News | Comprehensive analysis of purchasing a house in Australia and in China

Appreciation potential

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It can only be said that since the 1990s, in the context of loose global economic, the growth rate has been relatively rapid, and the previous trend was slightly higher than CPI. The doubling in 7 years that we're talking about here is actually the double of the median price.

Growth has been particularly rapid since the 1990s when the global economy was loose. This is largely a result of white culture, where foreigners prefer to rent rather than buy a house. Nearly 30% of Australian residents live in rented houses. However, the continuous increase in immigration in recent decades has brought about a large number of housing demands in Australia, as well as the concept of home purchase and settlement. The 2.1% of the annual population growth has greatly boosted domestic demand and stimulated the economy. Among these immigrants, the Chinese have made the greatest contribution.
Australia's housing price is not rising as fast as China's, but this is exactly the performance of mature markets. Due to the prevalence of rental culture, Australia's real estate industry is healthier and less risky than other countries.

Risk possibility

Vacancy rate：

Vacancy rate refers to the ratio of vacant housing area to total housing area at a certain time. It is one of the standards to measure whether a country's real estate industry is healthy or not. According to the international common practice, the vacancy rate of commercial housing between 5% and 10% is a reasonable area, and the balance between supply and demand of commercial housing is conducive to the healthy development of the national economy. If the vacancy rate is between 10% and 20%, certain measures should be taken in the vacancy danger area to increase the sales of commercial houses, so as to ensure the normal development of the real estate market and the normal operation of the national economy. The vacancy rate of more than 20% means the serious backlog of commercial housing areas.
If the vacancy rate is 10%-20%, it is the vacant danger area; in Shanghai, it is 60.2%; in Beijing, it does not dare to calculate by area, but the number is the rate of vacant houses/total houses. According to official statistics, it will take at least 42 years to digest all the vacant houses in China. In other words, under the normal economic system, there is no reason for house prices to go up even if they don't go down for 42 years. Take Sydney, the largest city in Australia, as an example, what is the vacancy rate? It fluctuates between 1.6% and 1.8%.
As mentioned above, 30% of Australians rent houses. Therefore, if you buy a house in Australia, you will not worry about not being able to rent it out. Because only one or two out of a hundred houses are unoccupied, it may be a very rare case.
For overseas students, most of them have had the experience of renting a house. It is not unusual for dozens of people to queue for a house. More people, less housing, and less supply than demand, these are the real situations in Australia's cities and towns.

Return on Investment：

In short, the return on investment is the annual rent divided by the house price. According to the survey, the average return on investment of ordinary residential buildings in Beijing, Shanghai, Guangzhou, Shenzhen, and other four first-tier cities is less than 3.5%. Beijing's return on investment is even lower, except the northern region, the return on investment in most regions is less than 2.5%. Beijing is not alone. Shanghai's overall return on investment is only 2-3%.
By the contrast, it is the return on investment of Australian real estate. The return on investment of property in Sydney remains around 5.3%. With the exploding population in Brisbane, the return on investment can be between 6% and 6.5%. The number in Melbourne city maintained around 7%. Because Gladstone, Townsville and other mining or military areas have more people, fewer houses and no tall buildings, the return on investment will be unimaginably between 11-13%!

The government policies

Government Grant：

Excluding government subsidies and tax rebates mentioned above, ROI is already 5.2%, basically the same as the housing loan interest rate (around 5.5%). Therefore, in Australia, it is better to buy a house than to rent a house. However, Australians advocate freedom and early consumption. Even women in their 70s, with a government pension, go out to work every week just to live in manly beach alone. The government worried, "please, buy a house, I give you money, a large sum of money at a time, and return a sum every year! Buying a house is a benefit for you and the government. We can update the data and reduce endowment burden, you can get a fortune and still do not calculate your estate duty! Please buy the house, in case that the houses are bought all by Chinese."
It is not exaggerated that each of the above statements is justified. In New South Wales, the first-home buyers will receive a $15,000 subsidy to buy new homes or uncompleted flats for less than $650,000 (median price), which will be reduced to $10,000 from January 1, 2016. In Queensland, first-home buyers can apply for a $15,000 grant from September 12, 2012, but the total price must not exceed $750,000 and the property must be new or uncompleted. Stamp duty is exempted if the total price is less than $400,000. On July 1, 2013, the Victorian government began to introduce a new subsidy for first-home buyers, which is $10,000. In addition, the preferential proportion of stamp duty will be increased to 40%.

Australia is the only country that imposes the negative gearing tax.
Many people call it negative gearing. As the name suggests, the opposite of the negative is positive. Not only is there no tax deduction but also tax compensation. Of course, there are prerequisites -- investment purposes. In order to encourage real estate investment, ATO treats individual house leasing as a small business which would generate assessable income! As is known to all, accounting has a principle called accrual accounting, -- it refers to confirming current income and expense as well as creditor's rights and liabilities with the occurrence of the right to receive cash in essence or the liability for paying cash as a sign, that is, revenue is recognized according to cash income and future cash income -- the occurrence of creditor's rights; Expenses are recognized by cash disbursements and future cash disbursements - debt incurred. In other words, when calculating an account, if you calculate the depreciation, you seem to get the loss, but actually, you did not lose money, because no one cares what you depreciate when selling a house.
Because the higher the income, the higher the tax rate, real estate investment has a better tax avoidance effect for high-income people. For example, if the annual salary reaches $200,000, the annual tax rebate on the property will be $8,100. My wife works in an accounting firm and often helps companies or individuals to get tax rebates. She found that, for high-income people like doctors and lawyers, there must be several sets of real estate under the account to offset tax. So high earners often pay less tax each year than low earners, or they don't even have to pay tax. It also reflects the law that the poor get poorer and the rich get richer in a capitalist society.
Generally, when the income of accountants, lawyers, and doctors reaches a certain level, they can get ProPack products from Banks through high-level brokers for their high-level property, and 90% LVR does not need to pay LMI insurance, which means a large amount of insurance premium can be saved, and at the same time, LVR can make full use of the loan limit for negative gearing tax.
The Australian government is keen for its own people to buy homes.
However, in this country that pursues so-called "democracy and fairness", people without PR cannot be treated differently. Therefore, an institution like FIRB (Foreign Investment Review Board) was created to limit the purchase quantity of each project by non-natives. In general, it is no more than 50%, and the application must be submitted to FIRB through a lawyer. The government will absolutely approve FIRB for the purchase of new houses or pre-sale houses, so you can buy the property without worries. Even after the expiration of the visa to return to China, the owner who purchases the house can hold the disposal rights (vacant, rent, or resale).

FIRB（foreign investment review board）：

FIRB (foreign investment review board): Australia's foreign investment review board, according to the current regulations, foreigners (those who have not obtained the right of permanent residence in Australia) have to obtain FIRB's approval to buy a house in Australia.

Mortgage

The difficulty of Mortgage：

In Australia, it is much easier for real estate investors to apply for loans from banks. Even international students can apply for a loan. Although international students have no income or less income, they can use their parents as the guarantor to guarantee your loan with the income of the guarantor. However, it is limited to the purchase of new homes, second-hand housing loans will receive a lot of restrictions. After the guidance of a professional Broker, it is generally possible to apply for 80% of the loan. These professional guides include Cancel your credit card to reduce the degree of credit default and so on. No additional collateral is required; the house itself is your collateral. This shows that the banking industry has sufficient confidence in the Australian real estate market! Imagine that if your ability to pay back your mortgage goes bad or you bankrupt, the bank simply reclaims the property and bids for it at the current price. The bank of capitalist won't undertake too big risk, the bank dare to do that because the market price after recovery is certainly higher than the price that the bank pays when lending (loan interest rate is higher than deposit interest rate at only one percentage point), which is a business for making money! It is known that there are 10 properties at average in Sydney repossessed by Banks for auction every week... The argument for a housing bubble is debatable.
Moreover, recent economic indicators and data indicate that there is indeed less housing bubble in Australia. Australia is the only developed country so far to retain a AAA sovereign rating from Standard & Poor's, Fitch Rating and Moody's. Especially in an era of deepening European and U.S. debt crises, Australia's budget deficit for fiscal 2011-12 is roughly 3% of GDP. The Australian dollar even has some abilities to avoid risks. Even the once-in-a-decade economic crisis has not had a visible impact on the Australian real estate market, which plays a role in balancing the economic development of Australia. Whenever there is uncertainty about the world economy, the Australian government will take a series of measures to encourage the housing market and stimulate domestic demand. These policies include interest rate cuts and policy subsidies and so on.

Deposit：

Housing loans play the role of financial Leverage in investment. Obtain a larger investment return with lesser investment. Especially in Australia where rent and loan interest are equal, the lower the deposit, the better. For Australian real estate, the deposit is only 10%, and the other 10% is paid when the property is settled. Usually, the deposit is 20% and 80% of the loan is borrowed. In contrast, since 2005, the state council in China has ordered that the deposit on individual housing loans should be raised to 30%, and the deposit on second home loans should not be less than 50%. If the second suite is purchased for investment and for rent, then, in theory, the property has lost investment value. Because "poor dad and rich dad" said that "it is irrational and incorrect investment to simply expect the house to increase in value to obtain income".
The parents of overseas students who have a little understanding of the Australian housing market have begun to buy the houses for supporting their children’s education. Indeed, take the median housing price of the two-bedroom property with $600,000 in Sydney this year as an example, the deposit for the purchase of uncompleted buildings is only 5% to 10%, namely $30,000 to $60,000, which is less than one year's tuition and living expenses for an overseas student. When the building is completed two years later, it will have grown to $684,000 at an annual growth rate of 7%. With a $5,000 government subsidy for investors, the profit will be able to cover tuition fees for two years. After that, if the house is used for self-living, paying a loan similar to the rent, you will get a house. If this property is used for rent to offset loan, looking for a year of high housing prices to sell the house, you will get a large amount of capital gain. If you live by yourself, you can rent the master room and you live in a small room, and then you can raise the rental per year (loan will not rise as prices rise), which saves your rent and makes you receive the capital gain. Of course, in such a professional-oriented country, it is necessary to find a professional Broker to help get a mortgage. Professional lawyers can safeguard the maximum rights and interests, and professional accountants can help avoid tax.

Interest Only Repayment：

Australian Banks allow homebuyers to repay the loan interest but not the principle. The time period is usually for the first 5 years or up to 15 years, after which it can be extended for longer by lending or applying. Why can you just pay interest? See the issue of property right above, the building right of use in China is 70 years, so you really need to pay off the money within the deadline of the right. In Australia, a house is a private property forever, and you can pay it back whenever you want!
Firstly, since the purchase of real estate is an investment, the interest maximization and risk minimization are our appeals. Investors are divided into risk preference and risk aversion, and their confidence in investment projects varies. If you don't have the confidence, put less money in it and put the extra money in your pocket. If you are confident, you might as well use your payoff money to buy more properties in other areas, which maximizes the benefits and disperses the risks. Second, paying interest only maximizes the annual written loss and returns as much tax as possible. Conversely, after pay-off, what if the rental income exceeds depreciation? Not only cannot drawback be returned but also pay the tax because of investment profit!
You can also apply for an offset account from the bank and put the house payment into it. The bank will automatically take the money every month. No interest, because the interest on the deposit can be offset by the interest on the loan. The advantage is that the offset account is your own account and you can withdraw the money at any time. As long as you return the original amount before the end of the month, there will be no interest on the loan.

Refinance：

When the housing price goes up, for example, the house price of $600,000 goes up to $700,000, then you can use the increase of $100,000 to apply to the bank for refinancing. Take this "invisible" $100,000 as a deposit on the second house, "free" to buy a second house. So, for example, you could ask the bank for the refinance every few years, and you could easily go the right way of investment and finance. This is the western version of the story of the hen who laid the egg and the egg became the hen. In developed countries, the chances of getting rich overnight are very low, and huge wealth is often accumulated slowly through the efforts of several generations. With the right investment concept, everyone can have a good life.

The “rift”of property trading system between China & Australia

Australia does not have a long history, but the system is very strict, most of them follow the British tradition. This is reflected in all areas, including the housing market. For example, the third party system. The Vendor and the Customer will not meet each other, and the whole buying and selling process will be completed through a third party -- the Agency. With the cooperation of the lawyers of both the buyer and the seller, the agency shall exchange the contract for both parties. Of course, a series of tedious tasks such as contacting lawyers and inviting brokers to help with loans can also be entrusted to the agency. Even so, because agencies have a high bargain power (collective buyers are equivalent to a group purchase), they can sometimes bargain with the developer for the benefit of the buyer.
Mentioning the agency, Chinese people often have a negative attitude on them, because of the immoral behavior of Chinese agency and the lack of effective legal mechanism supervision. In Australia, the situation is very different. A Real Estate Registration License is required to enter the Real Estate market, even if the one who only opens the door with a key and shows people around the house.
With the promotion of the position, the rights of the agency become more powerful, and they also mandatorily need to accept the relevant courses of re-education to obtain a variety of certificates. The Licence for entry is mainly to train professional ethics and relevant knowledge of the law. The course lasts for one week, plus the examination until Fair Trading issues the license, which will take a total of two to three months. The cost of formal training is about $700. There will be a lot of case studies in this class, probably about how dangerous it is to do this business, such as you will be sued at any time and anything you say can be used against you in a court of law. Exaggerated words and non-understanding things cannot be said, while some words need to be said, a disclosure is a very important, such as there is a death in the house, the sewer will be blocked, the house next to the property will block the light, the agent must mention. Otherwise, the agency is the only person who is responsible. There will be a training period that often lasts 3 months to half a year after the agent enters the company because people in contemporary society have higher requirements for the agency, they should not only master real estate knowledge but also master the knowledge of finance, economy, structure, material even geomantic.
The process of buying a house in Australia is also different from that in China. Property projects in Australia are usually sold as soon as the DA (development approval) is approved. Developers usually build the project while selling it, and the price will be more and more expensive, then the project would nearly be sold out when it completes. So if you want to buy a new house at the right price, you will often see big building models, simulations, house types, and construction sites... Pay a certain amount of deposit first, then pay 10% of the house payment (10% of the down payment, will be directly deposited into the lawyer trust bank account, and no one has the right to use, which to a large extent helps the buyer to avoid the risk), after the completion of the house, you need to pay 10% of the housing price again, then you will see what the house actually looks like. Based on the above procedures, it is better to buy real estate in the early stage of the project than in the later stage, because there are more floors and apartment types to choose from, the developer will also give some good preferential policies. Of course, the premise is to choose a trustworthy developer.