davidw

I wanted to open a thread that may be relevant to new and prospective migrants. We just moved to Perth and bought an affordable but utilitarian 1970s duplex in a nice area 2 kms from the sea and river. This morning I visted an Aussie couple renting a far nicer house in a far better area right near the river. They're paying next to nothing in rent for it, which reminded me that Australia has about the highest house price to rental ratio I've seen anywhere. Perth may be less affected but I think we'd probably agree that the UK has better long-term house price and rent prospects than Australia: stronger economy, fare more favourable income to house price ratio, far more people, far less land, far more people moving in, far greater shortage of housing etc. I'd really appreciate the comments of experts on this forum, but I'm sure anyone doing the sums would quickly see that it makes more sense to retain and rent their UK property, then rent in Perth. I know I didn't follow- this advice and I know we all prefer to own but I still think the arithmetic is compelling. Especially at current exchange rates and if Australian house prices stabilze, as they already seem to have in Melbourne and Sydney. The only downsides I can see are the tax incentives to buy in Oz (which may be a major reason for the grossly inflated housing market in Australia (Sydney houses cannot possibly be worth more than twice as much as houses in say Toronto) a far richer city, in a richer country, 20 kilometres from its free trade partner the world's richest country and a stone's throw from Europe) and the risks of retaining a house in an overvalued part of the UK.

Comments??

David

paddythepilot

I'm no expert on property prices!

However, keeping your property in the UK means you would be able to move back fairly easily if you ever got fed-up with Australia.

Australian property prices have got a bit out of hand lately, and I really wonder if now is a good time to buy? Having said that things in the UK are not much better and prices could well fall there too?

At least renting gives you flexibility.

Cheers

Megalania

TREB Average Single Family Homes Prices for Toronto and Mississauga

ABCDiamond

Current rents in most parts of Australia are currently VERY low in relation to the house prices, sometimes only about 3% return, 5% is considered good in some areas, but other, cheaper, areas still get 8-10%.

This has been caused by property prices virtually doubling in the last few years, but with Rents staying static, in most areas.

Most landlords have been happy with that situation,"who cares about a little bit of extra rent when the property is going up by $50,000+ per year !!."

However, what happens next ? Capital gains will stabalise, and landlords will then revert to wanting a decent return on their investment again. If they cant get it, will they sell up and invest elsewhere?. Who will buy that property? Investors again ? or Owner occupiers ? My money is on the owner occupiers, at a cheaper price than today.
The result is that less property will be available for rent, and rents will rise. Those landlords that do not sell, will get the right % returns again. The circle comes back round again.

Will the GBP recover against the A$ ? If it will, then it is also worth holding on to UK property and renting it out.
But, if it keeps falling, then how much of your equity do you lose in exchange rates ?
30,000 GBP has fallen in A$ value from $85,000 to $69,000 in the last 12 months. That's a loss of A$16,000. But if the GBP recovers that ground, then a profit of $16,000 is also achievable.

Altering a quote from a famous King " My Kingdom for a CRYSTAL BALL" "

Please note: These are my personal opinions, and are not to be taken as any form of advise whatsover.

davidw

All excellent points. I'm no expect, but isn't the key issue oversupply, which depends largely on new development outstripping migration (inter-state and abroad). As long as there's oversupply, and specialists should be able to predict how long oversupply will remain, I'd guess investors will be forced to accept lower returns.

Oversupply may be greater in areas where migrants don't distort the market too much. Melbourne, with a smaller proportion of in-migration and significant out-migration to Qld, may have more than say Qld or Perth, which have appreciable in-migration.

The other point is, under your scenario, house prices may be cheaper in a couple of years, which means that if one were to rent and preserve capital either in a UK house or even in Aussie investments at 5-8%, one could buy cheaper when rents do rise.

But your reminder that the situation may swiftly change is well worth heeding.

Cheers

David

sjn2003

ABC Diamond puts his points very well and I think the key point is at the very end - no-one can predict with any certainty what will happen singularly to the property market in the UK...so everyone here is working on that one.

For migrants add in another overheating property market ...we have to try and guess what will happen in two seperate countries on opposite sides of the world.

And then if you think you have that sussed, throw the exchange rate variations into the pot ! Its no wonder that many of us have spent far too long worrying about this conundrum.

Personally, I will sell up in the UK because I don't want to have to service a London mortgage with an AUS$ salary if I lose tenants for a period. Also, without the cash from the sale I will not have a pot to paint in when I get there.

I then think we will rent for a year or two in Sydney as the market seems to be at the top - I won't lose capital appreciation as prices have peaked and its so cheap and flexible to rent. If I pick a duff area we can always move.

As for exchange rates, there are many wiser people than me who make a living out of trading on them, and as they have not retired rich and happy yet, I will just go with the flow when the time comes.

That's my plan for what it is worth !

ABCDiamond

David,
Melbourne, with all the exessive Apartment development going on, and without the increase in population, has been the first area to get hit, and some investors have already sold out.

As you have said, both QLD and Perth have continuing increasing population, and I feel that these areas, especially SE Qld, will be somewhat shielded from price drops.

In regard to your second point above, I do know of investors who are renting at the moment, waiting for price drops. However, i also know of others who feel that prices will NOT drop, at least in the areas that they have purchased in. I feel reasonably secure in buying in SEQLD, but am considering selling in NSW, and will be watchig the market carefully. Thats why I would like a Crystal Ball

I still have a small investment in the UK, and I must admit that I do regret leaving it there, as it has cost me enough to feel the hurt, but I am hoping the GBP will recover, so I am leaving it where it is for the moment. I am not sure what I would do if I had a house there ?? It all comes down to a gamble, with calculated risks.

ABCDiamond

sjn2003
What part of Sydney are you aiming for? any idea yet ?

Your comment "because I don't want to have to service a London mortgage with an AUS$ salary if I lose tenants for a period" is a very valid one. Income seems to drop when you get here, but its still worth it, and you still feel better off. But it's much better to be here while still earning GBP

My wife has just had to fly down to Sydney to sort out some things with one property down there. I know these things can be done without going, but she wants things done right !!

Not sure what we would do if we had one in UK still. !!

sjn2003

Was thinking about Northern Beaches but may be too far out. Going to validate in March for two weeks, staying in Manly, so will have a look round and check out commutes and prices then.

Didn't mention, we have another property in London that is rented out. Has a much smaller mortgage and have no plans to sell at the moment as it is my wife's pension!

Far too far in the future to worry about the effect of exchange rates etc on that and if we stay in oz.

Badge

I think it depends on how long ago you bought, for many of us, we couldn't afford to service a mortgage, and pay all the maintenance on an Aussie income, we wouldn't have a pot to paint in as you say, the pound is probably returning to a historic level, there may well be a correction in the UK - and those who bought recently will suffer the most...for us it is better to sell high, and then wait for Australia to settle..

I don't buy all this, 'demand is high' if a first time buyer can't afford, and/or interest rates go up people will get hurt.

othh, if you bought in 1993-1995 why not? you can't really lose.

Badge

JaneandJim

Hi,

I have a rental property in the UK and my current return is 0%. Rents have been falling for years and property is oversupplied. Luckily we bought it as a long term investment (its part of our pension). However, if we'd kept our main house there is no way we could have afforded to move to Australia.

There are also taxes to consider. Currently, there is a withholding tax which means having to pay 10% of the interest on the UK mortgage to the Australian government. Luckily this is being abolished in July. There is also the issue of capital gains tax when we do eventually sell. Taxed at highest rate of income tax with no relief or tax-free threshhold.

Jane