The internet is thriving with news that overseas buyers have been property shopping in Australia, and in particular, Melbourne. But why this interest in Melbourne properties? Why are overseas investors buying up properties in Melbourne? What do they know that you don't? How do you get started? What do you need to know?
As an overseas investor, if you've been planning to invest in Melbourne properties, you would have come across FIRB, and you're also probably aware of how the different types of residency status affects what you can and cannot buy. You'll also be aware of some possible additional stamp duties which are applicable to your situation, depending on your residency status and the type of properties you are intending to invest in.
If you would like more information on these, follow these links:
Additional Stamp Duties
In Melbourne and Victoria, an additional stamp duty of between 3% and 8% are imposed on non-residents purchasing properties in Victoria. More details here.
But is this something an overseas property investor should be worried about? No, is the short answer. But why no? Here are the facts.
Property investment is for the long term
Most property investors typically hold their investment properties for between 10-15 years, or longer, if the property is performing well. Unlike other forms of investment such as shares, currency speculation, unit trusts, etc, property investing has a relatively high entry and exit cost. Compared to these other types of investment as well, the lead time to buy and sell properties are typically months, instead of hours. There are also a lot more due diligence checks to be done when buying properties. You need to pick the right property, with the right condition, at the right price, in the right location and with the right tenants. Every property is unique, even if they are built by the same developer, there are always something unique about each property that makes it different from the one next door. That's why savvy investors invest in the services of independent in-country buyer agents to prevent them from buying a dodgy property.
Other considerations for a non-resident
As we've mentioned earlier, you'll need to be aware of the purchase process for a non-resident. The FIRB process, as well as what you can and cannot buy, depending on your residency status. There is also a purchase stamp duty which varies by state. We'll be discussing this stamp duty in Victoria context, and how this stamp duty affect or doesn't affect for a property in Melbourne, Victoria. It will take weeks to discuss how stamp duties impact purchases in different region in different state, as this stamp duties varies by state, and each region in the states perform differently. It is yet another reason why successful investors engage the services of a good in-country property advisor.
Stamp Duties in Melbourne and Victoria
The standard stamp duty for property purchases in Victoria is approximately 5.5% of the value of property. It is levied for all property purchases. As a non-resident, you may be required to pay an additional stamp duty of between 3% to 8% of the value of the property, depending on your circumstances, what you purchase and when you purchase. There are certain situations where you might be exempted from paying this additional stamp duty.
Now, 8% may sound a lot, but it is not something most savvy investors are concerned with. At least, not for the next 6 to 12 months. Our overseas investor clients can attest to that.
Why is this not an issue for these investors?
These investors have researched the Australian market and saw the upcoming boom, and they are setting themselves up to reap the rewards. Here's what we are seeing:
1. Consistent Growth in Melbourne Properties
For the last 30 years (1988-2018), Melbourne property prices have been growing an average of 7% annually. During some good years, growth of between 10% and 20% annually are not unheard of. At an average of 7%, property prices doubles every 10 years! Not many other investment vehicles give you this kind of consistent growth. On this fact alone, the additional stamp duty of up to 8% will be recovered in just over 1 year.
Official numbers for 2019 has not been release yet, as they were being finalised when COVID-19 forced a delay in the release. Melbourne prices have been consolidating for the last 2 years (2018-2019), and at the second half of 2019, it rose a phenomenal 15% before COVID-19 forced a slow down in the property sales.
If you were to look at the 30 year performance chart below, Melbourne right now, is at the tail-end of the consolidation phase and Melbourne is entering the BOOM phase. Melbourne is currently in similar periods as 2007-2008 and 2010-2012, where Melbourne property prices grew between 15% to 20% annually. The patterns are similar: slow-slow-boom, slow-slow-boom!
It definitely points to BOOM time for Melbourne properties. If this happens, you could be looking to recover your 8% stamp duty in 6 months!
2. The recovering Australia Dollar
The Australian Dollar has been relatively low, compared to other major currencies. But it is not going to stay this way for long. With China's economy recovering, and China buying Australian natural resources, the Australian Dollar is set to rise. And this is backed by analysis of the AUD performance against USD and SGD. Chart analysis of the Australian Dollar (AUD) against US Dollar (USD) and Singapore Dollar (SGD) both points to a recovering Australian Dollar. And the Australian Dollar looks set to recover to around AUD 1.00 : SGD 1.05. An upside of about 8%. It is a bit uncertain against the USD, due to the political uncertainties in the United States, but we would expect a similar 8% recovery.
Advantages of buying properties in Melbourne
Now, when you combine the 7% annual growth in Melbourne property prices and the recovering AUD; plus, if you hold the property for 10 years of compounded growth, you stand to gain more than double what you invest. An investment of $500,000 today, could be worth over $1 million in 10 years time.
This is why our overseas clients have no qualms investing in Melbourne properties. They are preparing themselves for the imminent boom in property prices and the Australian Dollar. The clients who had trusted our opinion and had bought when the Australian Dollar sank to an all time low (March and April this year), are now smiling, as the AUD had appreciated almost 25% from its low. Their properties are now worth about 18% more on average, in 2 months! It definitely does pay to engage the right independent, in-country property buyer's agent to buy the right property at the right price, in the right location.
Melbourne Property Outlook
So, what is the outlook of the Melbourne property? Follow our blog and like and follow our Facebook and Linkedin pages for the latest news. We provides regular updates, outlook and forecast on the Melbourne property market.
How can our Melbourne property concierge service help you?
Prices of Melbourne properties range from $400,000 to well over a few million dollars. Each type of property caters to different buyers and investors. If you are interested in buying the right property at the right, find out why our clients are engaging the services of Concierge Buyers Advocates. Have a look at our success stories. Find out about their experience and testimonies.
Get in touch, for more information.