Investing in a land far awayOctober 5, 2013
Chris Tolhurst
An increasing number of savvy investors and home owners are jump-starting their wealth portfolios by buying property off the plan hundreds of kilometres from where they live.
Property investing has always been about buying in the best locations and, with residential markets around the country operating at very different speeds, buyers are becoming more open to owning properties interstate.
But where should you buy? Do the return-on-investment fundamentals stack up for new units in Sydney or in Adelaide? Is Melbourne's weak rent growth offset by its relatively cheap apartment prices?
The Victorian managing director of CBRE, Andrew Leoncelli, says Melbourne has the runs on the board. "I don't send any interstate buyers to Sydney, Brisbane or Perth," he says. "But I do get buyers from all three of those markets purchasing in Melbourne. Why? Because Melbourne is relatively more affordable, Victoria's population is growing quicker than any other state.We also have a very good education base, a reasonably robust economy and offer a significant stamp duty saving."
Sydney-based CBRE chairman Justin Brown begs to differ. He says the supply of new dwellings in the harbour city during the past decade hasn't kept pace with population growth, and Sydney is in "year one" of a seven-year growth cycle.
Mr Brown says the few high-density developments in top-notch Sydney locations that have been marketed recently have been strongly sought by local buyers.
"We have a very strong Asian population in Sydney that traditionally has been eager to buy apartments off the plan, which fuels the market," he says. "We are going to see the market mature over the next couple of years, similar to other cycles. We will see the investors and the self-managed super funds, and then the owner-occupiers, come in."
To assess an area's potential, buyers need to focus on the demographics, research rental vacancy rates and know the local economy. Stamp duty discounts can be a plus factor, too. In Victoria, stamp duty is based on a property's value when contracts are exchanged. Sign on in the pre-construction phase and you'll pay duty only on your land component, not the finished product. "On a $750,000 apartment, you're getting over $40,000 in stamp duty savings," Mr Leoncelli says.
In NSW, stamp duty discounts are offered mainly to first home buyers. Despite this, the senior economist at Australian Property Monitors, Andrew Wilson, says a growing number of home loans are being taken out by Melburnians to invest in Sydney. He says investors have historically looked at their suburban region or capital city, but this is changing as more buyers embrace "hot spotting" up-and-coming areas.
At a property investment expo in Melbourne in August, Wilson spoke with investors having trouble investing in Sydney. "They had recognised Sydney as an investment hot spot," he says.
When prices spike in one location, opportunities tend to emerge elsewhere. Developer BPM, which builds apartment blocks in Brisbane and Melbourne, is seeing more Sydney buyers purchasing in Brisbane. Marketing director Ashley Bramich says well-located, new, one-bedroom units can be bought for the low-$300,000s in Brisbane and two-bedroom units for the low-$400,000s, which is far less than Sydney's asking prices.
Watch out, though. Small cities can have a limited number of industries and employers. You'll do better by zeroing in on suburbs in larger cities that have a vacancy rate below 1 per cent. That usually means would-be tenants flock to any property, and investors call the shots.
Vacancies plunged to record lows in some Perth suburbs last year. In Sydney, tenants most covet the inner and middle-ring western suburbs.
Sydney hasn't built new dwellings on a big scale for a decade. Mr Brown and Dr Wilson say Sydney's rental growth will likely outstrip inflation in the next five years. That can't be said for most Australian cities.
Tips for buying off the planKnow exactly what you are buying. Read the fine print and obtain legal advice before signing anything.
Understand your rights. Find out what modifications or substitutions are possible without additional cost.
Inspect other properties the developers have completed so you can gauge the quality of their workmanship. Buy from reputable developers with a proven record.
Have an exit strategy. When you want to sell, will it be easy to dispose of your new property?
Southern lights lure KenKen Thong is one of a new breed of apartment buyers who are moving out of their comfort zone and buying property interstate.
The radiologist from Newcastle has bought a two-bedroom, two-bathroom apartment in the upmarket Parque block on St Kilda Road, Melbourne, which is slated for completion in 2016.
''I saw an article in July about the project,'' Thong says. ''The building had such a beautiful and unusual and fancy look to it, and my daughter is studying first-year medicine at Monash University. She wants a place to stay in down the track, and we want a place to stay in when we visit.''
Thong will pay $850,000 for his completed apartment, including optional extras, such as timber flooring. Other apartments in the block are priced between $370,000 and $3.5 million. All but eight of the 332 units have been sold.
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