Foreign buyers are needed to purchase inner city apartments locals think are bad investments: Nyko Property
Foreign investors have a role to play in the Australian property market, buying inner city apartments that are needed to accommodate growing populations but shunned by local buyers for their poor investment performance, according to Bill Nikolouzakis, director of real estate advisory firm Nyko Property.
Nikolouzakis said that cultural factors attracted foreign investors to buy inner city apartments as that type of property was viewed as the most desirable investment in Asian cities, such as Jakarta.
“What we have noticed is that most foreign investors want to buy in the CBDs of major cities like Melbourne and Sydney and that’s not that popular with local investors,” Nikolouzakis said.
As populations expand there will be a greater need for residential accommodation in the cities.
Melbourne’s population of 4.35 million at June 2013 is forecast to swell to 7.9 million by 2053, according to Australian Bureau of Statistics projections.
The population has been expanding most rapidly in the inner city areas of Melbourne, which increased by 23%, as well as Docklands and Southbank, with 15% population increases, ABS figures show. The population of Abbotsford in the city’s inner north grew by 20%.
Local investors tend to steer away from inner city apartments, Nikolouzakis said.
“[inner city apartments] have not been proven to perform. They don’t have the same growth as inner ring suburbs in Melbourne,” he said.
An oversupply of new apartments in Melbourne’s city areas is likely to put pressure on capital values in the short to medium term, Nikolouzakis adds.
“There’s not a lot of money to be made in inner city apartments in the short term. For a 50 year investment strategy that’s a good option but medium term – 10 years – I don’t think they’re going to perform,” he said.
But Nikolouzakis said it’s difficult to convince foreign buyers that properties outside of the main CBDs are good investments. Laws prohibit foreign owners from buying existing properties, which tend to be more popular with local investors.
Nyko Property focuses its research on new Melbourne investment properties, predominantly townhouses and small apartment complexes in suburban Melbourne.
Almost three quarters of its sales in the 2014 financial year were made are through Australian financial intermediaries such as accountants, financial advisers and mortgage brokers. Its remaining sales were to foreign investors via local and international agents.
The company licensed its business name in Indonesia in March and has given a local agent the right to distribute its properties in Indonesia. It has plans to open offices in Jakarta and Surabaya.