In the October 2008 issue of the Australian Property Investor (API) magazine, the editor examined the reasons why investors chose to rent instead of having a mortgage over their heads for a place they would own. Personally I felt this is a very important issue, especially for non-resident Aussie property investors to understand. Under the Foreign Investment Review Board (FIRB), non-resident property investors can only buy new off-the-plan or previously unoccupied established residential homes. If resold, they can only resell their properties to Australians or permanent residents in Australia.

Lots of non-resident investors are confused whom they would be reselling to should they need to resell their investment properties in future. One group of people whom they can resell to is property investors who are seeking to increase their portfolio of investment properties. These investors, residing in Australia may be renting but are seeking to expand their portfolio with a good mix of investment properties.

Why would investors themselves rent why they could afford to possibly own a home themselves?

Well, renting gives them the flexibility to live in a suburb they may not be able to afford at this point of time. Rental for residential properties is about 4.5% to 5% but mortgage repayments prior to rate cut in Oct ‘08 are over 9% per annum. Renting needs no maintenance and hence renters need only move their furniture into the newly renovated home and start leading the lifestyle they desire from day one. Besides that, renting does not require a deposit, hence the money saved can be used to increase one’s property portfolio instead of owing a home that doesn’t gives any tax breaks. If a couple works from home, renting also allows them to gain significant tax breaks, allowing them to slice their rent and electricity bills in half and reduce their overall income tax bill. Hence renting does have its clear advantages.

I have witnessed many successful property investors who have in excess of $5million or more in their portfolio but are currently renting. My business partner, Steve is one of them. He rents a 3-bedroom unit in the Docklands along Lorimer Street in Melbourne. For many Asian investors who have acquired properties in Australia this is something they cannot come to terms with. However the reality is that this is the way and it is a common phenomenon Downunder and with concerns of recession looming, more would choose to rent instead of having a mortgage that they would have to pay themselves. So for non-resident investors, hope this is some useful information to you…

It’s no secret that countercyclical acquisition is the right way to profit massively especially for instruments where you are betting on capital appreciation. However, the element of fear lingers on the minds of investors and you may end up not doing anything. What you may have missed are hordes of opportunities to profit from the current situation.

Last week, a mate of mine was thinking of property acquisition in Australia. We spoke some 5 months ago and he wasn’t really ready then. However, this time, he is ‘armed’ and ready to take advantage of the current situation. He asked a very good question and I am sure many of you may have the same question in your mind.

What happens if I acquire properties now and the value dips?

It’s a valid question. If you have been a regular reader of my blog posts, you would have known that I am not a property trader. I don’t encourage anyone to trade/speculate properties in Australia for capital appreciation. The tax system is not in your favour in the short term. Rather my focus has always been structuring the finance in such a way that maximized cashflow for your entire property portfolio.

The risk with any property portfolio is the ‘HOLDING COSTS’. It’s defined as the amount of money that is required for you to continue to hold on to your entire portfolio. Just focus on the cashflow/holding costs and you’ll be fine. There are enough instruments/options for you to leverage on. Regardless of conditions in the market, as long as you keep up your mortgage/interest repayments, you should not be unduly worried.

So focus on the cashflow in your property, instead of focusing ‘what happens if value dips…’Nobody can predict where the market is going at the moment. I am not bold/silly enough to do that. All that I can say is if you keep your portfolio, the values will be better off than what they are today in 10, 20 or more years’ time…

Drop me a line or two with your comments, EMAIL me…have a great working week ahead!

Over the weekend, there are at least 7-8 property firms advertising for property launches in Singapore. Well, you can’t blame these property firms for thinking there’s a good opportunity here in Singapore. After all, the positives are still there as far as Singaporeans are concerned. Most are hurt in the stock market, and history showed that whenever ‘doom and gloom’ sentiments are prevalent, there are still opportunistic investors who are armed and ready to take advantage of present conditions to enter the market. However, if I am seeking to invest in Australia, I will be ‘dramatically confused’ if I want to base my decision to invest based on projects advertised.

After putting all conditions in place, I have a near-to-perfect plan for anyone wanting to start acquiring properties now. In PPG (PPG International & PPG Asia), we used the Wealth Builder System to determine the ‘BC’ of a client before recommending the next course of action. Nobody else does that in the market. If you are a serious investor, you must get to know this. The easiest way is to EMAIL me to get in touch with me. Be prepared to leave your contact details as well.

Assuming your BC is determined, you can now go ’shopping’.

I see the following happening:

1. Interest rate will fall to at 4% or 3.5% by the first half of 2009.

2. The rise in interest rate later on will signal the reversal of the economy.

I quote Warren Buffet’s saying, ‘Be fearful when others are greedy and be greedy when others are fearful’. No doubts about it, people are fearful about investing now. The most sinful thing is to do NOTHING, because that means your wealth has got no opportunity to grow. Of course, if you have not much wealth, it is quite understandable that you do nothing right now. Otherwise, you may be over-analyzing and you may be ‘beaten’ by the market before you do anything.

Every advertisement says the AUD has dropped 30% against the SGD and it’s on par with SGD now. If you have buy something now, it’s cheaper. Technically it’s true. Even the AUD depreciates against the SGD further, in my personal opinion, the AUD will still appreciate against SGD in the long run. The indicators are simple: Oil price cannot remain at this level, interest rate cannot keep dropping, and commodity prices cannot remain stagnant. Once the world’s biggest consumerism recovers, demand comes back again, the economy will recover. However, I am not bold enough to predict when.

If you buy something that settles next year (2009) to take advantage of low interest rates in AUD, your holding costs will be significantly reduced, cashflow improved dramatically. Remember the biggest risks pertaining to property is HOLDING COSTS! It’s not the value of the property! If you manage holding costs well, you will be able to grow your property portfolio systematically.

Once the interest rate starts rising, this is where you can convert to a fixed rate. With a fixed interest rate, you are assured of virtually the same holding costs/cashflow in your property. And to put the icing on the cake, if you have another property that is financed in another currency e.g. SGD, you can now hedge your risk. There are just so many permutations to build up your property portfolio. I guess it’s due to my engineering background. I love manipulating the permutations to help my investors build their portfolio. It’s problem solving to the highest level…

If you need any independent advice, do EMAIL me immediately.

Home owners have plenty to cheer about when the Reserve Bank of Australia annouced an interest rate cut of 75 basis points bringing the cash rate to 5.25%.  In a widely anticipated move, the RBA went beyond expectations of a 50 basis points cut and lowered the burden of mortgage repayments by home owners by going on another bold move to cut interest rate by 75 basis points following a full 100 basis points cut last month.

It’s expected to cut rate again in December to stimulate the economy in the light of a global financial crisis. For further news, click on this link: http://www.theaustralian.news.com.au/story/0,25197,24602026-12377,00.html

Recently there’s a new development which I thought ought to be mentioned as given the price points and location, it is good value for money and may suit you if you are venturing into Aussie property investment for the first time and looking for something that will settle within the next 12 months.

Craigieburn is a suburb situated 24km north of Melbourne CBD. Central Park Terraces is located within a delfin lend lease masterplanned community under the Melbourne 2030 Urban Growth Boundaries. If you are familiar with Delfin, you would know they are one of the best in the field of planning for a community. Of course when there’s Delfin, there’s a lake. As far as Central Park Terraces are concerned, there is a fantastic lake and only a cluster of townhouses are facing the lake and these are to be completed by April 2009. Imagine your tenant inspecting your homes, I couldn’t see why they would reject signing a year lease or more to secure their tenancy.

A check with real estate agents and on the internet showed homes in the area asking for $310-340 per week, so it is quite safe to say these townhouses will be rented out between $320-$330 per week when they are completed next year. Only 10 left up for grabs, and no surprises for guessing who bought up so far - Australians….because they knew where the value lies.

If you want more information about how these can fit into your investment portfolio, please email me at info@pagreal.com

Lately, some Aussie property investors asked me if it is advisable to take out a loan in SGD since the AUDSGD has plunged to below 1.0000 on several occasions. It remains to be seen if the AUD will rebound in the short term. Analysts from major banks and even bloomberg has given some indications and as far as I am concerned, I feel there is still pretty much a lot of uncertainty in the market.

To make an objective statement; if you are savvy with how financing in an alternative currency works and you are confident of keeping a close watch on the market and you have strategies to know when you should switch, then go for it. If you are a professional who is busy with daily work routines and meetings, the last thing you want is for the banks to call you for a margin call.

Banks in Australia has taken some initiative to safeguard their position given the volatility of the market. e.g. some banks have lowered their LVR to 65% in the light of the AUDSGD fluctuations. This is strictly for residential properties only.

If I am first time investor, I would settle my property with 75% LVR in AUD. With an expected rate cut in Nov by another 50 basis points, interest rate is coming down. There is very little risks since AUD has taken a dive and with a weakening global economy and weak commodity price, it is quite prudent to take up an AUD loan. Once the dust settles, I would switch at an appropriate time. I cannot be more conservative….

I have written an ebook to help some of investors to tide through this period with some strategies. It’s the first version and at the time of writing this blog post, I am already preparing for second version of the ebook. If you wish to know more about the opportunities and risks involved in multi-currency loans, do drop me an email with your name.

I will advise the steps accordingly so that you can download the ebook.

Over the last two weeks, I have got calls from investors who asked if there were any projects worth investing in. Here’s something that I think would suit an investor who are looking at the following:

1. Portfolio builders looking at settlement time of about 24 months
2. You have average to good BC and looking to expand your portfolio
3. A great deal - prices quoted in this development are as if they are completed today! (drop me a line or two if you don’t believe!)

Situated on the southern side of Victoria Street and surrounded by famous Victorian reserves, this development consist of 4 four storey buildings of which only 2 are released at the stage. All units have sensible floor plans and are bigger than normal specs of 1 and 2 bedders that are seen in the market.

In my opinion, it’s a development where prices are spot on (at today’s completed prices) and the combination of good usage of space and sensible layout make it even more attractive for investors and own-occupiers alike.

For more information, you may drop me an email.

Australian bank deposits will be protected during the global financial crisis, Prime Minister Kevin Rudd said, while Opposition Leader Malcolm Turnbull called for an expansion of the proposed government-backed deposit guarantee scheme.

The Australian Prudential Regulatory Authority (APRA), which supervises deposit taking institutions, would ensure bank balance sheets were in good condition, he said.

“We are different to banks around the world, our banks are in a strong position,” Mr Rudd told reporters in Sydney today.

He said Australians had long had access to a “depositors first scheme”.

“If ever any bank got into trouble at any time, the depositors would have first recourse,” he said.

Mr Rudd said the Australian government put forward a proposal for a new financial claims scheme some months ago, before the financial crisis.

“Once that’s concluded, very soon we will be introducing legislation for a new financial claims scheme,” he said.
Mr Turnbull said the government should expand a proposed government-backed deposit guarantee scheme to cover savings of up to at least $100,000 per depositor - up from the planned amount of $20,000.

He also wants investment in AAA-rated Residential Mortgage Backed Securities to be raised to at least $10 billion, more than double the government’s proposed $4 billion investment, to boost confidence in the local housing market.

“We are dealing with great economic changes, and they call for leadership and they call for action and they call for decisions,” Mr Turnbull told reporters at his Sydney office today.

“We are proposing three actions the government can take immediately which will strengthen the Australian economy in the face of this economic crisis and add confidence to Australian householders and Australian business.”

One of those steps would be to announce a delay to the start of an emissions trading scheme in Australia, he said.

Article extracted from Sydney Morning Herald, www.smh.com.au

The Aussie dollar gave me a big heart attack today. The AUD nose dived against SGD by at least 1000 basis points from yesterday. My phone was flooded with calls from investors who are on SGD loan. They were all concerned about banks asking for ‘top-ups’.

My advice is first calm yourself down. If you have some spare cash, buy some AUD. If you are asked for top-up, take it as a sum of money tucked away for fixed deposit (interest rate is still pretty good). Given the financial turmoil, lots of ‘technical analysis’ went beyond logical explanation. Supports and resistance may no longer be effective indicators right now. Brace yourself and see the ‘opportunities’ availabe instead of focusing on what went wrong.

It will take a while before the market ‘decides its direction’. I would have posted the 1hr AUD/SGD candle if I have access to it. You will see the the ‘dramatic dive’. In any case, property is a long term investment, so to all Aussie property investors - don’t panic and stay cool…I’ll be buying more AUD if the rate stablizes tomorrow.

In what was a surprise to everyone, the Reserve Bank of Australia(RBA), they have announced a 1 per cent rate cut at 2:30pm today to lower the Federal cash Rate to 6%. At the time of writing this post, none of the big 4 Australian banks have decided if they will pass the interest savings to consumers.

It is the single biggest rate cut since May 1992.

The RBA is clearly forwarding looking. In light of what’s happening in US and Europe and the worsening of the financial crisis, the last thing the central bank wants is to go through the nightmare their counterparts in US have gone through. I applaud their bold decision. With borrowing costs reportedly to have increased ten times, this piece of news couldn’t have come more timely. Let’s see what happens next…

The AUD/SGD has nosedived to 1.0650 spot at 10:05am (GMT+8). It means it is cheaper now to acquire Aussie properties. On the other hand, those with SGD loans, do watch out for calls from your RM for top-ups for your loans.