COMMENTARY: Why invest in Australia?
Summary: Australia has long been attractive as a real estate destination globally, especially in Asia. Today we investigate some factors on why Australian property is so prolific and why you should invest in Australian property if you want to invest in international real estate
*Disclaimer*: The views set out in this article are an opinion only in general terms and do not represent financial advice.
Australia, the middle power
Australia has the unique trait of being a country with a Western quality of life whilst having close proximity to Asia. This trait is again compounded in Western Australia where the time zone is the same as China and most of South East Asia. Australia is in an excellent geopolitical situation and that in part was why Australia fared better than most in the recent GFC.
Australia wants you to be rich
Although Australia has an extensive welfare state, at least in terms of real estate, the Australian government and system encourages people to be government independent - and thus richer. Reasons will be set out below:
Negative gearing - not so negative
Negative gearing basically means to offset your personal income with capital loss. This pushes your tax bracket down, so you pay less tax. Negative gearing is a significant incentive especially with smaller investors.
But wait - you can still have positive gearing or cash flow positive investments
That is correct, with a good investment strategy you can still have positive gearing where the cash flow pushes up the tax bracket, OR have a cash flow positive investment, bringing nett profit.
Reserve Bank of Australia
Currently, in mid 2015, we are still enjoying some of the lowest historical interest rates set by the central bank, the Reserve Bank of Australia, now is the ripe time to invest.
Besides government incentives, Australian banks have a clear advantage - interest only loans for extended periods. Generally, anyone of any age can apply for a 30 year loan, if they meet eligibility requirements and get 15 year interest only repayment terms.
Imagine this: 15 years interest only and renting out for about 5-6% per annum (based on current market rental guarantees by developers) where the current bank interest rate is approximately 5% or slightly lower. That gives you more likelihood to get positive geared or cash flow positive investments.
In Australia, borrow to the brink. This line of credit will help you buy property after property after property, applying leverage on the banking system and your equity.
Security of ownership
In Australia, there are land registries based on the Torrens system throughout the country. In fact, the Torrens system was invented in South Australia. The Torrens system ensures ownership records are accurate and secure. Moreover, most, if not all of new residential properties are green title, otherwise known as freehold or, fee simple in Australian land title contexts. This means that, if you can hold the property its yours forever. Security of ownership is a strong factor that attracts mainland Chinese buyers.
Foreign Investment Review Board
Currently, there are no restrictions on residential purchases by the Foreign Investment Review Board. The only real restriction is that the property must be new. Thus, one can buy all the off-the-plan or new properties they want. Furthermore, there are no restrictions on what you can do with the new property, so long as it is actually new. Sell, rent or live, its all yours.
Australia is a secure place to invest. It is relatively friendly for investors due to the government, its laws and strong economic performance. Please do read the Australian listings I have through Kozin Real Estate here. Unless you can predict the boom and busts of the property market, its always good to invest as property prices in major cities double each decade historically and property is a long game.