Australia’s newest landlord: Chinese investor groups

 

In early June, 800 people jammed into a room on a chilly night at Sydney’s Olympic Park, not for a concert or work function but something far more evangelical.

The Property Investors Alliance has just built its own seminar auditorium and christened it with its latest seminar on how to invest in residential property in Sydney. Officiating at the new hall was the group’s founder and managing director Justin Wang.

The Chinese-language only presentation also had 100 people sitting outside the hall watching on a screen as Wang, who began his career as a school teacher, talked on negative gearing, asset selection, tax and how Australia’s property market was manna from heaven.

“I feel like Moses, at the top of the mountain with two tablets in my arms,” says a smiling Wang, who’s a Christian.

The Property Investor Alliance claims to have 7000 members. Most are Chinese middle-income migrants who have invested $1 ...
The Property Investor Alliance claims to have 7000 members. Most are Chinese middle-income migrants who have invested $1 million on average in the Australian property market. Supplied

This meeting is one of hundreds of property investment seminars the group has rolled out to its 7000-investor base since it started in 2006, advising and assisting its members, mostly middle-income Chinese migrants, to buy property.

The group, which resembles a co-operative, invested $1.75 billion in residential property last year, mainly in inner western Sydney suburbs such as Burwood and Strathfield, where the average annual capital growth rate was 8 to 14 per cent, according to real estate analysts CoreLogic.

Wang estimates the average portfolio for each client is about $1 million.

He works with developers in bringing properties he thinks are suitable to members of PIA, and is then paid by the developers for each property his members buy. Wang says he doesn’t impose any fees on his members.

However, the appetite for residential property could be tempered as state governments have moved to impose surcharges on foreign purchases, with New South Wales joining Queensland and Victoria. In NSW this week the state government said a 4 per cent stamp duty and 0.75 per cent land tax would be applied to property bought and owned by foreign investors.

‘I challenge the government to reconsider’

The changes drew a sharp warning from Wang.

“The State Government must be supremely confident in the Sydney property market conditions that the new surcharge, which effectively doubles stamp duty for foreign investors, will not impact the local market, and that it will not impact further supply and not depress foreign investment potential in this state.

“I challenge the government to reconsider this surcharge and the timing. Has the government forgotten the ill-advised vendor stamp duty introduced several years back, and quickly wound up? I hope that they don’t make the same mistake!

“For a healthy market to flourish, it is best not to artificially interfere with market forces of supply and demand. I call for the industry, and Government, to adopt a Taoist approach in relation to the market. Taoists let things achieve harmony on their own. By interfering, even in the name of ‘improvement’, well-intentioned efforts may actually remove a phenomenon from its natural course – and ultimately cause harm.”

One of the strongest property booms in Australian history has led to a proliferation of property investment seminars being held across hotels, many filled with free food and an army of suited consultants waiting to pounce on wannabe property buyers with the promise of almost doubling returns on a three-year investment.

‘Who’s looking after the investor?’

Wang rejects suggestions that PIA, which employs a team of 270 consultants, is in any way a “spruiker”.

His ambition is to make PIA the first “end-to-end property distribution channel”, connecting the developer to the investor while offering property market and financial advice.

“Agents just try and sell you apartments and take their commission. Some developers are so arrogant, trying to flog off their products and treat agents badly. Banks make interest. Who is looking after the investor?” he asks.

“When we sign up an investor, we teach them financials, the property market. We also investigate their budgets. We help them obtain the right finance. Then we find a good developer with the right products for them. Then we ensure they settle their purchases.”

Wang has removed clients when they have deviated from PIA’s investment approach. PIA has relationships with Westpac and ANZ, and Wang says he is not about to jeopardise his no-default referrals to them by having a black sheep investor.

Westpac and ANZ declined to comment on its relationship with PIA on grounds of confidentiality.

Not everyone is a spruiker

Cam McLellan, a director of another property investor group, OpenCorp, agrees not everyone is a spruiker.

Industry experts with long memories recall individuals such as Henry Kaye, who headed a get-rich-quick property empire that targeted unsophisticated investors, and collapsed in 2003 owing 3500 investors up to $60 million.

“A spruiker’s seminars are always a sales pitch. You are going to be sold to and there will be ‘limited offers’,” says McLellan.

OpenCorp says it runs workshops, rather than seminars, which provide financial education to investors rather than sell properties. It makes its money finding property for clients, who engage them for a fee of 2.2 per cent of the purchase price, but does not sell properties for developers.

The company also has a $600 million apartment development pipeline in Melbourne but says it does not sell the properties direct to clients.

“To know if someone is a spruiker, you need to understand how they make their money,” says McLellan. “We make 99 per cent of ours in development and funds management, not in education.”

He adds that long-term mentoring and partnership with clients are signs of a healthy investment advisory business, especially if it teaches counter-cyclical long-term investment strategies.

Negative gearing not the key

PIA says it follows this model, only allowing its members to invest in properties commensurate with their wages. For example, a member earning $80,000 a year would not be allowed to buy property, typically an apartment, valued at more than $600,000 to $700,000. Most of the group’s investments are in Sydney’s fringes or growth areas including Homebush, Merrylands, Epping, Botany and Pagewood.

PIA partners with developers to build apartments, which it sells to clients and in return gets a fee from the developer.

“We focus on units for living only, that fulfils a renter’s basic needs. They need to be in high demand areas, just outside the CBD, with reasonable rental, access to local amenity and transport and have more than a gross yield of 3.5 per cent,” says Wang.

He doesn’t advocate negative gearing, although many properties will have a tiny negative cashflow gap in Sydney, he says. Neither does he believe in speculative investments.

“Negative gearing is a bonus, not the key to investment. If an investor makes it a purpose, it’s wrong.”

‘Financial freedom’

Clients in PIA refinance on their properties to buy more. Some of his clients, such as Johnson Ng, have up to 15 apartments. Ng was so persuaded by PIA’s investment techniques that he quit his logistics job to join PIA as a consultant.

Ng doesn’t believe Australia’s superannuation, employment rules and taxes help Australians look after their future and so PIA’s philosophy of “financial freedom” made sense to him.

He claims he makes 10 per cent a year on capital growth and about 300 to 400 per cent in return on his initial and only outlay – a deposit on the first apartment – each year. Such high returns could only be achieved through leverage.

Sydney market is ‘unique’

Wang migrated to Australia from China in 1993 and felt “poor”.

“I was just surviving day to day,” he says.

He studied an MBA at the University Technology Sydney and started project marketing apartments for developers. One of his earliest sales was through developer Holdmark’s apartments in Auburn Central in Sydney’s west, which had fire safety issues in 2007.

The size of individual portfolios like Johnson Ng’s and the quality of the assets have raised eyebrows.

But Wang says little can go wrong, even in a recession. He believes there will always be a demand for residential property, especially in Sydney and Melbourne, mostly because of an increasing flow of migrants. This means there will be high demand, coupled with a slow planning system that means housing is scarce.

Screenshot_4347

Read more: http://www.afr.com/real-estate/australias-newest-landlord-chinese-investor-groups-20160616-gpke4g#ixzz4BvYBtwPg

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s