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Invest in Australian property
Residential property is an excellent means of wealth creation and can be one of the safest investments, writes Jenese Malone
Since the beginning of time man has wanted to own land. This is a fact which never alters and is not guided by fad or fashion. Australia today has over 100 years of recorded statistics showing property values double around every ten years. People invest in property for either personal use or for investment purposes.
There are different points to consider when purchasing for investment than when purchasing to become the occupier and many intending migrants are not aware of the benefits of investing prior to relocation:
Establishing a credit rating
There are two types of loans lenders will give:
A residential loan which is given to people who earn their money in Australia. Loan value ratio for this can be 100 per cent (the LVR value quantifies the amount a lender will approve against the value of an asset taken as security for a loan). A non residential loan, which is given to people who earn their money offshore (the LVR for this is usually 70 per cent to 75 per cent).
Most lenders in Australia are reluctant to lend money to new arrivals until they have had at least two year's work history in the country. Therefore, if intending migrants buy a property whilst they are still working in the UK, they will then be able to organise a non-residential loan. This loan can then be changed to a residential loan once they start working in Australia. They can then access the deposit they put in initially. By investing in property before moving, they negate the need to have to wait to qualify for a loan.
In 2001, Rob and Nolene Crocker from South Africa invested in a property to rent out. Nolene then moved to Oz in 2003 with the two kids whilst Robert wound up the business in South Africa. Nolene needed to buy a car and wanted to borrow money but was refused for having no work history in Australia. When she explained to the loans people that she did have a mortgage on an investment property she was given an immediate loan for the car. Then, when Robert moved out, they needed more money to invest in a business and the increased equity in their investment property gave them the funds. As they were residents they were also able to arrange a higher LVR. These two factors made their entry into Australia infinitely easier and all because they took the sensible step in buying before relocating. They still hold that property for investment and not for personal use which is also reducing the tax they pay on all income.
Building up tax credits
Australia is a highly taxed country and as such it is necessary to find means to reduce the amount of income tax paid. Owning a property for investment enables significant tax claims (a cash flow analysis can be provided on request) There are no tax breaks on ones own home, only on investment properties. A non-residential buyer can claim the same tax breaks as locals. These will include:
Any shortfall on the property between income and outgoings;
Depreciation of the construction over 40 years. 2.5 per cent for permanent and 4 per cent for holiday lets;
Depreciation of fixtures and fittings over five years;
Claim half the acquisition fees over five years; and
Claim inspection costs to visit Australia and inspect property.
What this means is that any shortfall experienced as a non-residential borrower would actually become a positive cash flow once you arrive. The tax claims can be accrued and carried forward indefinitely. So, if you are not coming for two to four years, you will still build up a few thousand dollars of tax credits in the first year you are here, meaning you will pay little or no tax.
Getting a foot on the property ladder
Everything in life is cyclical from the human heart beat to the movement of the planet. Property cycles are no different. The ability to predict these cycles makes the job for the investor less risky and more profitable. Property cycles will be in one of four places: The Downturn, the uptrend, the peak, the correction.
There is no point buying at the downturn because without the crystal ball you don't know how low it is going to go. In the same way there is no point buying at the peak, because you pay the high prices. It is therefore best to buy at the uptrend when the bottom has been reached and the upswing starts. The difference between buying at the peak and the uptrend is with the former you will watch your property price fall away over the first few years and with the latter, you will watch it rise.
History proves that in each cycle from the start of the uptrend to the peak there will be three windows of opportunity and the knowledge of this equals profit.A good example is the Crocker family being able to use their initial deposit plus increased equity to assist them when they first arrived in the country.
Points to consider
When investing in property for buy to let purposes (as it is known in the UK), there are ten significant factors to consider...
1) Economy of the area
2) Development and Infrastructure
3) Population growth
4) Employment
5) Timing
6) Supply versus demand
7) Property Types
8) Rental market
9) Fees and costs
10) Tax benefits
Read another article about Australian property:
Prices in Mandurah rise sharply
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