How to sell Australian Property to the savvy Chinese Investor Article & Negative Gearing by RP Data Article for friends & Clients, LJ Gilland Real Estate Pty Ltd

LJ Gilland Real Estate Pty Ltd (http://www.ljgrealestate.com.au) thought this article would be of interest to you as follows:-

How to sell Australian property to the savvy Chinese investor:

By A.Taylor
Tuesday, 11 December 2012

More Chinese left for an international holiday during China’s Golden Week holiday in October than ever before in history, according to official data. Many of them came to Australia, hunting for property.

Our Hong Kong call center worked around the clock taking queries from Chinese real estate buyers in locations around the world, including the GoldCoast.

Buyers viewed 66% more property on our international property portal Juwai.com as Golden Week approached. Then, once Golden Week started, traveling Chinese buyers switched to their phones and iPads – giving mobile traffic a 99% boost.

Chinese buyers have spent millions on luxury residences in new towers like the Broadbeach Oracle and the Soul and Hilton buildings in Surfers Paradise, according to recent reports.

As I write this, there is a three-bedroom, four-bath residence on the 22ndfloor of The Oracle for sale at $1.8 million. Perhaps it will sell to a Chinese buyer, too.

If so, it might well go during the next peak travel periods of Christmas and Chinese New Year (in February 2013). It is no surprise that Chinese New Year is the busiest travel time of the year, but Christmas?

Yes, Christmas. Santa isn’t just for Westerners any more. Christmas has become a key travel period for high-net-worth Chinese in part because it is the ultimate symbol of the allure of Western culture.

It is during holidays like Christmas and Chinese New Year that many high-net-worth individuals combine overseas holidays with overseas property scouting. And we all hold the purse strings a little less tightly when on vacation.

There has been a significant rise in the number of enquiries about Australia that we receive from potential buyers, with many of our wealthy Chinese customers telling us they plan to take up Australia’s new Significant Investor Visa.

Even the Chinese think of Australia as "the lucky country". This new visa exempts the language requirement and is more flexible with residence guidelines, which is lucky indeed.

With so many Chinese investing in Australian property, the question that vendors and agents ask me most often is, "Would my property appeal to Chinese buyers?"

If your property is in a major metropolitan area like Sydney, Melbourne, Brisbane, Adelaide or Perth, it could interest a Chinese buyer. But you don’t have to be in a city centre. There is high demand for working farms, as well.

Residential properties with income and projected capital growth near mines and mining areas make a good investment case and therefor attract Chinese buyers. Other types of properties that attract Chinese investors are new developments, which even non-residents can purchase.

Even what the Foreign Investment Review Board calls "second-hand dwellings" are very appealing to Chinese buyers. Second-hand housing is popular with buyers who know Australia already, including those who already have one or more properties here. Second-hand housing is also very popular with the Chinese Australians because it is in Chinese rather than English.

It may be beyond the scope of this article, but there is more demand than ever for large investment opportunities, like those above $50 million. In fact, a journalist contacted me about one such deal as I sat at my desk writing this article.

If your property fits into one of these categories, what should you be doing to reach the Chinese buyer? Here, I’ll share my top tip with you.

If you are a vendor, make sure your agent acts on this advice: write your advertising copy and property descriptions with the flavor of destination and lifestyle marketing more than of traditional local property marketing.

Remember, the typical Chinese buyer is part foreign tourist and part savvy investor. Copy like, "Malvern delight – off main road, fully renovated, period charm," does not help sell your listing to the Chinese buyer.

Instead, the copy should focus on Australia as a safe investment, on the lifestyle the property offers, the number of total rooms, transportation links, the quality of schools, suburb highlights, the security of investment and local property value trends.

As Mr. Mortlock has pointed out the right words can help sell your property faster and for a higher price.

When marketing to the Chinese buyer, be sure to choose your words carefully.

Andrew is the founder and CEO of sales and marketing of a Chinese real estate portal for property in Australia and around the world.

Negative gearing and its impact on the housing market

by Cameron Kusher on December 13, 2012

In its most simplistic form, negative gearing for investment housing allows investors to deduct their losses against their personal taxable income. These losses may occur when the investor incurs costs such as interest on a home loan as well as maintenance and other small expenses on an investment property. However, it is important to note that negative gearing is not unique to the property asset class; it also applies to businesses and shares in Australia.

The most important thing to realise about asset negative gearing is that it is fundamentally off-setting a loss. Although you can claim that loss on your tax return, the investor must carry the cost of that loss throughout the year. Ultimately, when investing, most purchasers would be hoping that rental rates increase over time and result in the asset moving from a loss-making one to an income producing one.

It is also important to note that between September 1985 and September 1987, negative gearing laws were changed. The government quarantined negative gearing interest expenses on new transactions. As a result, investors could only claim interest expenses against rental income, not other income.

Given that negative gearing provides a benefit to investors, we look at the impact these changes had on the investment market over the two-year period. The first component is the impact the changes had on the rental market.

According to the rental component of CPI data, rents across the capital cities rose by 21.8% over the two years to September 1987 (the period during which negative gearing laws were changed). The increase in rents was most pronounced over the period inSydney (26.1%) and Perth (31.1%). As a comparison, over the two years to September 1985, rental costs rose by a lower 17.0%.

The data clearly shows that rental growth was present over this period and it was greater than it was over the two year period directly preceding it (The above chart shows the period for which the negative gearing rules were changed and are bolded black). Here you can see that rental growth was well above average, particularly recent averages, but it was not unprecedented with rents growing by a greater amount on an annual basis in late 1982 and early 1983.

Another important determining factor is the demand from investors over this period. Unfortunately the Australian Bureau of Statistics does not provide information on the number of loans to investors; rather it provides the total value. The total value of investment finance commitments in September 1987 was 41.5% higher than in September 1985. These figures seem to suggest that at that time there was no weakness in demand for investment housing however, a clearer outcome would be apparent based on the number of loans rather than the value.

The reason why negative gearing was reinstated in September 1987 was that it was proclaimed that rents rose sharply on the back of a fall in housing market investment. However, it doesn’t look as if investment in the housing market dried up throughout this period. Rents clearly did rise quite sharply throughout as demonstrated.

Many in favour of removing negative gearing from property say that it should occur due to the fact that housing is an unproductive asset class.

My argument is that given that housing provides shelter, if investors don’t purchase these assets, it would then be the responsibility of the Government to provide this shelter. Ultimately, that would mean that anyone that pays taxes would be funding housing for those who can’t afford it themselves.

One of the arguments against negative gearing is that the tax deductions afforded to investors in the housing market reduces government revenue. However, if investors did not provide shelter to those that can’t provide it to themselves, government revenue would already be reduced due to the fact that this responsibility would fall on the Government.

If we look at the recent Australian Bureau of Statistics (ABS) dwelling approvals data, it is interesting to see just how much of the new housing supply is created by the private sector as opposed to the public (government) sector. According to the ABS dwelling approvals series which began in July 1983, between July 1983 and October 2012, 4,355,266 dwelling approvals have been given to the private sector compared to just 228,843 to the public sector. Over the last 29 years (give or take a few months), public housing approvals have accounted for just 5.0% of all dwelling approvals. This is less than 8,000 approvals by the public sector each year!

Over the 12 months to October 2012, 145,515 dwellings approvals were granted to the private sector (98.6%) compared to just 2,065 to the public sector (1.4%).

The most recent Census data shows us that of those homes occupied, 29.6% are rented (investment properties). Based on this data, if we assume that without the private sector building homes for investment purposes, the public sector would have to account for 29.6% of all dwelling approvals to cover those in rental accommodation. Over the past 12 months this would have equated to 43,684 dwelling approvals. If we also consider that the median home price across Australia as at October 2012 was $386,000, and if the Government had to buy the land and build 43,684 homes, this would cost the Government of the day $16,861,900,480 based on the number of approvals and the median home price.

Of course this is a rather simplistic calculation and if the Government were to build homes on their own land it would cost them less as that figure includes land and building. Also, it is unlikely that private investment in residential housing would cease without negative gearing but I would expect that it would fall.

The most recent taxation statistics data shows that over the 2009-10 financial year, $4.81 billion in net rental deductions were claimed by taxpayers.

In order for the Government to break even to allowable deductibles from tax returns they would have to be building those 43,684 homes at a cost of $110,100. Based on the current median home price across the country at $386,000, they would have only been able to build 12,461 homes over the past 12 months or 8.4% of the total building approvals over the past year. It should be noted that not all new builds are for investment purposes but if we assume that 29.6% are there is a significant short-fall.

When you look at these figures it is obvious why negative gearing is unlikely to be removed. Whether the removal of negative gearing impacted investment or not, and whether it lead to an increase in rents is a secondary concern relative to how much it would cost the Government to supply public housing for the almost 30% of Australians that don’t own their own home.

These figures are not to suggest that if in the case negative gearing was removed, there would be no investors in the market however, the appeal of negative gearing is part of what attracts many investors to the market. Without negative gearing it is likely that there would be fewer investors and therefore less private developers delivering new homes coupled with a greater need for the public sector to provide housing. The flow on effect may also be that there would likely be lower demand for housing credit. Although some proclaim removing negative gearing would cause house prices to fall, I would expect that new housing supply would be even tighter as developer’s struggle to achieve pre-sales for new development, this may in-turn force prices higher than they otherwise would be.

By looking into the figures in more detail, it makes good economic sense for the government to allow housing investors to negatively gear their properties so that the significantly greater cost of providing social housing is not borne by the Government and ultimately the Australian taxpayer.

Please keep a look out for our website translated to Chinese.

http://sellingguide.realestate.com.au/video/why-list-online

Also, here is the link to the Selling Guide website specifically set up for our sellers.

http://sellingguide.realestate.com.au/

Best regards,

Linda & Carlos Debello

http://www.ljgrealestate.com.au

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About ljgrealestate 据联大

Removing the Hassle from Sales and Rentals across South East Queensland. Aim to Empower other like minded Property Investors. L J Gilland Real Estate is a prestigious boutique agency specializing in Property Investment Management Services and the Sales of Investment Properties with tenants in place. Comprised of a top performing group of handpicked specialists, our Agents proudly serve Property Investors in Queensland. Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. Carlos and Linda Debello offer property investor's the confidence to sell and lease in any market. We provide comprehensive market appraisals, exclusive multimedia marketing campaigns, and knowledgeable, highly personalized counsel on all aspects of real estate. Our Property Management Team is equally considerate, offering investors with in-depth advise, well-researched rental valuations, and highly professional rental management services. http://goanimate.com/movie/0M4bvcZzgIbI?utm_source=linkshare&uid=0u6RGtWsmlVc Carlos’ direct mobiles are 0400 833 800 & 0413560808. Linda’s mobiles are 0409995578 & 0414978700 (prefer email contact for Linda). Office 07 3263 6085. http://www.ljgrealestate.com.au http://www.yellowpages.com.au/qld/aspley/lj-gilland-real-estate-pty-ltd-14091356-listing.html http://au.linkedin.com/in/lindajanedebello http://twitter.com/GillandDebello http://www.facebook.com/pages/ljgrealestate
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