It’s a familiar story. A child leaves home to study overseas and his parents invest in university accommodation for him to live in. Foreign property developers up the hype, touting proximity to campus and a captive rental market. But is this a wise investment? Ken Soong, co-author of Migrating to Australia Good Meh???, doesn’t think so, and suggests an alternative.
Of late, we have been getting letters from our readers asking our opinion on buying property in Australia. Specifically, about investing in student accommodation near university campuses. Advertisers and developers often highlight the fact that these properties are very near universities and colleges. The logic is that there will be no difficulties renting out these units. So, the parents who buy these properties for their children can then rent them out after their children graduate and return to Malaysia.
In the eyes of Malaysians, or any foreign investor for that matter, Australia is one of safest places on earth to invest their money. And I say they are right. Its property market has been growing steadily over the last two decades. Governance is transparent and, on the whole, the country is stable on all fronts: politically, economically and socially. Australia has a sound banking system, industries which supply the booming ASEAN region and a strong and well-educated middle class.
Buoyed by these factors, many investors fail to verify the true intrinsic value of student apartments, which are mainly targeted at Asian parents and not local Australians. They fail to ask the critical question: are the prices of these properties in line with prevailing market values? Do they reflect the typical prices that locals would readily pay?
If money is the least of your concerns, or if you don’t mind paying above local prices, you don’t need to read further. But if the purchase price constitutes a significant portion of your total wealth and you’re hoping to buy something really worthwhile for both rental returns and long term capital growth, I think you should consider an alternative strategy.
Here is how it works. Say, for example, you want to buy a property near the Hawthorn campus of Swinburne University of Technology in Melbourne. So, you look around for an apartment block near the campus. There are quite a few on Burwood Road. It’s a very convenient location: close to both the university and the Glenferrie train station, with shops and restaurants nearby.
If you do not have an Australian permanent resident visa, you are only allowed to buy these kinds of property ie new developments. (This helps create employment for the local economy.) In my view however, student apartment investments are very hard to exit. The capital gains will not be very attractive and the rental income will not constitute a viable return on investment.
But if you’re a parent with a PR visa, you should consider investing in property further away from the campuses. Ideally, the type of property which locals are just as likely to buy, so you’re not limited to visa holders and Asian parents. You will enjoy healthy capital gains over the long term and also relatively good rental returns.
And where will your university-going child live? He can still rent a student apartment on Burwood Road, paying for it with the rent you receive from the local property you bought. When he graduates, he will just leave that student apartment and return to Asia. And if he wants to settle in Australia, he can move into the local apartment. I think that works better in the long term.
Ken Soong is also co-author of Buying a Residential Property in Australia: Eight Things You Need to Know Before Doing It. Outstation readers who write in to Ken at [email protected] will get a free copy of the book.