Category Archives: Real Estate Investing

Australian Property Market Status 2015

The Australian property market is always a popular topic in media. Unfortunately, a lot of what is said in media has very little to do with reality. Many new investors have learned that property does not always go up in price. Even worse, it is actually possible to lose money if you haven’t done your homework before you buy.

First, it is important to point out that there is not one single real estate market in Australia. This is quite obvious from the fact that only Sydney has shown strong price growth over the past year, around 13%. But also Sydney is made up of a number of different property markets. The same is true for all the major cities.

As mentioned, Sydney has been the star performer the last 12 months. But also in Sydney, one has to be careful. At the moment, a lot of units are being built. This is unlikely to cause any big problems given the almost chronic housing shortage in Sydney. But it is best to avoid buying apartments in areas with a lot of upcoming supply. Houses in Sydney are a safe investment but the prices are high and the yields are poor. Additionally, many believe that price growth in the future will be limited. In other words, although Sydney is a good place for property investments, it is best to be careful and be prepared for slower price growth.

Melbourne unit prices have defied gravity for a long time but the oversupply is just getting worse. The prudent investor should avoids apartments in inner Melbourne. According to recent figures, more than 24% of inner city units were sold at loss, despite that the average holding time was more than 6 years. It is safest to stick to houses in Melbourne, but prices are high and yields are low. The price growth in Melbourne for the last 12 months was 4.7%, not bad given the low inflation and interest rates. But it was mainly houses that experienced price growth, not units. Unless you really know what you are doing, Sydney looks like a safer choice than Melbourne.

Like Melbourne, Brisbane is suffering from an oversupply of inner city units. Despite that, the average price growth in Brisbane has been 3.9% over the last 12 months. Given the high prices in Sydney and the oversupply in Melbourne, many experts are recommending Brisbane. But it is best to stay clear of units, especially close to the CBD. Apart from that, Brisbane can be a good place to invest in. But don’t expect any tremendous growth the next couple of years.

Perth seems to be heading for tougher times. The property boom in Perth has quite clearly come to an end, property prices have fallen slightly during the last 12 months. It will be interesting to see what happens next. The future for units looks bad, plenty of units are being built at the same time as the vacancy rate is getting towards 5%. For houses things look slightly better but quite clearly there is no hurry to buy property in Perth. It is likely that prices will continue to fall.

Adelaide has been a bit of backwater for a long time. With 2.5% growth the last 12 months, property in Adelaide seems to be relatively stable, no spectacular growth but neither much risk of major price falls.

Property prices in Canberra have increased with 3.0% over the last 12 months. It is a little bit of a surprise given that many had warned that the cuts in the budget would create problems for property in Canberra.

If you are thinking of buying a home, it is probably best to take advantage of the low interest rates and try to find your dream home as soon as possible. If history is anything to go by, waiting for prices to fall is a high risk strategy. Obviously, you should bargain hard, especially if you are looking for something outside Sydney. But be careful with apartments in central Melbourne, Brisbane and Perth, the huge oversupply could very well result in significant losses for many. The same goes for Gold Coast, which seems to be heading for an oversupply of apartments once again.

If you are thinking of investing in property, it is very important do your research before you buy. Quite clearly, central Melbourne and central Brisbane are not good places for investments. Despite all the hype, the oversupply often makes it difficult to just find tenants and rents are rather going down than up. Perth looks even worse with a high vacancy rate which is likely to get even higher, meaning that rents are likely to plummet. On the whole, investors need to be very careful with units. In many places, overpriced off-the-plan projects targeting foreigners and gullible people are creating oversupply. Houses are a safer bet but be aware that in large parts of Australia, house prices have not increased much despite record low interest rates. In essence, less than 10% of the available properties are good investments. You need to make sure that you find one of the good investments, buying the wrong property could very well become a financially painful experience.

Is there a housing shortage in Australia

The Australian real estate market has been doing very well. According to some this is due to a housing shortage in Australia. But in reality, there is no housing shortage in Australia. Yes, in the places where most people really would like to live, demand often exceeds supply. But that is true all over the world.

Reports about housing shortages in Australia pop up all the time. Most of them are created by organizations representing developers and they are very good at spreading their message. But you don’t have to look very deep before you start to see that the shortage is mostly a myth. Outside the cities, the problem is often too much supply, rather than the opposite. Australia after all does certainly not have a shortage of land.

But what about the cities? Melbourne is going down a dangerous path. Far too many apartments have been built in the inner city and even more is being built. At the same time, far too many detached houses have been built on the outskirts of Melbourne. Despite that developers are just continuing building. The politicians love it, the building boom creates a lot of jobs.

Southbank is probably the last place in Australia that needs more high-rise buildings. Official vacancy rates are generally a little bit below ten percent, already a very high figure. This does not prevent both politicians and developers from proudly present new projects in Southbank which will add thousands of new units. When looking at the water consumption, the official vacancy rate in Melbourne, which has been slightly below 3% lately, may not give a true picture. For example, 17% of the properties in Docklands are not using any water at all, a strong indication that the properties are empty. Many other suburbs also have significantly higher number of properties not using any water at all than what the official vacancy rate indicates.

Brisbane has similar problems as Melbourne, albeit on a smaller scale. Oversupply of apartments in the inner city has been a problem for years and it looks like it will just get worse. Perth has been the star performer when it comes to capital growth but lately things have changed drastically. A slower economy has put prices and rents under pressure at the same time as more properties are being built.

The last 18 months, the Sydney market has become hot. This after ten years of very slow house price growth and relatively low building activity. But now developers have started to build on an unprecedented scale, overtaking Melbourne in number of properties being built. One reason for this is that developers from Asia have started to build in Sydney (as well in Melbourne). It looks like also Sydney will soon have an oversupply of apartment.

The Gold Coast may be the prime example of how the Australian property market will function in the future. The area has just started to recover from a huge oversupply but developers are already getting started on new projects. It looks quite clear that the Gold Coast will soon have a huge oversupply of apartments again. The same thing seems to happen in Melbourne, Brisbane, Canberra and Perth. Sydney and Darwin are not far behind.

So why all these reports about a chronic housing shortage? It looks like the answer is very simple. They are created by the housing industry who of course want to build as much as possible. Together with the report about a housing shortage are suggestions how to increase the supply. Typically all the suggestions are highly beneficial to developers.

Next time you spot an article about housing shortage in Australia, look for any facts backing up the claim. Often there are no facts what so ever or in best case something along the lines of that the population is growing so more housing is needed. The fact that many places in Australia suffer from oversupply is never mentioned.

Property Investment in Melbourne – A Potential Financial Disaster

Property investments in Australia have, with a few exceptions, been very profitable. Real estate prices have kept on going up and up. But there has a few exceptions, sometimes the developers have become too ambitious and built far too much. Gold Coast is one recent example of this. But the biggest bubble may be Melbourne and a collapse could spell financial disaster for many investors.

Melbourne has just got new residential zones. It looks like the new zoning will make it even more important to invest in the right parts of Melbourne. Most of the attractive suburbs in the middle ring, the area 5 to 20 kilometers from the CBD, have banned high-rise buildings. Actually, many of the expensive suburbs have limited almost all of their areas to two-storey buildings or lower.

This means that high-rise buildings are mainly limited to CBD and the inner suburbs, within 5 kilometers of the CBD. In essence, exactly the places there high-rise buildings have been developed the last few years.

Developers in Australia, and especially in Melbourne, have found a very profitable game, develop high-rise buildings with plenty of apartments and sell them off-the-plan abroad. In order to maximize profits, many are cutting corners, building small low quality apartments. Small is sometimes an understatement, some units have become extremely small with bedrooms without windows (which strictly speaking are not allowed to be called bedrooms) and mini-kitchens in hallways.

Docklands and Southbank have been well known traps for investors with enormous numbers of high-rise buildings and more high-rise buildings are in the pipeline despite that vacancy rates are getting towards ten percent. But many of the inner suburbs are now heading down the same path with plenty of new high rise buildings coming.

In the good old days, boom-and-bust cycles did happen but once developers noticed that it became difficult to sell new apartments they stopped building and after a while the oversupply had disappeared. Now the game has changed, some large developers have realized that they can sell off-the-plan apartments overseas. Needless to say, a huge market like China is very difficult to saturate. This has lead to a building boom in Melbourne.

It is a pity that projects with small low quality units are not stopped now when inner Melbourne has enough with apartments. The authorities are happy, after all a construction boom creates jobs and boosts the economy. Soon inner Melbourne may have a huge surplus of apartments.

The building boom in inner Melbourne has been going on for a few years. So far, the growing population has managed to absorb most of the new apartments but lately rents have started to move downwards. And more apartments are coming so it could very well end badly for investors with units in inner Melbourne. Already many of the inner suburbs are dominated by investors, in some suburbs investors make up more 70% of the owners of units. Most of the areas are in the inner ring of Melbourne as well as CBD itself.

Remember that it is home owners that push prices upwards, not investors, so suburbs dominated by investors typically perform below average. With gross rental yields just above 4% and sinking, you need a handsome price growth to justify investing in a unit in Melbourne.

But price growth seems unlikely given the huge number of units being developed. More likely is that prices and rents will start to decrease due to huge oversupply of units. This is nothing unusual, the same thing has happened on the Gold Coast and the Sunshine Coast. Developers simply built too much and the market more less collapsed.

But things could get much worse in Melbourne. Developers are still building, they can sell units to overseas buyers, for example in China. This means that the oversupply in Melbourne could very well become enormous, especially in inner Melbourne.

A prudent investors should be very careful with units in Melbourne, and avoiding units in inner Melbourne. If you don’t own any units in Melbourne, now is not the time to get started, even if you can get a nice discount. The risk of chronic oversupply is simply far too high.

Australian Property Market Status 2014

The Australian property has been very hot the lately, mainly thanks to low interest rates. Sydney has been the star performer, prices have increased 21 percent over the last 18 months. But the last few weeks, the prices have started to stall and even fall in some places. Is it just a temporary pause or has the market peaked?

Australians have been very fond of property investments and prices are high, in many places very high. That property prices are expensive in the cities is not much of the surprise. Outside the cities, house prices used to be low but that started to change just after the turn of the century. Prices in rural Australia started to outpace prices in the cities. In some places this was due to the mining boom but for whatever reason, prices in virtually all of Australia started to increase significantly. Ironically, there was just one exception, Sydney. Property prices in Sydney have increased pretty much in line with inflation since 2003, except for the boom the last 18 months. The reason for this is that real estate in Sydney had become too expensive in 2003, the market cooled because fewer people could afford to buy a property in Sydney. Even with the 21 percent increase during the last 18 months, the average house price in Sydney has only increased with a little bit over 3% per year over the last ten years. In other words, not a very exciting return and rental yields are low, and getting even worse since prices are increasing much faster than rents.

Despite the recent increase in Sydney, the poor ROI the last ten years and the poor rental yields, Sydney still looks like one of the safest places for property investors. Prices are high but so is demand, developers have plenty of projects coming up but it looks much worse in Melbourne and Brisbane, also Perth is looking worse than Sydney.

Melbourne has been a big surprise, property prices have gone up ten percent over the last 12 months and have now reached the previous peak set back in 2010. Why prices in Melbourne have gone up is difficult to explain. One reason could be the enormous amount of off-the-plan units sold to people overseas who are fooled paying well above market prices, creating an artificial price increase on paper. Another reason can be that the current rules for self-managed super funds make it possible to lower your tax by lending your SMSF money which might explain the increased buying by SMSFs. Quite clearly, it is not first time buyers that are pushing up the prices. On the contrary, they are being squeezed out of the market. There are also rumours that financial advisers are being offered generous commissions by some developers to persuade non-savvy investors to buy expensive off-the-plan units.

On the whole, central Melbourne has been a no-go area for prudent investors the last few years and things don’t seem to get any better in the near future. Prices and rents have been surprisingly resistant given the huge amount of units that has been flooding the market in central Melbourne. There are a few explanations that help to understand this paradox, a lot of the units have been sold overseas at inflated prices, many of the developers have deep pockets and have refused to drop prices and the population has been growing strongly the last couple of years. But unfortunately, developers have stepped up the pace and are now building almost everywhere in Melbourne. Docklands and Southbank are well known traps but extreme care is recommended for the whole of Melbourne. Unless you really know what you are doing, stay out of Melbourne. There are some signs that reality is starting to catch up, prices have stalled and in some cases dropped slightly lately. Rents have also started to drop slightly in some areas. It is too early to say if this is the beginning of a painful adjustment to reality or if it is just a temporary slowdown.

Brisbane is being recommended by many property experts and gurus, price growth has not been as strong as in Sydney and Melbourne the last 18 months and rental yields are higher than in any other major city. For houses, gross rental yields are a little bit below 5% while for units the yield is a little bit above 5%. But there are certainly big risks for beginners in Brisbane. Developers are building a lot in central Brisbane and much more is in the pipeline. Central Brisbane has been a horrible place for property investors and given all the upcoming developments, it looks like things are getting even worse. Given that Brisbane is not growing as quickly as Melbourne, central Brisbane may actually be even worse than central Melbourne for property investors. It is also worth pointing out that the Gold Coast is not a good place for property investors. Developers built far too much some years ago, things have improved since then but once again developers have started to build and oversupply is quite clearly becoming a problem. The Sunshine Coast is slightly better, after years of oversupply things are looking a little bit better, but caution is recommended.

Perth has delivered fantastic gains for property investors the last 12 years but lately the market has cooled down. Actually, it has come to a standstill. Also in central Perth, developers are building far too much, at the same time as the local economy is slowing down. In essence, investors should be extremely careful with property investments in central Perth. Prices are high but rental demand is weak, the result is that rental yields are going down, towards Sydney levels which are the second lowest in Australia, only Melbourne is worse. On the whole, unless you already know the Perth market inside out, stay away.

Adelaide has been a little bit of backwater for many years. The property market is likely to stay cool but at least the developers are not building as much as in the other major capital cities. Rental yields are not great but look far more stable as in the other major cities. The main drawback with Adelaide is that the city is not growing much. Canberra looks risky at the moment. The government has announced severe budget cuts, which generally translates to job losses in Canberra. Looking at the last ten years, Canberra has not been a great place for property investors and it does not look like things are going to change for the better in the near future.

Rural Australia is best avoided, unless you know what you are doing. As mentioned earlier, for whatever reason, property prices outside the big cities have gone up a lot the last ten years. But rental demand is difficult to predict and prices could drop if the economy slows down.

Given the relatively gloomy outlook, what should a property investor do? Firstly, remember that sooner or later interest rates will go up. And this is likely to happen long before rents start to go up. Make sure that you are not too heavily geared, it may be prudent to pay down on your debt before buying new investment properties. Where should you buy? Quite clearly it is best to avoid the CBDs of Melbourne, Brisbane and Perth. Most investors should also be careful with Sydney CBD. Melbourne is best avoided all together, new projects are being started almost everywhere in Melbourne. Some parts of Brisbane could be of interest. On the whole, Sydney is the safest choice, just make your homework before you invest. Prices are high, rental yields are low but at least demand is stable.

Munich Property Market

Munich has been the most expensive city in Germany for a quite some time. A booming economy has meant that the city has grown quickly. The result is a tough real estate market, both for buyers and tenant. Demand has and is still outstripping supply, which has resulted in both higher prices and rents.

A lot of experts were surprised by the sharp increases of property prices in Munich during 2011 and 2012, almost ten percent per year in most parts of the city. Given that prices were already very high and that rental yields were very low, the prices increases were surprising. On the other hand, Munich is still growing and nothing has been done about the chronic shortage of housing. But for investors, the latest price increases have meant that the already low rental yields have become even lower, now about three percent. And we are talking about gross yields, after expenses, the yield will be even lower.

A lot of people see Munich as a safe place for property investments. The city has limited space for growth, new developments are expensive and far between. At the same time, the city has prospered and grown very quickly. And it looks like the growth will continue, at least the next couple of years. Not only have a lot of German property investors pushed up prices in Munich. With the economic problems in many countries in Southern Europe, people worried about the future of the euro have decided that Germany and especially Munich is a safe place for investments. Also people from Eastern Europe and Russia have bought property in Munich.

With the latest price increases, it does not really make sense financially to invest in Munich. Property prices are simply too high at the same time as rents, although by far the highest in Germany, are too low to make the return on investment reasonable. In Germany, rent increases are limited by the law so it will take time to before the rents have increased significantly. As mentioned, the gross yield is about three percent in Munich at the moment. Although interest rates and inflation are low, the yield does not really justify any investments.

So why are property prices still going up in Munich? The answer is that virtually nobody believes that house prices will go down. Most experts believe that prices will continue to increase, albeit at a more moderate pace, around five percent. This is still believed to be higher than what rents will increase, meaning that the poor rental yields will not improve. Munich is the right place for property investors who want safe long-term investments and who are not dependent on short-term cash flow. But most likely you can get better return on your investment in most other places, especially if you want a reasonable cash flow.

As mentioned earlier, there is not much free space left for property developments in Munich. The chronic shortage which has been a problem for more than 20 years, is unlikely to change, at least not for the better. There is not any really bad parts in Munich that must be avoided. But be aware that in many parts of the city, rents are already so high that even households with two incomes have trouble affording the rent. And this even if both have well paid jobs! Like in most other cities, places close to an underground or S-bahn station will always be popular. But don’t waste your time looking for bargains in Munich, there hasn’t been any the last 20 years.

Property Investment in Hamburg

Hamburg used to be almost a little bit of backwater, the economy wasn’t going very well and property prices were going nowhere. But that has changed drastically, now Hamburg is booming. The city is growing and property prices have been increasing strongly and Hamburg is now one of the most expensive cities in Germany.

Hamburg and Berlin have been two of the hottest real estate markets in Germany the last couple of years. The reason for this is that both cities are growing quickly. Hamburg has now the second most expensive real estate in Germany. It is still far behind Munich but has managed to pass all other German cities. It has been an amazing development, given that ten years ago property prices in Hamburg were far behind cities like Dusseldorf and Frankfurt.

Demand is much higher than supply, making it very difficult to find bargains. This is true both for people looking to buy and for those who want to rent. Most experts believe that Hamburg will continue to prosper, at least for the next couple of years. But property investors need to be careful, prices are high compared with the rest of Germany. The common view is that price growth will continue but at a slower pace. At the same time, rents are unlikely to grow as fast as property prices. Tenants in Germany are protected from big rent increases by the law. This means at already low yields are likely to get even lower.

One thing to be aware of is that there is very little free space left for new property developments in the inner parts of Hamburg. New projects are mostly in the outskirts of the city. This should protect the prices in the attractive parts of Hamburg. And it is probably prudent to be careful with buying in the outer parts of Hamburg.

The politicians are well aware that a lot of people (that is, voters) have trouble finding affordable housing. Therefore, new projects are being encouraged and several have been started. But as mentioned, most of the new developments are in the outskirts of Hamburg.

So what does this mean for property investors thinking of buying in Hamburg? Most experts believe that the big price increases are over, prices will continue upwards but at a much more moderate pace. Virtually everyone believes that prices will increase more than rents, which means that yields will get worse. In other words, the party is almost over for property investors.

If you are happy with low yields, below four percent at the moment in the attractive parts of Hamburg, you can find properties which can be labelled as safe but unexciting investments. There is simple not much space left for new developments in inner Hamburg. The lowest yield is in Hafenstadt, 2.7%, which is a newly redeveloped area along the Elbe river. In the outer suburbs, yields are around five percent. Given the relatively poor yield in the outer suburbs and the number of new projects under way, it can be risky to invest in the outer parts of Hamburg. Unless of course you can find a bargain, but finding a bargain in Hamburg has been virtually impossible the last couple of years.

Buying Property In Queensland

The Queensland property market has had both its ups and downs the last five years. Many smaller towns have seen extreme increases in both prices and rents due to the resource boom. But in most of those places, oversupply seems now to be a problem. Central Brisbane, Goldcoast and Sunshine Coast on the other hand have suffered from oversupply for several years.

The Australian property market has been very strong. But there has been a few exceptions, the Goldcoast is the most well known example of oversupply causing prices to fall drastically. Especially buyers of off-the-plan apartments in high-rise buildings have lost a lot of money. Lately, Australian property prices have started to increase again. Foreigners and property investors have become very active while first time buyers are being squeezed out of the market due to the high prices. The low interest rates has not helped first time buyers while investors have become very active despite that in many places yields are only around four percent.

The Brisbane property market has been very slow the last couple of years but many experts believe that prices will start to increase again in Brisbane. But remember that the vacancy rate in central Brisbane, known as postcode 4000, is still very high, about 6%. Property investors are advised to look outside the Brisbane CBD. At the moment, prices in many northern suburbs have started to increase. Like in most other places in Australia, off-the-plan units should be avoided at all cost. They are almost always sold at a premium to foreign investors, who are only allowed to buy off-the-plan properties. And it looks like the premiums are only getting bigger, probably due to increased interest from China.

The Goldcoast is best avoided, oversupply is still a problem and more high-rise buildings are on their way. Houses are not necessarily a bad investment on the Goldcoast but you must know the market inside out. Sunshine Coast has also had problems with oversupply but not as bad as the Goldcoast. Things may start to improve so it may be right time to look for bargains. But keep in mind that developers can quickly flood the market with apartments. It is best to stick to houses or high quality apartments with good views or something else that makes them stand out.

Mining towns are best avoided, the boom seems to be over for now. Many mining towns are suffering from oversupply, and in several places, more properties are on their way. In many towns the spectacular price rises have been replaced with almost as spectacular price drops. But that still don’t make them sound investments.

The Cairns property market has been slow the last couple of years but has lately shown signs of recovery. Many experts believe that the recovery will continue thanks to the tourism industry and strong Asian interest. Quite clearly, Cairns looks like a much better choice for property investments than most other tows in Queensland.

It looks like interest rates will stay low in Australia and population growth is strong. It looks good for property in other words. But it is important to remember that many developers love high-rise projects. They can quickly flood a market with apartments and the oversupply can take very long time to get rid of. Unless you really know what you are doing, avoid off-plan apartments. They are aimed at foreigners and are almost always sold at prices far above market price. Even worse, to keep the prices on new apartments down, they are often ridiculously small.

Berlin Real Estate

The German real estate market has been slow for a long time but lately things have started to changes. Berlin used to be cheap but since 2009 both rents and property prices have increased much more than in other large German cities. Berlin is still far behind Munich, which has the most expensive real estate in Germany, but Berlin is moving closer to the top.

First it is important to point out that Berlin is not like London or Paris. Actually, it used to be a little bit of backwater. But the last couple of years Berlin has started to grow. After that Berlin became the capital of the reunited Germany, developers got ahead of themselves and built far too much. Prices were cheap but few were interested in buying. Things have changed and now Berlin has become a German property hotspot. Due to the oversupply, few property developments were started. At the same time, Berlin started to grow.

It is important to remember that compared with many other countries, the German property market is slow. The boom and bust cycles seen in many other countries haven’t happened in Germany. Even if the Berlin real estate market has become hot, this means increases of ten percent or less. For Germany, this is boiling hot and a lot of people believe that the boom will soon end.

Another important thing is that in Germany, the price of an apartment depends on the size of the apartment, not the number of bedrooms. You often see prices given per square meter. Germans don’t like small apartments. In many cities all over the world, you can find plenty of very small one and two bedroom units. In Germany, such small units will be difficult to rent or sell. It is also good to remember that the legal system in many ways favors tenants.

As mentioned, the Berlin real estate market has become hot. So hot that many old Berlin property investors are staying on the sidelines. But others believe that the boom will last another couple of years. The city is growing and since 2009 property prices have gone up with almost ten percent per year. In Germany, such a growth is almost unbelievable. But the mainstream view is that Berlin will continue to prosper, at least the next few years, and so will the property market.

This does not mean that it is a good idea to buy whatever you can get in Berlin. As usual, some parts of the city have done much better than others. Also, while many believe that prices will continue upwards, most experts believe that price growth will slow down significantly. Politicians have also noticed that Berlin has become much more expensive and they want to keep Berlin affordable. New developments are being started which will boost the supply. In other words, Berlin is still a good place for real estate investments but now you need to make sure that you buy the right property, in the right location at the right price.

The old West Berlin is still more expensive than the parts that belonged to East Berlin. The exception is the city center with Berlin Mitte and Prenzlauer Berg. Most experts believe that this pattern will not change. The safe bets are central Berlin and the western parts of the city. It is also worth pointing out that there is still plenty of free space in Berlin. So buying in a cheap part, waiting for prices to go up can be a risky strategy. As mentioned, developers in Berlin have started to build again. Previously, due the low property prices and rents in Berlin it didn’t make sense financially to build. But that has changed, now developers can make handsome profits and they want to take advantage of this opportunity.

Warning for off-plan apartments in Melbourne and Sydney

A lot of people start their career as property investor by buying off-the-plan. Unfortunately, a lot of the off-plan buyers have learnt the hard way that investing in property does not automatically make you rich.

Off the plan, or simply off-plan, apartments are often heavily promoted. Promises of high yields and discounted prices often turn out to be pure fantasy. Typically, off-plan apartments are priced well above current market prices and incentives such as rental guarantees are added to the price. As a buyer, you, not the developer, end up paying for the incentives and commissions to sellers.

Unfortunately, both in Sydney and Melbourne many of the off-plan projects are huge. Hundreds of units are coming on to the markets at the same time, all competing for tenants and buyers, driving both values and rents down. The number of new apartments in inner Melbourne has been increasing for the last two years and is set to continue to increase for the next couple of years. Also in Sydney, the number of new developments have increased drastically lately. This means that Sydney could start to suffer from oversupply of new apartments as well in two years time.

Nowadays, a lot of off-plan units in Australia are sold to overseas buyers. One reason for this is that overseas buyers are only allowed to buy off-plan properties. Another reason is that off-plan units are often priced way above current market prices, so investors who know the local market will not be interested. Chinese investors have become big buyers of off-plan units in Australia. One reason for this is that they want to have some of their money outside China. This means that their primary priority may not be making a good investment, rather they are looking for a safe place for some of their money. Quite clearly, without overseas buyers, many off-plan projects in Australia would never be completed.

By itself, buying off-plan is not bad. But it is best for experienced investors, rather than beginners. Ironically, experienced investors are seldom interested in off-plan projects while beginners often buy off-plan. Buying off-plan carries a number of risks. First, how can you know that the developer can deliver at all? New buildings don’t automatically mean high quality, developers may be tempted to cut corners in order to save money and increase their profit. Be aware that a lot of the new inner city apartments are very small, making them difficult to rent. It is also worth pointing out that most off-plan contracts heavily favours the developer. One thing to watch out for is how much time you have to organize your finance. If you can’t close the deal within the given time frame, you could in worst case forfeit your deposit.

But at the moment, the biggest potential problem is the huge number of big developments in inner Sydney and Melbourne. It is quite possible that both prices and rents will drop in the future. It may very well be possible to buy almost new apartments cheap from off-plan investors who have realized that they paid too much and just want out of the property business in the next few years. Not only that but you can also make sure you are buying a unit in a quality building.

Buying Property in Australia

Australians love property, prices are very high. But despite the high prices, prices are once again going up. Is it worth buying property in Australia or is it too risky?

Australia was one of the few countries that managed to avoid a property crash after the global financial crisis. Given that Australian property prices were very high, this was surprising. Property prices stalled for a while and then went down a few percent but now prices are going up again. The current buying frenzy is due to the low interest rates but is it really worth paying so much for real estate. After all, sooner or later interest rates will go up again.

First we should mention that if you are not an Australian citizen or a permanent resident, you can only buy off-plan residential real estate. The Australian dollar has appreciated against most other currencies since the global financial crises, making it more expensive for foreigners to buy in Australia.

If house prices are too high has been a hot topic in Australia for decades. One thing is clear, house prices have just gone up and up. Compared to household income, Australian house prices are almost ridiculously expensive. At least if compared with other western countries. After the recession in the early 1990s, the ratio between house prices and household income has reached alarming levels. But the upward trend started much earlier, in the 1960s Australian property prices were reasonable. When talking about average household income, it is worth remembering that earlier many households had only one income, nowadays the typical household has two incomes. But despite that Australian households spend more and more of their income on housing.

Another thing that has increased the average house price is the mining boom. Property prices in the big cities, especially Sydney, have been expensive for generations but outside the big cities house prices have been relatively cheap. But the mining boom has increased prices in many places, in some cases to ludicrous levels, on the countryside.

As mentioned earlier, after a few years of property prices going sideways, prices have started to increase again. Is it the right time to buy property in Australia? Two of the main reasons for the increased prices are low interest rates and a fast growing population. Especially the big cities are growing fast, for western standards.

Buying residential real estate outside the big cities is quite clearly a risky investment. If you are looking for a good investment, you missed the race. Prices in most part of rural Australia are far too high nowadays to make it a sound investment.

The big cities are a safer bet but the differences are big. At the moment, house prices in Sydney, Melbourne and Perth have started to go up again. Sydney is very expensive but a safe bet, they don’t build enough new houses in Sydney. But both capital growth and rents are likely to be limited due to the already high house prices and rents. Thanks to the mining boom, house prices in Perth have reached very high levels. If the prices will continue upwards is a very good question, few people can explain why house prices in Perth should be almost as expensive as in Sydney.

Residential property in Melbourne is a very risky investment at the moment. Melbourne is the fastest growing city in Australia at the moment. But property developers in Melbourne are building a lot, especially apartments close to the CBD and houses far away from the CBD. Even worse, new apartments and houses will be flooding the market for the next couple of years. Australian developers have stopped building in Melbourne, instead developers from Asia with deep pockets have taken over. Quite clearly, unless you know the Melbourne real estate market very well, don’t buy anything in Melbourne at the moment. In a couple of years prices may have fallen a lot.

If you are a foreigner, who can only buy off-plan, does it make sense to invest in Australian property at the moment? In most cases, the answer would be no. Off-plan in Australia is almost always very expensive, with very few exceptions the asking price is well above market price. Often off-plan projects are being promoted by people working on commission-only basis and some of them are looking for people with no knowledge about the local market. Remember that you, as a buyer, will be paying their commission. The same goes for rental guarantees and most other stuff put in to sweeten the deal, the developers increase the asking price to get their money back.

Another thing to be aware is that a lot of off-plan is sold to Asia, to people who want to have some of their money outside their home country. Their primary concern is not the return on the investment, they want to have some money in a safe place. The Gold Coast is a good example of what often happens with off-plan buyers in Australia. Far too much was being built and heavily promoted both in Australia and abroad, prices were well above market prices. A couple of years later, buyers have realized that they paid too much and many have sold their units, losing a lot of money. Hanging on to a unit is not much better, the rental market is slow due to oversupply of apartments. Unless inflation increases a lot, it will take a long time before the buyers get their money back.