Thursday, April 23, 2009

Feature - Perth, Australia

Perth is a small city, with about 1.5million people. That's half of KL. There seems to be plenty of land in Australia, Perth included. Hence, everything seems ultra low density from all angles. Most people live out in the suburbs of Perth, as shown in the map.

As with most cities in Australia, Perth has one of the world's best affordable public transport. At the same time, cars are cheaper compared with Malaysia and petrol if compared dollar to dollar is more affordable in Australia. Yet I do not find any unbearable traffic jams in Perth during the rush hours. 

Surprisingly, despite having abundance of land at cheap prices comparable to Malaysia, most people in Perth especially the locals tend to rent. The majority of those who do buy would start with purchasing a plot of land in their choice locality, which is typically about 3000sf - 8000sf. Then, they would go to a builder who would give them a selection of designs which they will then modify a little before building their dream home. Typically, the design includes 3 - 6 bedrooms, a living room, kitchen, dining, garage, study area and a 2nd living room in the form of a games room or theater room.

picture above: A typical dwelling out in the suburb of Lathlain

picture above: Most of the suburban dwellings start off as a blank piece of land

Picture above: Typical suburban homes have wide roads, with a pedestrian and bicycle lane. Despite each household having an average 3 - 4 cars, there don't seem to be any parking problems

In some cases, though rare but becoming more common, a developer would section a piece of land and pre-build a number of houses for sale. Even more uncommon, the developer would build an apartment. Most people in Australia, Perth included do not normally buy or live in an apartment. Unless of course, the location is just too precious such as the CBD area or other lifestyle locations. Examples in Perth are Kings Park, East Perth, Ascot, Subiaco and Northbridge. In many cases, these apartments actually cost more than the landed properties due to the location.

picture above: Views alongside Adelaide Terrace, a choice location in the CBD for expatriates

The pictures above show a niche development of the Old Swan River Brewery. Once a brewery house, it has been converted into luxurious office complexes, chic boutique condominiums and restaurant with a beautiful river frontage
pictures above: Example of a ready-made home, these are usually quite high quality and require little or no renovations before moving in. The bungalow homes above in the suburb just 10mins drive from the city center costs AUD$500k each

For investors like us, there are 2 ways to buy into an Australian property:

1. Sub-sale properties - typically, an agency is appointed to auction the property to the highest bidder through an open auction. Open houses are organized at stipulated time and days before the auction for interested bidders to view the property.

picture above: An estate agent welcoming visitors to the open house. I was not at all surprised to see most visitors are of Asian origins, mostly from SEA and mainland India

2. Buy-now-build-later properties are usually bought by investors hoping for a capital appreciation, because it only requires a 10% deposit and pay nothing else until vacant possession.

In the past 5 years, Perth has seen a property boom never seen before. Homes prices apparently shot up 100% in most areas and in the recent recession, we are starting to see some prices coming down but not yet by a lot. Typically, property investors are looking at about 5% returns on their investments and maybe even lower than that in the suburbs. So, for a AUD$500,000 home, they are collecting about AUD$2000/month. AUD$500,000 is about the price one would pay to raise a 3-4 bedroom house in the suburbs. These homes are typically bungalows with land and with very high quality construction, hence would obviously be much better value compared to what we get here in Malaysia. In fact, comparable housing quality in the Klang Valley are places like Sierramas, Damansara Idaman and Desa Park City are all looking at an entry level of minimum RM1.5million for a Semi-D (not even a bungalow!!). These are not even in the location within 10 minute drive of the CBD. And even at that RM1.5million entry level, one need to spend at least RM100k on quality fittings such as kicthen cabinets, wardrobes etc. In Australia, the builder packages all that.

Anyway, talk until the cows come home, 5% is very bad yield by our standards. But there are pockets of secrets where close to 10% yield is achievable. I am not talking about the early batches of migrants who settled in Perth and managed to buy 5000sf bungalows in choice locations for under AUD$250,000. These people made money. A cousin bought a 2 bedroom apartment in West Perth for AUD$70,000 and now collecting AUD$1000 rent per month. That was more than 5 - 8 years ago. What can we expect today?

I observed that properties in student areas still command strong returns and may well be good investments for Malaysians, especially those with kids. These are suburbs around reputable universities such as Curtin (e.g. Bentley, Como etc), Murdoch (e.g. Melville) and University of Western Australia (e.g. Nedlands, Crawley). Properties within 1km radius of these schools are attracting rental of about AUD$150 to AUD$250 per room per month. Take the median rung, in a typical 5 room house would earn the landlord AUD$4000/month which means for an investment of a typical AUD$500,000 house, a 9.6% yield. Even at slightly lower returns, for Malaysians who will soon have their kids studying in these schools in Perth and subsequently may migrate there themselves, this would be a very strong case for investment. 

Of course, since most people are thinking along these same lines, properties in the academia suburbs mentioned are really hard to come by, empty land is almost non-existence and hence only sub-sales are available. I was able to pick out a few in the classifieds of the West Australian newspaper which are worth considering. 

In the next feature after this article, I'll focus on East Perth, which is the equivalent of our Damansara Heights or Bangsar but of course much more organized and picturesque. East Perth is a well-sought after area of the rich and famous, located just minutes from the CBD area with beautiful parks and water frontage. Most Australians care about park or water frontage bit and they are not just valuable, these properties also attract a lot of attention. Frankly, at today's prices and rental, East Perth is not the best investment in our mind but however one needs to take into consideration that there are almost no more available land in this area. Hence, in the months to come especially if the recession deepens, if a good buy comes along, one has to consider East Perth.   

Monday, April 13, 2009

What do you think of Perth?

In the past decade or 2, thousands of Malaysians have migrated to Australia. Mostly for their children's education apart from economic reasons. I believe in the years to come, thousands more will emigrate if this government is going to continue screwing up our education system.
Australia is a big country, with multiple centers of economic development, unlike Malaysia or Thailand where everything is centred around Kuala Lumpur or Bangkok. Last night I asked a fellow property investor in Perth, which city would be the best bet to invest in Australia? She replied that in terms of economic development, whatever happens to Sydney will replicate in Perth despite Sydney being a much larger and higher populated city.
Like KL, the past few years we have seen major appreciation in property values in Australia. Rent has increased too. Until recently, this upward climb has somewhat halted and we are now seeing the beginning of a decline. The Aussie Dollar has also depreciated more than 25% in the past few months against the Malaysian Ringgit. Not that the Ringgit is performing well, in fact it hasn't. So, this goes to show how badly impacted the Australian economy is from this global recession.
Does this mean it is a good time to invest in the Australian property market? Certainly few years ago, if one has invested in Australia, one would have made a lot of money on 2 fronts:
1. Buyers generally pay a 10% deposit upon signing the SPA and pay nothing until the building is completed in 2-3 years time. Back then, property prices were on a steady upward climb and one can sell the property upon completion with a tidy profit without even having to fork out the remaining 90% - no bank loans, no severance penalties, no headaches
2. The Aussie Dollar (AUD) was also on a steady upward climb. While one paid the 10% deposit on an exchange rate of RM2 per AUD, at the very peak the AUD reached RM3.50. Hence the profit from the sale plus the deposit are repatriated at a higher exchange rate.
For many reasons including ones above, in my opinion Australia remains a good investment destination for properties. One can look at the prospects from these 3 angles:
1. Australia has some of the world's best universities and tens of thousands of foreign students are enrolled each year - hence the demand for students' accommodation is always steady and constant. Obviously, one can invest for their own children's education as well - better than paying somebody else rent for the 3-4 years of studies which can amount to a tidy AUD7800 per year @ AUD150 per week. If your children study for 4 years, the savings from accommodation could amount to over AUD30,000. You can also sublet additional rooms to other students and then keep the property for rental income or sell it at a high profit upon your kid's graduation. Like Malaysia, it is highly unlikely that properties near to universities will depreciate in value (unless you got them at a very unreasonable price in the 1st place).
2. I've been here for 3 days and all my wrinkles are gone... It is certainly a very nice place to live with very few frustrations that you get in KL. There are rolling hills, green park land and scenic water ways all calling for some sort of recreation even in between working hours. One can walk safely down the road without any hassle such a broken walk ways or smelly illegal dumps. The quality of life is certainly there for those looking for a place to retire. In fact retirement homes and villages are a big sell here, with hundreds of thousands of well heeled immigration for that purpose.
3. Australia is also a pleasant place to work. This 3rd reason is probably less prominent lately with thousands of retrenchments each month. However, if you are coming in here with business ideas and capital investments, I am sure the government would welcome you with more than an open arm. The economy is bound to recover one day, with opportunities for everyone...
For what reasons would one choose Perth?
Well... It is only 5 hours by plane from KL, the nearest point in Australia from Malaysia... (cos you don't really want to be in Darwin..). In the next bit, I will go into more detail of what we can expect to see in Perth. Stay tuned and please leave your comments...

Tuesday, April 7, 2009

Rental Meltdown in KLCC

Following with the recession and an over-built property market, are we now witnessing a rental meltdown in the city center? Back in the 90s, we would normally measure investments by percentage yield, and the norm back then was a 10% yield would be average.
Back then, the star investments were in places like 202DC, D'Mayang, Mayang Court, Menara Bukit Ceylon, Sri Raja Chulan etc.... some of these places are mentioned in this blog. Selling price back then for a 3 bedroom unit was around RM300,000 to RM350,000, and renting for between RM2500 to RM3000/month. At the peak of it, some even fetched up to RM6000 rent. Really great for these investors.
These days, one is looking at spending around RM750psf to RM1000psf for prime properties in the city center. That means anything from RM250k for a studio to over RM1million for larger units. On the lower scale in KL city center, dominated by the likes of Maytower and Casa Mutiara, the average rent for a 450sf studio is about RM1200/month. That's hardly 6% returns.
On the other end of the scale, we have those luxurious units in places like Stonor Park, K-Residence, Park Seven etc... these are peddling for well over RM3million and rental is about RM10k to RM15k/month. I would say these are bad investments since the cost of furnishing a unit for a tenant who can afford that kind of rent would be very high, not to mention the much higher maintenance fees for the larger sizes.
On the mid range, I was a not at all surprised when I opened the classifieds last week to see 2 bedroom 1000sf units at the Meritz, Idaman Residence and Marc now going for RM6000 - RM7000. This is probably not too bad going for Meritz or Marc since the first time buyers probably got them for around RM600 - RM700psf. However, a RM1million unit at Idaman Residence is now advertised for RM4000/month. The smaller 900sf units are going for RM3800/month. No doubt there has been cases of desperate investors trying to off-load 1000sf Idaman Residence units at par value ... RM800k? And not to mention 231TR at RM650psf. But the rental return still does not justify.
With such low rental, is there still a market? Many units are still vacant. There are less than 10 units occupied now at 231TR despite being handed over in early January. Apparently there is only 1 successful subsale, mine. Owners who invested around RM500k for a 2 bedroom unit in 231TR are trying to look for tenants willing to pay RM3000/month. Considering the monthly installment at RM2600 + maintenance fees RM350... that's just almost breaking even - if one can find a tenant, that is...