Expats, avoid these common pitfalls before investing in property
Property has always been a hot investment for Australians, even when staying abroad.
Australia’s population is growing around 2% a year, driven by immigration. But 65% of the population live in one of the eight state or territory capital cities, meaning supply is almost always struggling to catch up with demand, according to Richard Wakelin from Wakelin Property Advisory.
Hence, investing in property is an attractive option.
But for those overseas trying to channel their hard-earned money here for investment and handy returns, be wary of property spruikers.
Regulators have voiced concerns about the price rises in Sydney and Melbourne in particular, amid reports of property spruikers "trapping" ill-advised investors in self-managed super fund (SMSF) structures.
In December 2014, the Financial System Inquiry chaired by David Murray suggested banning SMSFs borrowing to buy property, by removing the current exemption for limited recourse borrowing arrangements (LRBAs).
"We regard [recommendations to buy property through SMSFs] as investment advice and you need to be licensed and if you are not licensed we will come after you," ASIC commissioner Greg Tanzer told Property Observer earlier this year.
Be cautious while buying off-the-plan property. You might save on stamp duty, but this is usually offset by the GST you indirectly pay, as a developer pays 10% GST on the building costs component which will be passed on to the buyer in the purchase price.
Also, as you will invariably pay a premium for the new house, you could end up losing up to 20% value if you skipped proper research.
High-rises can sometimes prove to be a trap as there is a supply glut in some suburbs. Which means finding tenants is hard, besides the level of rent and the yield.
Buildings with lifts, communal gymnasiums and pools usually come at the cost of higher fees.
Also, avoid properties that banks may be reluctant to lend for. These could include serviced apartments, student accommodation and those in a mixed zoning.
If it's not good enough for the bank, meaning 'risky', it's likely not good enough for you, says Wakelin.
