michael Soong
As a general rule, don’t buy overseas real estate through the exhibitions that you see in KL. All of the properties are overpriced at least AUD30k to AUD40k from local prices. Case in point, a family friend bought two units of apartments in St Kilda Road, Melbourne. Now he wants to sell them. He told the agent his target price is the price that he bought from the developer.
The agent told him the maximum price he can sell at is about AUD10k cheaper than the purchase price he paid for. He bought the apartments through exhibitions in KL. For example, he bought the apartment at AUD500k, now the agent told him maximum market price can sell for AUD490k. That means most likely you won’t sell for AUD490k.
Rental guaranteed scheme – You have to know that the real outcome is
Most of these apartments are mainly service apartments or student accommodation. Yes, the rental returns maybe high – something like 7 to 8% per annum (gross). But the problem with this type of real estate is that there is almost 100% no capital appreciation. And the risk of price you sell next time will most probably lower than the price you have paid for.
The resell market is very small. You will find out, if you buy student accommodation, the tenants can only be students. Even you can’t live in it. There is a lot of limitations on who can live in the place. As for service apartments, some are only for investment where the owners are not allowed live in them as well. But there are some where owners are allowed to live in. You must find out from the developer – very important.
Foreign investors only buy new real estate. They are not allowed to buy second hand real estate. And out of the rental you receive from your investment property, 30% will be taxed. This is the tax rate for foreign investors. All foreigners have an income tax rate of 30%. Check with the Foreign Investment Review Board before you make any investment decision.
A general overview of the real estate market in Australia
The primary reason now the real estate in Australia is ‘hot’ is because of capital is flowing in from overseas, especially from the Chinese buyers. Another reason is the low interest rate in Australia. Now the central bank cash rate is 2.5% – lowest since the 1950s. But that can change within the next few years.
Short term, I think the economy will have another downturn from 2016 to 2020. Much like from 2007 to 2011 that we went through. And I think this time China will be hit hard. The credit bubble in China is about to burst and real estate prices have started going down in China. If this gets bad and hits the economy big time, all emerging markets, including Australia will be badly affected. Note: Australia’s biggest export market is China.
Over the long term, I think China will still continue to grow after 2020 moving forward. So my outlook for Australia is that the 2016 – 2020 period will be when it experiences a the lowest point of it downturn. But over the longer term from 2020 moving forward, Australia may be doing well again. This is because China will continue to grow after that and will go on to become the largest economy in the 21st Century. That is forecasted by some experts to happen by mid 21st century.
End of the day, it depends on what your plan is. But if you can wait out another five years, things would be more settled by then. If you are buying now, you are paying overvalued prices and will be competing with cash-rich investors from China who just want to get out of the country now. I think these Chinese investors are anticipating a crash from 2016 – 2020.
Even Li Ka Shing sold a majority of its real estate investment in China (which is overvalued now) and move to UK to buy utilities companies (which are undervalued now). So what he is doing now is the classic strategy of Buy Low Sell High. A lot of people know that, but cannot do that. If you buy Australian properties now, you are buying on the high side. The risk of it going down is much greater than the reward of it going up.
But if you have a very long term outlook like twenty years and beyond and also your primary reason of investment is the cash flow rather than the capital appreciation, then it’s a different thing.
In short, be very careful about the properties market in exhibitions or seminars held by Australian developers at five star hotels in Penang, Kuala Lumpur or Singapore. Not advisable to buy rental-guaranteed schemes. They are more like a Ponzi scheme. And if you want to invest in real estate in Australia now, you must understand that it is in the overvalued stage. Also, you can always fly in to check out the properties here yourself. Shop like a local. Talk to as many developers and agents as you want here in Australia.
Should Malaysians or (any other foreigners) BUY Australian properties marketed by Australian developers who fly in to conduct property investment seminars at five-star hotels??? - by Ken Soong
Recently, there has been a rise in Australian property investment seminars in cities like Kuala Lumpur, Penang, Johor Bahru and Singapore. The Australian property market is definitely hot at the moment. Should you join in the fray? Why or why not?
As you might agree, the general rule for investing in any market is to make sure the asset you want to invest in is under-priced (or at least a 'fair' price) in relation to its value.
From an overall and global trend's perspective, Australia;s property is over-priced. It is in a bubble.
Unless one has immediate need, or want buy and sell in the very short term, there is really no reason to buy at this stage. Last year, the property market in Melbourne came down a little. About 5% to 10% according to my personal observation and guesstimate.
That is the macro environment. We mentioned in our book Migrating to Australia Good Meh??? (written by Ken Soong & Michael Soong published by Gerak Budaya Enterprise Sdn Bhd) about buying in 2016/2017 because by then the property market will have come down. There are several reasons why this is predicted (by the experts but repeated by us in our book).
First, the Australian property market has been going up for the last 22 years. Nothing will go up forever. Few years ago, many predicted Australian property market to collapse, following the footsteps of the US and the UK (less serious) collapse. It did not. It might have slowed down for a short while but it did not collapse. Then it continued to climb -even now. Lucky Australia got the mining boom and kept selling resources to China. Now, the days of property rising are numbered. China is showing signs to slowing down. When the Chinese Govt can no longer hold the economy up any longer (as in all cases, no govt can get away with meddling the free market forces), it will have a hard landing.
This hard landing will surely hit Australia very hard - on three fronts.
Australian mining exports will suffer big time. Thus slows down the economy and real estate.
Chinese migrants and property investors will also be greatly reduced when China faces a hard landing.
Chinese students coming to Australia will also be greatly reduced - hurting the already weakened economy further. Teachers will lose jobs or get less hours. Restaurants will have less business. Fashion boutiques, karaokes, and the retail scene will suffer (now there are lots of Chinese international students in not only the universities, but also high schools)
Second, the reason why Australian property market did not collapse a few years ago (other than the reason China imports lots of resources from Australia) is the perception of relative stability by the world's investors -especially the big institutional investors. Europe is in deep shit. USA too is still waiting for the real crash. According to people like Peter Schiff, Jim Rogers and Marc Faber, the 2008 crash is not over yet. Japan is still dead. Asia (excluding Japan and perhaps Singapore also), being an emerging market, they always view it as less stable. So, basically among the developed or Western economies, Australia is the only country that is still standing or intact. That's why money flows in here. Note: the flow comes not due to TRUE inherent market growth potential. It is only due to the fact that Australia is in less deep shit than Europe and America, that's all.
There is no true and inherent market growth potential in Australia because the population growth is very slow compared to Asia. It is a fast-aging population. Jobs are leaving Australia to Asia. Every month or every two three weeks you can see headlines of big companies cutting jobs, 're-structuring', relocating to Asia, downsizing or even closing down completely - systemic problems. Long term, this economy depends on incoming migrants and investors. The irreversible long term trend is working against Australia. The ASEAN region (with a favorable demographic forces) will be the receiving end of this global shift.
Now, on a micro level. Some of our Malaysian readers who are interested investing in Australian properties were saying, "Most seminars organizers are marketing mainly Melbourne. Some do market properties in Brisbane and Perth but Sydney do not appear 'hot' at the moment....maybe because it is over-priced now?" My take is this. I think Melbourne now is even more over-priced than Sydney. Another reason is also due to the fact that there are more Malaysians in Melbourne than in Sydney or Brisbane. Factual comparisons among major Australian cities cities were presented in our book also. Over the last few years, Darwin is growing at a rate more promising than Melbourne Sydney or Brisbane simply because it started from a much lower price level.
Please note that overseas property investment seminars are usually selling at prices that are overpriced compared to local properties. Like mentioned before, the market is hot right now. That means these developers are not short of buyers and investors back in Australia. If they want to fly out to market their properties, they will surely market those that are hard to sell to the locals (or foreign investors who fly in to see with their own eyes). Usually they will sell land and when they receive buyers' money then they start building. One of the risks of buying from such projects is money paid but project stopped halfway or never even started. Not saying all developers are con artists, just saying the worst possibilities.
Readers can send us the links or the names of the companies so we can look at the location and judge if the price is fair or not. Or rather, how far the price is above the fair market price - but as mentioned in previous mail, even the so-called fair market price is an over-valued price.
Michael and I attended one such seminar at KL's JW Marriot back in early 2000s. The developer/agent was Reapfield. Their partner's KL office is in D'sara Perdana at that time, not sure bout now though. It was a project 'near' the Melbourne airport. As soon as they knew we lived in Melbourne before, they deliberately lose interest in talking to us. They knew we know the price is a sucker price.
That's why some developers give out 'free' air tickets for buyers to fly there to inspect the place.
If anyone wants to invest in Australia, say Melbourne, better fly over and shop like a local. Free air tickets? No thanks. No free lunch in this world, remember?
Of course all we mentioned is no big secret, some investors know it and will still invest. It could be only a tiny percentage of their total wealth so they probably don't mind the extra price they pay.
Please check out www.realestate.com.au to get a feel of the local prices.
One last thing. According to Marc Faber, when a market (whether it is the share market or real estate market) is flooded with foreign investors, it is at a late stage of a boom or bubble. So, time to be cautious. One current example is Singapore. Already it is showing signs of weaknesses. When the Chinese shitake (or mushroom) hits the fan, things will get very ugly. Like what Li Ka Shing used to say, can smell it now. By the way, looks like he is also preparing for the crash in China now - selling all his assets there.
A Small Property Buying Tip for Malaysian & Singaporean Parents in Australia
Of late, we have been getting some letters from our readers asking for our modest opinions on the issue of property buying in Australia. Today, we want to specifically talk about the student accommodation near university campuses. One of the USPs (unique selling propositions) that the advertisers and developers are highlighting is of course the fact that these properties are very near universities and colleges. The logic is that there will be no difficulties renting out these units. So, the parents who buy these properties for the sake of their children can then rent out these properties upon their children’s graduation and return from Australia.
In the eyes of Malaysians or any foreign investors for that matter, Australia is one of safest places on earth to invest their money. Its property market has been growing steadily over the last two decades. They consider the system transparent and, on the whole, the country stable on all fronts – politically, economically and socially. It has a sound banking system, industries that the booming ASEAN region needs for the decades to come and its middle class strong and well-educated. And I say they are right. But because of this view, many investors have sort of become slack in verifying the true intrinsic value of these student- apartment type properties that are mainly targeted at Asian parents and not the locals. They have failed to ask the critical question – are these properties (near university campuses) reflecting the local typical prices that locals would readily pay for? If money is the least of your concerns, you can skip this article right now. For those who do not mind paying more than the locals, they need not read further as well. But for those buyers whose purchase amount still constitute a significant portion of their total wealth and are still hoping to buy something really worthwhile for both rental returns and long term capital growth, I think they had better consider an alternative strategy.
Here is how it works. For example, you want to buy a property near Swinburne University of Technology at the Hawthorn Campus because your kid is going to attend that university next year. So, you look around for an apartment block near the campus. There are quite a few on Burwood Road. Very convenient location – near uni and near the Glenferrie train station. The shops and restaurants are near too. There are Woolworth and Coles supermarkets there as well. If you do not have a PR resident visa, you must only buy new developments. The idea is to create employments for the local economy. But we have parents who have PR visa but because they have not lived here yet, they come in to buy this kind of property for their kids who are attending university soon.
They should not do that. Since they have PR visa, they should buy something slightly further away from the campuses. In short, they should be buying those types of properties where locals are just as likely to buy and not those only new PR Visa holders (and Asian parents) will buy, The only problem is that it is not near the campus. And if you kids do not drive, and your kids still prefer to live in those apartments where mostly students will live in, what is your solution?
I think you can do this. Buy that property which is further away from the university campuses (where the locals are just as likely to buy them) and rent it out. You will have a good capital gain over the long term and also a relatively good rental returns. You kids can still rent a unit nearest to their uni. They will still live in one of those ‘student apartments’ on Burwood Road, enjoying its proximity to everywhere. The 'student apartment' rent they pay will come from the 'local apartment' rent you collect. When your kids graduate they will just leave that student apartment and return to Asia. And if they want to apply for PR visa to settle in Australia, they can then move in to the 'local apartment' - now that they do not need to live near university campuses. I think that works better in the long term. Once you bought these student apartments, it is very hard to exit. The capital gain is not going to be too attractive and the rental will not be high enough as a viable return on investment.