Before you zero in on property, ask yourself why you’re buying – is it to set up home or merely for investment. Your answer changes the rules
When it comes to Indians investing in real estate in Australia, we sometimes do not make a wise investment decision because we let our emotions get to us. We tend to buy for our families and relatives in India who may have been renting their entire life or because we feel we need to provide them with a better place. These decisions are more to be seen as a gift to those who made us who we are. They are not investment decisions.
One must remember there a lot of disadvantages to buying a property overseas.
Currency Devaluation Risk: Even though the property value has increased by 50 per cent in the last 5 years, the currency has devalued proportionately to capital gain. If the Indian rupee has devalued by 50 per cent in the last 5 years, it means you really didn’t make any money in that market.
Yields: Buying an immovable property can result in yields as low as 0.5% and you will be lucky to get money every month in your account.
Security: Security of any immovable assets is not guaranteed. In the last 50 years we have heard a lot of how a property can be occupied by some unknown person claiming it as his or her own property. Property squatting is a lucrative business in India. Once these unknown people claim the property as theirs you will have 20 to 30 years of courtroom battles, which may not even end favourably. This is probably one of the main reasons we end up buying a property for our parents as a gift.
Capital Gains: Once you sell the property in India, you will need to pay capital gains in India and in Australia, depending on your tax bracket. Indian properties have 20-23 per cent capital gains tax again depending on the value of the sale and how long the property was held.
Currency Exchange: While remitting money from India to Australia you will lose 5-10 per cent in the rupee to dollar conversion. Buying and selling currencies can be very expensive.
New vs Old Apartment Syndrome: Indians in particular have a “New Flat Syndrome”. We pay a very high premium for brand new apartments, without understanding that in a year, the spanking new apartment will be old and values will fall at least by 20 per cent. There are always new ones being built and compared to the one-year-older one, they will command a higher premium. For all the new apartments, the capital growth of 5 years has already been added to the selling price.
Now that we’ve got across those hurdles, here are some other pointers for those looking to make a real estate investment.
What are some of the property investment hot spots in Victoria?
First, ask yourself if you are a home buyer or an investor. If you are a home buyer, looking to buy for something close to $500,000 to $650,000 I would recommend the following hot spots: West Footscray, Seddon, Maidstone, and Yarraville in particular lookout for units or a house in the western suburbs; Bellfield, Coburg, Pasco Vale Collingwood and Brunswick east in the northern suburb.
Mulgrave is potentially identified as one of the hot spots for buying properties for the next six months under a value of $650,000. I would recommend buying units 5-10 kilometres from the city. It is not always how much land you are buying as it is the land to asset ratio that needs to be taken into perspective.
Investors should avoid the suburbs closer to the median price of $500,000 to $600,000.
At the moment this is where most of the completions are happening in the market. Therefore, you are not only competing with the First Home Buyers but also with international buyers (new dwellings) and new investors who are entering the market.
Investors should concentrate close to $1 million mark. These are older style properties that need renovations. Current investors are very active in the eastern side of Melbourne. South and east of Melbourne will outperform West and North of Melbourne for years to come.
You should be looking for older style units around Malvern, Camberfield, Brighton, and other very popular areas. However, one million may just not be enough to buy a house in these areas.
A thousand acres of land in the countryside is not as worth a quarter acre of land close to the city. It’s not always the land, which carries the premium, but land at the right location.
What is the kind of growth you have in Footscray Area?
This is one of the most interesting suburbs in terms of investment over the last few years. Despite hearing a number of reasons why we should not invest, we purchased a property in 2009 and we have seen a 70 per cent growth over the last six years. And we are expecting another 10-15 per cent growth in the coming two years. Footscray and West Footscray have been a good investment for us. We recommend readers look into this area.
Is Country Victoria a great place to invest?
In a word, no. Investing for cash flow properties in regional areas can be very attractive. In the long run, however there is not enough capital, employment and population growth to nudge property prices up. We have invested in a few properties in regional areas and we are planning to sell them at the price we bought them. Yield for a regional property is around 7 per cent. We have had them for 7 years and there has been virtually no capital growth.
If you want to become rich. capital growth is the way to go.
What do you think of investing in apartments in the city area?
Buying in the city, looking at glossy brochures, you will be in for a wild ride.
Investing in city apartments is not everyone’s cup of tea, and it is usually foreign nationals who do so. Local investors should never concentrate on buying off the plan properties in the city. Foreign nationals are only allowed to buy new properties or properties they will be developing in the 12 months. For foreign nationals, it is better to park their money in a secure country like Australia than in their own. Most of them haven’t even come to see the properties they have bought. Funny thing about foreign investors is it is easier for them to buy a property in Australia than to get a tourist visa to Australia.
We have invested in a city apartment. This particular one is a four-year-old property, the purchase price of which was $140,000 less than the buyer had paid at the time. It has been a positive cash flow property and has had a good capital growth.
Don’t buy any property which is less than 50 sqm, has no windows and no view.
In fact, I recommend buying the two bedroom, two bathroom, and a car park kind of property as it easier to rent.
If you ask me whether to buy a property within the 5 to 10 km radius to city vs in the CBD go for the 5-10 km radius. If you would like to live in city buy a property which is at least three years old and has two bedrooms and two bathrooms.
The Melbourne Council approved 20,000 new flats to be built in the Melbourne CBD and 7,800 are almost being constructed. The Melbourne CB will be flooded with an oversupply of apartments. Sydney, London and Adelaide have rules that ban new one-bedroom apartments smaller than 50 square metres but in Melbourne, 40 per cent of the city’s newest apartments are smaller than that.
The writer is a successful property investor and strategist in Australia and India. He manages a group of companies involving exports, farming and real estate and is the Secretary and Founding member of Festivals of South Asia Inc, Which is among the largest not-for-profit organisations in Melbourne. In 2008, he received the Victorian Parliamentary Friends of India of the Parliament of Victoria “Award of Excellence” for Youth activities.
He does not sell property, loan products or endorse any commercial entities dealing with real estate. His analysis is independent and unbaised.
Disclaimer: The author’s views are intended only to inform and illustrate. No reader should act on the basis of any matter contained in this publication without first seeking appropriate professional advice that takes into account their own particular circumstances.