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Investment in property has been recognized
as the unfailing means of acquiring wealth. The phrase
‘safe as a house’ is clichéd. Yet,
it is the only truth in the context of return on investment
scenario. Return on investment in property is a slow
process. However, it is an investment that never fails.
History also testifies to the fact that investment
in property is a minimal risk investment. The return
from the property, services the investment. The net worth
grows over time and generates income for further investments
in property.
Like any other investment, Property investment is a skill which has to be learned. The investor must be aware that there are risks attached to any kind of investment. He must also consciously acknowledge the fact that during the process of investment the risks attached seem to be magnified. He must also accept that, the right choice of property, combined with considered management are absolute essentials in any property investment. Property investment is a serious business that requires the right kind of commitment.
Before actually launching into the purchase of a property, the investor must be clear as to the purpose of investment. If investment may be for:
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Personal use
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To buy and Let
The purpose will determine the type and location of the property. In the former instance property may have to be located close to the place of work or near an educational institution. The type of property may not per se be of importance. Its location may be important. In the latter case all aspects of the property assumes importance. It is a property purchased as an investment and the investor expects a return on property investment.
Investment Property should be selected keeping in mind the following environmental factors:
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High employment area
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Attractive buildings and surroundings
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Public Transport facilities
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High capital growth
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Developing areas
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Low maintenance costs
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High demand by letting agents
The Return on Investment (ROI) expected will include factors such as
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Appreciation of the asset
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Regularity of rental income
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Long term stable tenants
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Care by property managers.
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Tax benefits
Investing in foreign countries requires an understanding of the laws and systems as it impacts on investment by foreigners. It also requires an understanding of the socio-economic fabric of the country as it will have a bearing on the value of the property. Therefore, before investing in property in a foreign land requires the investor to stay in the country for some time or a study of the socio-economic-demographic and political setup of the country in so far as it impacts on foreign investment in the country.
The Australian property investment market
is bearish. The annual gross returns from property over
a 20 year period (as per studies conducted in December 2003
by the PRDnationwide research report), was 15.1 percent as
compared to shares which gave a return of 12.2 percent.
Other studies on property patterns in Australian property
life cycles indicate that Australia has property cycles between
7 and 10 years.
Recent trends have been towards 12 years
property cycle and prices of property have gone up during
the last four years. Sydney is the costliest, followed
by Melbourne, Gold Coast and Brisbane. It is expected that
property prices will peak during early 2005 and thereafter
there will be a slowdown.
The Australian Government also encourages investment in property as it helps the aging population provide for its future and helps build the wealth of the population. A return on investment ensures that lesser pensions have to be paid out and there is a healthy economic trend due to larger incomes being generated by returns on investment in property.
The Australian foreign investment policy encourages foreigners to invest in real estate, business and industry in Australia. The FIRB stipulates that a foreigner must obtain pre approval for investment in property in Australia. A foreigner is defined as a person who
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A natural person not ordinarily resident in Australia
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A corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds a controlling interest
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A corporation in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate controlling interest.
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The trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest or
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The Trustee of a trust estate in which two or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest.
The Real estate categories monitored by the FIRB includes:
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Residential Real Estate
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Commercial Real Estate
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Rural Land
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Accommodation Facilities
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Urban Land corporations/trusts
Generally all applications received by the FIRB for permission are processed within 30 days of receiving the statutory notice with another ten days in which to advice the parties of the decision. However, in the meanwhile, foreigners can enter into contracts of purchase as long as the contracts are conditional upon receiving approval of the FIRB.
Nevertheless there are certain restrictions
that are imposed upon foreigners investing in property. Foreign
investors can only purchase new houses, residential land,
House and land packages or off the plan apartments subject
to rules set out in the FIRB. Foreign investors cannot
sell their property to other foreign investors or buy more
than 50% of a residential complex..
Australian citizens living abroad (if otherwise
ordinarily resident) and New Zealanders can purchase property
in Australia without obtaining prior permission of the FIRB.
The building approval system operates under the provisions
of State Acts of Parliament, which are framed to ensure that
community standards of health, safety and amenity are maintained
The Australian mortgage market is highly competitive.
It is handled by financial experts and banks that are willing
to give you a complete package tailored to the needs of the
investor. There are loans with ‘no frills’,
low interest rates and low flexibility and feature packed
investment loans that allow extra repayments.
Loans that can be repaid over a period of
25 years can be opted for or loans covering different lengths
of time. The discretion entirely vests with the investor.
Foreign investors can avail of a maximum loan of 75%.
They would be required to bring in a 25% deposit and probably
another 5% to cover legal fees and Government charges.
Property investment analysts predict that
investors will wait and watch for the boom to slowdown before
investing in property in Australia. It is asserted that
Australia will be a buyers market by end of this year.
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