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.   

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