China was the largest source of foreign investment in Australian real estate over 2015-2016 at AUD31.9 billion, according to statistics released by the Australia Government’s Foreign Investment Review Board in May 2017. The investments made by the Chinese far surpassed the AUD8.2 billion from US investors over the same period.
Despite the slowing property market as well as the introduction of higher foreign ownership taxes and more stringent lending rules in 2017, international investors remain keen on Australian real estate. Their popularity is largely due to Australia’s political stability, strong legal system, transparent processes and retirement-friendly environment.
Many investors still favour Sydney and Melbourne, but Perth could line up as the next investment hotspot, with good upside potential in the coming years. For a start, home prices are lower in Perth than the first tier Aussie cities - beginning from AUD375,000 for a one-bedroom apartment in a good location. Comparatively, a similar property would have cost more than double in Sydney, and 1.5 times higher in Melbourne, ceteris paribus. The lower cost of homes in Perth not only makes them more affordable, but also softens impact of future interest rate hikes due to the lower loan quantum required to finance the purchase.
Values of homes in Perth have declined in the past years owing to excess supply following the end of the mining boom, which drew thousands of households into the state over a decade ago. Figures from CoreLogic in March 2018 showed that prices in Perth have fallen by about 11% since their peak in June 2014. However, values appear to be stabilising and were steady through February. In fact, several industry players – including REIWA, Western Australia’s real estate institute – expect market conditions to improve moderately throughout 2018.
As prices bottom out, the housing market in Perth could recover over the next two to three years. The prospect of price increase, likely to be gradual instead of a big upswing, in the coming years makes Perth an attractive investment destination for international investors. Acquiring a property at today’s prices presents potential capital gains in the future.
To allay concerns regarding rentability, some developers are offering rental guarantee for up to two years, which is a big plus as it provides some security to investors. For instance, an investor who buys an apartment off-plan today and takes possession of the unit in 2020, will enjoy two years of rental guarantee till 2022, where the market would have recovered sufficiently barring any unforeseen events.
According to foreign ownership rules in Australia, international investors who wish to divest their properties must sell them to Australian citizens or permanent residents. As such, it is key to purchase homes in locations that will appeal to locals. Some attractive investment locations that offer good deals in Perth include areas in close proximity to the Central Business District. Whilst the market is absorbing stock, developers are willing to do attractive incentives for offshore buyers looking to enter the market now.
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