Western Australia properties at a bargain?

By Property Soul

During our recent vacation in Perth, we dropped by to visit our relative’s family who had been staying there for longer than a decade.

They lived in a nice southern suburb 20 minutes’ drive from the Perth CBD. It was a quiet and friendly neighborhood with residents from middle or upper middle class. The houses were all single-storey detached with big front yards and back gardens.

Drove around the area and you could find parks, playgrounds and a small shopping centre with a supermarket and McDonalds. Above all, it’s near a prestigious secondary school.

The built-in area of my relative’s house was approximately 3,000 sq ft. It’s spacious, bright and cozy. They bought it at over $300,000 and market value has since increased to $650,000.

“Our house is old and nothing to see. Let me show you the brand new ones. It’s just five minutes’ drive away.”

A home heaven in a new suburb

In this new residential area, there were six to eight streets full of display homes (Australian show houses). Each house was built by a different developer with totally different look-and-feel.

Although we saw parked cars on both sides of the streets, there were not many buyers on a Sunday afternoon. Most of them were young couples or families with small children.

Compared with my relative’s suburb, these new single or double-storey detached houses were built much closer to each other. There were so many houses that it could take a few days to view all of them. We were at a loss where to start and had to rely on our relative to help us pick a few.

“Go inside and take a look. You can change the design, layout, materials and landscaping. Everything, including the asking price, is negotiable.”

The developer’s consultant stationed inside the house greeted us warmly. After that, we were free to explore the place on our own. What followed was an eye-opener for me:

  • An enclosed garage with auto-door to park at least two family cars;
  • A big open kitchen with working station in the middle and a side room to store cookware;
  • A suite used as a guest room and a theatre room in the front part of the house;
  • Three children bedrooms with each two times the size of a master bedroom in our new Singapore condos; and
  • A spacious living and dining area overlooking a 400 sq ft alfresco for gardening and BBQ parties.

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The above was de facto for all houses regardless of entry-level or luxurious type.

Single-storey basic houses were selling from $148,000 while high-end double-storey houses were asking for slightly above $400,000. Prices already include the cost of land.

Since I conducted training classes in my How To Buy Good Quality Properties 1-Day workshop, I couldn’t help but commenting each house based on fengshui of external environment and internal layout, pointing out which houses are wealth accumulating or draining and with Sheng Qi or Sha Qi.

“Pick the type of design you like. Just add a bit more if you want them to do the renovation. You can choose to build it in one of the streets here, or ask them to build in another location.”

“In the past, it takes longer than a year to build a house. Now with prefabrication, the developer can deliver in 12 weeks. If you prefer WYSIWYG, you can also buy the display home … Go see that one. I think you’ll like it.”

“This design has a wine room opposite the dining room to store your wine collection.”

“The three bedrooms shared their own activity area. So kids won’t go to the living area and leave some private moments for the parents.”

I found my way to the huge master bedroom on the second level. On the left was a functional walk-in wardrobe big enough for a fashionista’s collection. The right side led to a spacious attached bathroom designed to enjoy a greenery view while taking a bath. The toilet was on the other end of the bedroom.

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“Last year my sister bought a similar one at $600,000. That’s crazy! Now prices have come down to $400,000. SGD and AUD conversion is now almost 1:1 right? Why don’t you also buy one and you two can be neighbors?”

Facts behind owning a piece of Australia

The product looks good. What about the return?

1. Property taxes for non-residents

The Australian government taxes non-residents both rental income and capital gain, both at 29 to 45 percent. Owners are subjected to a 50 percent reduction of the taxable gain if the asset is held for at least 12 months.

Depending on the property type and location, there may be an annual land tax.

2. Foreign ownership of properties

Foreigners cannot buy established residential dwellings, except uncompleted properties and vacant land. All foreign ownership of properties must apply approval from the Foreign Investment Review Board.

The government is very strict in imposing penalties to foreigners breaching this law. Have you read the recent article in The Business Times about Australia forces sale of 16 foreign-owned properties?

Seven of the force sale properties were bought by the Chinese, with the rest owned by nationals of Britain, Canada, Malaysia and Papua New Guinea. The owners were also fined.

What’s going on in Western Australia

1. Recession since 2015

With the declining commodity prices, there is a recession going on in Perth since 2015. In the CBD and inner-city district of Perth, ‘for lease’ signs on the windows of empty offices and shops are everywhere.

Unemployment rate now stands at 5.7 percent. It can go up to 25 percent in suburbs with mining as a major industry. More than 20 percent of Uber drivers used to work in mining.

2. A gloomy housing market

Perth’s vacancy rate for rental properties reached a 20-year high last year. It is now 5 percent and at its highest since December 1995. Rental rates have dropped 13 percent. Rent in Western Australia’s most expensive suburb Peppermint Grove has declined 24 percent from $2,000 to $1,525 a week. The median weekly rent in Perth is $420 for houses and $395 for units.

It is a tenant’s market. Tenants keep breaking leases to move to better places. Landlords lament that it is difficult to get tenants for viewing.

Sounds familiar for Singapore landlords?

In Perth, there are more home sellers than buyers. Many are moving away from Western Australia to other parts of the country or back to where they come from.

Last quarter, 17.9 percent of houses and 30.2 percent of units are selling at a loss – the highest level since September 1996 for houses and since 1994 for units. It’s because the Australian economy didn’t really hit by the 2007 financial crisis.

Western Australia properties selling at a bargain, anyone?

What about other parts of Australia

Foreign buyers continue to pile into Australian properties in the city areas of New South Wales and Victoria. Property prices are still going up, though at a much slower rate.

Last month Smart Property Investment highlighted “the two markets most in trouble” and likely to suffer a hard landing once this property cycle goes from boom to bust.

They are apartments in inner-Melbourne and Brisbane, especially suburbs like Newstead, Bowen, South Port, Fortitude Valley, Towong, West End and Hamilton.

In particular, off-the-plan property investors are warned that “they could be in for a nasty surprise”. It may not be a total collapse of housing prices, but a likely price decline of 10 or 15 percent.

If you are going after properties in Australia, better do your sums and make sure that you have the holding power even under the worst scenario.

Do you have the guts?

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