By Property Soul (Guest Contributor)
A journalist from The Sydney Morning Herald contacted me in mid-June to find out more about the recent trend of Singaporeans snapping up Australian properties. The article, “Singaporean investors hungry for a piece of the Australian housing market“, was finally published in the paper on July 26, 2014. It is about Singapore property buyers flocking Down Under for properties because of restrictive measures at home, a strong Singapore dollar, record low interest rates and the promise of attractive return from Australian developers.
While browsing through the article to find the quotes from myself, the brutal truth pointed out by the journalist caught my attention:
1. How the Australian locals see Singaporeans going after their properties targeted for foreigners; and
2. How different the facts are versus what is being presented to Singapore buyers.
How Australians see Singapore buyers
According to the Australian foreign investment laws, non-residents can only buy newly built properties with approval from the Foreign Investment Review Board, but not established homes. Most locals, especially first-time home buyers, buy established rather than new properties. Their average purchase price is A$328,000 which is far below the prices of properties marketed to Singaporeans.
The locals don’t mind ‘foreigners’ snapping up those new high-end properties as they are not competing with them. After all, foreign investment in new properties is benefiting their construction sector.
My concern is: if one day Singapore owners want to cash-out, the buyer market will be rather small since these ‘pricey’ properties can only be sold to foreigners.
Marketing is one thing and reality is another
The article reveals the fact that Australian property advertisements in the Singapore papers can be misleading:
“Buy where the local Australians are buying,” says one ad in Singapore’s Straits Times …
Singapore-based property author Vina Ip is concerned that the rosy picture painted by Australian developers in glamorous presentations at the St Regis hotel is tainted by rental guarantees and other incentives.
“I always warn people to actually go to see the properties themselves, go for a trip and see where it’s located, talk to the landlords and see if the rental return is actually that good,” Ms Ip said.
Some ads include location pitches that could best be described as generous.
The presentation for Mirvac’s Harold Park complex in Glebe, though not to scale, gives the impression that the site of the former trot raceway is bigger than the large Sydney suburbs of Leichhardt and Annandale combined. It also points out it is conveniently located next to the harbour foreshore. As most in the inner city suburb know, access to the harbour can be tricky.
Another ad on Singapore property site, Jalin, for Australand’s Botanica complex in Lidcombe describes it as being in Sydney’s inner west.
By most definitions, Lidcombe falls well to the west of the boundaries of the cosmopolitan suburbs of the inner city Sydney.
Exclusive offer and high return ‘for Singapore buyers only’
Other common marketing tactics from the developers and marketers include:
1. The promise of an ‘exclusive offer’ with exceptional terms just for Singapore buyers;
2. The waiving of stamp duties and legal fees;
3. The offer of lower interest rates; and
4. A guarantee of a minimum 6 percent annual rental return.
ANZ Singapore is offering a variable interest rate of 1.17 percent when Australians are borrowing at 5.88 percent. A federal parliamentary inquiry just questioned the checks the banks are conducting on foreign buyers. Both ANZ and Macquarie Group were asked “to provide details to a broader House of Representatives economics committee inquiry into residential housing.”
What about the guaranteed rental return of 6 percent or higher? Quoting from the article:
By most measures, however, these figures represent a premium to the market.
Rental yields in apartments in Melbourne and Sydney ranged between 4.8 and 5 per cent in the March quarter, according to property listing business Domain.
“A 6 per cent guarantee would indicate a top up from the developer,’’ said Domain senior economist Andrew Wilson.
Tim Lawless, a director of property research firm RP Data notes a yield of 6 per cent “is well above market”.
“When the guarantee period expires, in all likelihood, the purchaser will be left holding an asset on a lower yield,” he says.
The developers offering such guarantees, including Kokoda Property in central Melbourne, Newstead in Brisbane and their Singaporean agent, Reapfield Property Consultants, all declined to comment.
Even so, these risks haven’t deterred Singaporean investors.
“In Singapore if you get a 2 to 3 per cent rental return it’s considered very lucky,” says Singaporean property author, Vina Ip. This makes the 6 per cent return on Australian properties look attractive, she adds.
Herd mentality, emotional need, or no choice?
Australian property marketers also claim that, apart from financial incentives, Singaporeans have that ‘connection’ or ‘love affair’ with Australian properties because many have traveled, studied, or worked in Australia before.
I was taken aback by this statement.
As a property investor, the thing I least want is to be emotionally attached or fall in love with any property without looking at the facts and numbers, no matter how attractive the packaging is.
As long as the prohibitive conditions on the purchase of second homes exists in Singapore and the economic climate remains favourable, Ms Ip believes that Singaporeans will continue to look to Australian property as an investment haven, spurred on by generous rental guarantees from hungry Australian developers.
“They have no choice but to look overseas,” Ms Ip says.
This last quote from me has two words missing. It should be “(They think) they have no choice but to look overseas.”
Just when I was about to wrap up this blog post, someone from Hong Kong sent me a picture of a leaflet marketing Twin Peaks at Leonie Hill. The Whatsapp message said: “Why are they selling this over here?”
I replied: “Wait, send me all the pages.” I want to see how the developer markets this luxury condo to Hong Kong property buyers.