Ep 9: What are some Important Factors to consider in a Foreign Property Investment? – Keith Ong from RealVantage

So Keith, why are Australian properties one of your key markets? 

Keith: Well, Australia is a market that we like for a few key reasons, right? Number one, it has very strong rule of law. What we mean by this is, the land laws, the contract laws are very clear. They follow the Singapore law, the Torrens system, as you call it. So that’s very important. So when we invest, we need to go to a country with strong regulations and rule of law. 

Number two, it’s a market that has been very resilient and economy has been doing well. Before the COVID, for the last 20 years, it has never been in a recession. So the economy has proven itself to be very resilient. There’re a number of key industries that does very well. You might have heard that there’s the mining industry, and the resources and that really drives the economy. So you would like to invest in an economy that is growing, and they’ve consistently grown. So that’s what we like. 

Third thing, in the real estate market space, it hasn’t been as euphoric as some of the Asian markets. You don’t hear yields of 2, 3, 4% kind in Australia. People are more sensible lah, on when they buy. So capital values haven’t been shot up through the roof yet, and it’s in line with the economic growth. I think that’s important. So that’s why these are the few key reasons we like Australia.

Troy: So there hasn’t been a real sense of a bubble or things like that. 

Keith: Exactly, exactly. You know, it’s important that we go into markets that the real estate prices go along with the strength of the economy, the growth of the economy, you know, you don’t want a situation where it far exceeds how the economy is doing, like sometimes what you hear here  in Singapore, right. Can be quite scary. 

Troy: Yeah. Then the risks will increase, then you wouldn’t know how to really proportion it. 

Keith: Correct, correct. And then you can hear… the government actually knows this, so once they hear things like that happen, they start having measures. Like Singapore, you hear of the stamp duty measures. That is meant to curb a bubble, prevent a bubble from happening.  Because people tend to be not very rational lah, how do I say, just buy, buy, buy, buy when after that, oh, you know, can you service the loan? You know things like that would come in.  

Troy: You mentioned point number two, that, you know, the market has been very consistently growing, no recession. But is it because, you know, they have close relations with China? China got a lot of people go there invest, you know. If this is the case right, then what will happen if they are having more conflicts like recently, you know, they have conflicts. Would that change the market in a significant way? 

Keith: I think that this is a very good, good question. Not just, not just in Australia, but anywhere around the world, trade tensions will be there. And Australia recently has [laughs]… it has been very vocal about China. Yeah, I agree. Well yes, yes, it has dampened the demand.  But I do think it’s a healthy correction, to some extent. We hear of Melbourne house prices shooting through the roof, and it’s a lot of Chinese demand that had to have done that lah, previously, the last one, two years. And if you speak to the local Australians, they were like, they were totally baffled.

How come it jumped up so much, the prices, you know? And, and they obviously are a bit… unhappy, because you priced the local out. Right? Similar what you see in Singapore, there’s a hefty stamp duty for foreigners – they also have. 

Troy: How much is it in Australia? 

Keith: So it varies from state to state. So for example, in Perth it’s 8%. In Sydney, it’s 12 %. This is in addition to the standard stamp duty that everyone pays, okay. So my point going back to this is yes, you know, it has dampened demand, but I think it’s a most sustainable trajectory now. 

But Australians, honestly, they’re pretty practical- minded people. A lot of rhetoric about, you know, they don’t like what China is doing and dah, dah, dah, but by the end of the day they also want China, it is a big trading partner, a big consumer of so many things that they sell – agriculture, beef, wine. A lot of producers in their country are hurting, you know . Can you imagine? You think they’re going to shut the doors and not trade with China? I don’t think so. They’re not that dumb, to be honest. 

Troy: It’s not practical lah, that move. 

Keith: Yeah. So the politicians, you know, obviously they have to, it’s a balance game. Politicians balance local demand, the wants and needs. But at the same time, you know, I need to create jobs, right? I need to drive the economy forward. So, you know, I think they’ll be sensible. 

Troy: So in the long term we think that, okay, this is not going to be a major problem. 

Keith: Yeah, I don’t think it will be a major problem. 

Troy: Yeah. Understood. Understood. So let’s say for me, I have, worked a few years in Singapore, I have money and I want to invest in Australia. What are the major metrics that you think I should look out for when I invest in Australian properties? 

Keith: On a personal basis, whether you go and buy a condo unit or you buy a townhouse or landed, first be very clear about, number one, the location, where you’re going into. Be very clear that there is a rental market for you. Don’t be mistaken by going into the city. You know, a lot of people think that, oh, I buy straight into the city is fantastic. Not true. In the city itself, sometimes cannot rent. Yeah. 

Troy: Why? Why in the city cannot rent? 

Keith: Because the locals don’t like to stay in the city! They want to stay outside of the city. 

Troy: The nature place lah, the beach apartments… 

Keith: Yeah. They want to stay… they want to be near, but not so near. So you think, wah, I’m buying apartment in, you know, the heart of Sydney, wah, very good. But yes and no. So you firstly understand that local demand, where it’s coming from. 

Second thing, be clear about, obviously the tax exposure. Australia does have quite a punitive tax regime. There’s a capital gains tax of 30%. And once you divest your asset as a foreigner, for residential, right, you cannot divest to another foreigner. You must sell to a local. Because the logic is very simple – they say, foreigners who come here must buy new. Cannot buy resale. Yeah. So same thing when you want to sell next time, right, you’ll have to sell it to a local. 

Third thing also, just to be very clear, what’s the currency we are at. You know, ’cause if your your home currency is in Sing dollars, you’re investing in Australia…  But now actually it’s in our favour . Australian dollar is on parity or almost parity in Singapore, so it’s in our favour. So be clear what kind of FX exposure. You may have made a lot of money in a property, but you lose on the FX. Okay. So these are a few things to look out for. 

Troy: Then what, what do you do to your properties to increase your properties? Or what can people do? Let’s say the buy already right, they want to increase their yield… what are things that they can do? 

Keith: It’s a sector you’re playing, you’re playing in. And to be honest, I mean, residential, there’s only so much you can do, you know, an apartment’s an apartment, right? Some people like to toy with the concept of what we call, co-living. You break it up into five different rooms and you lease it out room by room. The sum of parts gives you better returns. That’s one way you can do it, but it’s much more intensive. So you got to have somebody to look after it for you, right? Making sure every single one of your five tenants, everyone pays rent on time. Something breaks down in his room, you’ve got to get it fixed and things like that, right. 

So residential is to some extent, pretty limited, but where RealVantage does is we look at it, not just in residential space. We look even in retail space, like shopping centers. Shopping centers has a lot more latitude in how we can enhance the asset. It could be simply breaking up a shop into two, changing the tenants into higher paying rents, improving on the facade and enhancing it to draw more crowd into it. Or even developing a section of the shopping center that can yield better returns. Yeah. So we do all this to, throw out a better word – milk the assets as hard as we can. So that’s what we do. 

Troy: Like how Capitaland bought over Bugis and then just… renew it. 

Keith: Exactly. We call it… technical term is Asset Enhancement Initiative, AEI for short. That’s what we do. We think very hard about the… We look at the asset and we ask ourselves, hey, can we enhance this further? How do you derive more income? Yeah. Sometimes it could be as simple as managing the operating expenses. Sometimes, you know, we look at operating expenses of a shopping center, it’s not optimal, a lot of wastage. That’s what we do, to minimize it. And then ultimately it gets better returns. 

Troy: Because the cost is brought down. 

Keith: Exactly. Yeah. 

Troy: But you mentioned, you know, investing in the city area, it’s not that good because the locals might want to stay in the suburban areas. But what if they invest in city areas and they want to attract expats or like foreign students, things like that, would that make sense?

Keith: Well, you know, that that is a strategy that some people do take on. I mean, it’s, it’s also… it’s about to understand also that the student accommodation market is a market by itself. What we mean is there are purpose-built student accommodations to cater to these people. And if you are a student, let’s say, studying in Sydney, right, you would like to congregate with other students. So, yeah, certainly you must understand the competition out there, so you must know that, okay, there’s certain people there, who will always gravitate to those types of facilities. I mean, certainly in the city itself, I think if you really want to try to enhance your asset, to think about working with some corporate tenants who are able to give you a, a good sort of security over the the lease, right. So work with certain companies that okay, you, you have, let’s say a number of apartments, you tie with them and you give them a slight discount, but at least every time they got expats coming in, right, they will rent it from you. That’s one other way to do it lah, yeah. I think it’s important to be clear about where is your property and what kind of attraction that you have on your own property itself, because different property has different demands and likes and dislikes. 

Troy: You have to play with different strategies. 

Keith: Correct, correct, correct, correct. So you’ve got to understand where is it within the sub market that you play in. So some of them like located within tech companies, right, then you, you might have to see how it can tie up with these tech companies to rent out your apartments and stuff like that. 

Troy: Okay. Cause I also came back from Australia. Two and a half years, I stayed in student accommodation. I get what you mean by, you know, the student accommodation might not be a big market because a big chunk of them might be in student accommodation. 

Keith: Yeah. It is… that’s a sector that we look at also, quite actively. We’re about to tie up with somebody very prominent in UK who specialize in student accommodation, purpose-built student accommodation.  So we would invest into a fund of theirs, then they would take the money and build student accommodations. So these guys will go and source for a nice piece of land, and they will go and put it together, to get the contractors in, they build the student accommodation. 

Troy: But they build it like in those first tier or second tier unis…? 

Keith: Yeah. They always go for the key cities, whereas every university has a certain student population. That’s important. 

Troy: So those are the metrics they look out for, right? 

Keith: Yeah, and proximity to the university. That’s also important. Proximity to retail amenities because students need to eat and all that stuff. So market, shops all that, nearby… Proximity to transportation links and all that.

Troy: But you mentioned a lot of doing our own research. Let’s say, we want to find out are there demand in this particular Australian place, what’s the yield… but, as a Singaporean, let’s say, I want to buy, which website or which place can I get all these research? Because, I totally don’t know anything about… 

Keith: True, I think that’s where for the layman it’s really challenging. For us, we, yes, apart from getting things off the internet, we also do have paid subscription for proprietary data. So the bigger property consultancies like CBRE, JLL, they have published information on a monthly basis, which you subscribe to. It shows you prices for houses, rentals for shopping centers, rentals for industrial properties, right down to the granular details, like which location, you know, what kind of rents they get. So we rely on all these as well. You know, to, to help us to do proper due diligence on the asset. And also we rely on local context. We have a strong network of people on the ground that we talk to. ‘Cause throughout our years of investing in Australia, we have built a strong network. Certain things, they won’t write it on the internet, lah, you need to need a local guy to, to tell you, what what are the nuances of the area. So that’s where we have , yeah. So I think research is certainly very important. So be very clear about when you enter into property, what is a possible rental you can achieve? Where are you in terms of the price that you’re buying? 

What I mean is, for example, in Singapore, high-end residential, averaging 2000 to 2005 per square foot, you won’t be go and pay 4,000 per square foot because you’ll look silly, right? So make sure you understand all these things, you know, and if, if what was the rental that you can achieve on a monthly basis and also understand what are the fees and taxes you need to pay to the local authorities. Property tax, how you calculate, any local council tax you need to pay. Land tax, so on and so forth. Understand all these, because all these affects your numbers. 

Troy: Exactly. Yeah.  Wah, but, like what you’ve mentioned, now, it’s just… I feel like even if I have all these research done, right, I still need to find an agent or someone who really knows the market. It’s not possible. I go and find that someone from PropNex, eh, I want to buy a property in Australia. They don’t even know. 

Keith: Yeah.

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Troy: In Singapore, there’s this minimum holding period. Otherwise you’ll have to pay more tax, right? It’s three years, 12%. But in Australia is there such a tax? 

Keith: There isn’t such a tax . 

Troy: So we can flip it as fast as you want? 

Keith: You can flip it, but it, you got to be realistic, whether you can flip it so fast. 

Troy: It goes back to your timetable.

Keith: Correct. You see, don’t forget when you buy a property, right, there is transaction cost involved. What I mean is this – you have your stamp duty to pay, which is, now for foreigners going in, you pay another 12%, for example. Lawyer’s fee, getting the banks to come in, there’s some fee involved to pay… All these adds up. So straight away, your price really, it’s higher, right? So you need a while to let the market run up. And then you exit. Going back to your question, Australia, they don’t have a minimal holding period. Yeah. You just have to grapple with capital gains tax. If you make a gain at the end of your… and then you sell.

Troy: You mentioned 30%, right, just now. 

Keith: Yeah. So all these in between things you have to look after. So for us in RealVantage we look after everything. So our investors also get a quarterly report on how their assets are performing.    We tell them, okay, what’s the occupancy rate, what’s the rental  rates we have achieved, how is the investment doing, when is your distribution coming in, all this is listed to them. Distribution means when’s your rental coming in. So we pay our rentals on a quarterly basis. Everytime we collect, we pay them, all our investors, on a quarterly basis. 

Troy: Over your past years of investing in Australia, right, when you see Singaporeans or any people investing in Australia, what are the fatal assumptions that they make? Or the risks that they take, unnecessary risks that they take, in the market? 

Keith: Well they don’t factor in all the costs associated with the investment. So I think a lot of the layman investors don’t understand the tax implication. Even on a rental basis, you still have to pay tax. And then at the end, when you exit there’s capital gains tax. In between, you have to pay income tax as well. So all these eats up, and then they realize, eh, it’s actually not worth the effort. You may be yielding, let’s say, 5%, but then 30% goes off to tax. Yeah. 

Troy: So the income tax every month, the rental, also 30%. 

Keith: Of course. All these, they don’t really factor in. So that’s one thing. And obviously all the transactional labour costs they probably know a little bit, but don’t know fully the extent of it lah, you know. So for example, agents, how much it costs to get an agent to come in, all these. All these little things add up that eats away our profit. I think that’s what most people don’t, don’t factor in, in Australia. I think that’s important that you be clear about that. And also just market knowledge, just limited market knowledge because we, we go in with a mindset of, oh, we buy a apartment in Singapore Orchard Road, okay, we buy one in Sydney in the heart of the city, sure make money also, can’t go wrong in the scene. But it may not yield as strong… 

Troy: So we can’t replicate across countries.

Keith: Yeah, that’s right. So that’s why the local knowledge and research is important. Understand the market, understand the dynamics of it. Also, very important is know who you are buying from -the developer, track record, quality of products. All that, very important. 

Troy: So I think one thing that you mentioned that was really significant was the… don’t calculate numbers properly. So like what you mentioned… Let’s say we go back to the example, 12% tax, plus all the lawyer fee, agent fee, bank fee, let’s say we add up to 15%.  So when you buy already, you’re losing 15% … 

Keith: Exactly, down… 

Troy: which you have to pay to the government. And then every month you have to pay 30% of your rent back to the government. And then when you sell, you need to pay 30% of your gains back to the government. So if you are not making maybe at least 20 something, 30%, then you are just breaking even.s 

Keith: Precisely. Yeah. In a broad sense, you’re right. So people don’t factor in before, because for us, when we, when we invest in a project, we, we done our computations every year. We look at what will be the projections every year. So we look at the rental, whether we can move up the rental every year by 5%, 8%. We ask ourselves that, you know. All these have to be mapped out. Then only at the end you calculate, oh, do I make money out of this asset? But personally, a lot of people don’t do that. Just buy one nice apartment in Sydney, okay, lah, let’s buy lah. 

Troy: Yeah. If they have a full-time job here or business, they don’t care already. 

Keith: It looks good lah. That’s a different thing lah. Sometimes it’s not just purely investment. It’s just for sentimental reasons or just, just just buying something. That you want, yeah. To just have a stake in that, that country. Okay, that’s fine, that’s a different… but ours is purely an investment game. No sentiments here, you know, we don’t think because we, wah we love this asset, right, heart, in the heart of Melbourne… it doesn’t make money, doesn’t make money. Move on. That’s good, buy-in again, for us it’s like that. For us it’s a pure numbers game, put it this way. So we, we got to be very clear. 

Troy: Everything is tuned to max out the investment . 

Keith: Of course, of course. 

Troy: Not just doing it for fun. 

Keith: Yeah, we are, of course, we are here to make money for investors. We are not here to buy nice properties that our investors might like. It might be a gleaming asset or shining asset, but it doesn’t make money, then what’s the point. 

Troy: Yeah. Cause when I was in Australia, the Melbourne, right, I went to Melbourne. Stayed in the Airbnb. So I talked to the middle man. She said that this owner has over 10 plus properties in Melbourne. And she just manages the Airbnb. That’s how they make money. I don’t know how much they can make. 

Keith: Yeah, I think yeah, it’s important to work out the sums . A lot of people don’t do that. 

Troy: If Singaporeans invest in Australia, how worried should they be about the currency fluctuation? 

Keith: I think that is a very good point, you know. 

Troy: Cause I think last time a few years ago, 1.3. Then now it’s 0.9 something… 

Keith: I think when you were studying, that’s 1.3, right? 

Troy: Around there.  

Keith: Same, when I was investing five years ago it was 1.3. Yeah. It’s important to understand the FX fluctuations or the historical movements. Right. When I was studying in UK, it was 2.5 to 1 Sing dollar, uh… 2.5 Sing dollar to 1 pound. Now it’s a 1.8.  During Brexit time was as low as 1.6. So I think go with a mindset of understanding where you are in the fluctuations of the currency, be clear about how that goes. We’re not FX traders lah, we can’t predict also. This is a risk you need to understand. Okay, if the currency is not in your favour, then you must be prepared to hold it in that currency because any returns that come in will be in that currency. So if you’re like, oh, sell out your property, make a lot of money in Australian dollar… You got 2 million Australian dollars, just keep it there first. 

Troy: Just wait out. 

Keith: Then continue to invest. Okay. Because I think if you invest, continue to invest, in time to come, the currency will be in your favour. You still make money lah. Yeah. 

Troy: Okay. That’s a good strategy. 

Keith: So, you know, be, be cognizant of how the currency movements are, and go in accordingly. 

Troy: So Keith, what you have mentioned throughout, you know, we need a lot of research about the local context, about the asset, about the demand and all these different taxes and currency fluctuation. It sounds like a lot of things, but at the same time, you know, maybe some people are interested in the yield. How would you tell someone who is a bit scared of all this research by still wants higher yield? Should they just invest in Singapore or once they’ve done their research, you know, they can invest in Australia? 

Keith: Oh, I see. Well, like I think, when one is investing overseas, like I said, you must do your own homework. You need to know what I mentioned – understand the market, understand the tax implications, understand the local practices, find a local operatives who can look after your asset for you. All these are very important things. But at the same time to make it easy for everybody, you can also invest in RealVantage. RealVantage does all this for you, right. The key is whether you can trust the platform. And how you trust the platform is really based on their track record – how well they’ve done, what kind of returns they have achieved. All these are very important. And more importantly, the team behind it. You must know the team has done real estate investing or real estate private equity investing, we call it, and they have been in this business for a long time. So that’s important. 

Troy: But are there other companies also or not, or, you know, in this area, you guys are the best? 

Keith: Well, we won’t, we won’t profess we are the best, but in this space where we target accredited investors, I don’t see many players out there. At least the, the strength of the team is not as deep, or the experience is not as wide as us lah, I can say that for sure. Other platforms out there, may do similar things, but when you look at the team dynamics behind it, I don’t think they have the experience or the execution ability, like we have, lah, ok. Singapore always a solid market to invest in. But like I said, Singapore is quite a speculative market, you know, because yield is nothing, next to nothing. So very important when you invest in a speculative market, you must have holding power. Because your yield cannot cover your interest, your interest payment. Or maybe just nice cover, depend how much loan you take lah, right? You take 70%, 80% , I can, I can assure you, your rental cannot cover your interest payment. So what I’m trying to say, okay, but you hope that, okay, you buy at 1,005 per square foot, I can sell it for 2000 per square foot in five years’ time or two years’ time, whatever.

So you must have holding power. You don’t buy then, wah, you cannot service the loan. Then it’s tough, then you get a lot of stress. Right. So Singapore is a market that is very resilient. Personally, also I invest in Singapore but like I said don’t be too aggressive on what you’re paying and make sure you have the holding power, ’cause sometimes the exit not easy to time.

Troy: Yeah. You mentioned the most significant indicator for the exit is the market cycle, the supply and demand. 

Keith: Yes, yes, yes. 

Troy: Is it the URA supply and demand charts? 

Keith: Yeah. It’s … if you look through… now cycles are very differently leh [laughs] from the last time. Last time, you know, there’s quite, quite… certain pattern. Every 10 years there’s one jump, lah. 1996 there’s one spike, then after that 2006 there’s spike, you know, then after that, but the subprime happened, then everything drop, then it went back up again so fast, you know, 2010 it went back up… 09, 10, went back up. Okay, you know… then now COVID we think will drop, didn’t really drop. 

Troy: That’s why, everyone buying… Cannot holiday, then everyone chionging…

Keith: So cycles are very different nowadays compared to the last time, there’s a… like a pattern. Now cannot already.  So, even more, you must be clear about your finances and be able to hold. Holding power is very… In real estate it’s very, very lumpy. It cannot sell overnight immediately. So remember that. You, because when you want to sell overnight, immediately, you have to take a hair cut… 

Troy: Fire sale…

Keith: …sometime big haircut. Yeah. So be ready for that. 

Troy: So you’re telling, you know, people who’re investing, not just in Singapore, everywhere, they have to have the long-term mindset. Not like 3 years, I want to sell already. 

Keith: Of course. Cannot lah. Real estate is not the type. Fundamentally what drives real estate is the economic performance of the country. So certain emerging markets are very strong, like you hear Vietnam, Myanmmar, all that, wah, Cambodia, real estate prices have gone up a lot because those are burgeoning economies. But there lies the, the certain risks involved in those countries. So, got to be careful. 

Troy: Do you think, like, a lot of big companies coming here to set up their headquarters, like zoom, alibaba, will increase the… about property prices here, by a lot? 

Keith: Well, I wouldn’t say it would increase property prices by a lot. It will certainly help in the demand for real estate, right. Singapore is a very open economy, which is a wonderful thing. You have a lot of MNCs coming here to set up shop like what you mentioned. And they come in, they have to find a place for the expats to stay. The expats got to go to restaurants to eat, you know, so rentals for retail also go up. I mean, so those are multiplier effect, which is excellent, for us, you know. Singapore prides itself, as having a very open economy. We attract the best talents from around the world. And we continue to do so, which is excellent, you know. So that will add strength to the Singapore economy. And, and that’s why we personally, I’m very confident in the Singapore economy and, and real estate prices, but bear in mind that prices cannot run ahead of the economy. That’s scary if that happens, you know.  

Troy: But the COVID years, it’s an example… [laughs]

Keith: When, when it runs ahead of economy ,that’s when you might pay over and above what’s the right price for the asset. Then when it comes off, you’d be hit, or you cannot sell at a profit. 

Troy: So Keith went through with, with us about the ins and outs about Australia investing. I had a better understanding of investing in Australia, what are the risks to look out for. And what are the types of research that I should do, and also a little bit about Singapore properties as well. So, thank you, Keith. 

Keith: Okay, thanks very much, Troy for having me. Appreciate it. Thanks. 

Troy: Thank you. 

Thanks for taking time to tune in.

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I used to think that it’s not that hard to invest in overseas properties, just the same… similar as Singapore. Just do some research, like what you do in Singapore, and you’re good. But after talking to Keith, I realized that is not the case. In Singapore all the information is carefully categorized. If you want to find them, you just have to subscribe to certain real estate research platforms and get it. If devote yourself to studying it for a few weeks or months, you can probably get a very good grasp. But for overseas, it’s not that straightforward.

Besides, in Singapore, you can easily drive around the area and compare it to the URA master plan. And you have a pretty good idea, you know, whether this place is going to develop or not. But if you want to invest in Australian properties, it’s so hard, you know. You want to fly down there to take a look, and then what, talk to the locals and research the past transactions of the whole town to see if you can find any price trends? It’s too hard. I mean, you can go down for a holiday, one week, but, yeah, you probably can’t know a lot about the area or the past trends in one week. So that’s why I think that investing overseas is a bit harder. And of course, investing in overseas, there are other risks as well, it’s not as simple as Singapore. 

But what I learned from this is that if you ever want to invest in properties overseas, but you’re in Singapore, a good thing, or a very important thing to accept is that you really need an expert to guide you along. And once you understand that, then I think your job is to do research in the market to find the experts who you think can guide you, who you think that their research is reliable, who can, and is good enough, to guide you forward.

And then once you’ve found that expert that you think is suitable for you, you can further filter through the resources that they provide you, according to the factors, according to your own financial situation and your yield expectations. And from there, I think you can come to a better substantiated decision whether to invest in the property or not.