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Australian investors eye American property

Colin Brechbill - Wednesday, April 18, 2012


Investors are looking to America, where property is at rock-bottom prices after the sub-prime mortgage meltdown, but analysts warn the recovery is a long way away.




TICKY FULLERTON, PRESENTER: America's subprime mortgage meltdown is still recent history but that's not stopping investors from buying property in the United States at rock-bottom prices.

Despite the continuing fallout from the global financial crisis, the Australian arm of Citi is helping to arrange mortgages with its US parent, but analysts warn there are huge risks involved, and investors will need to have deep pockets.

Emily Stewart reports.

EMILY STEWART, REPORTER: It might sound like a risky business, but 45-year-old Declan Hickey bought his first property in the United States two years ago, just after the subprime mortgage meltdown. Since then he's grown his portfolio to more than 10 properties.

DECLAN HICKEY, INVESTOR: I was not happy with the returns that I'd been getting in Australia, and America at the time was looking like a great place to invest because of the bargain prices and the fantastic rate of return that you get on your cash. So it was a no-brainer for me.

GEOFF GARRETT, CEO, US STUDIES CENTRE: If you cash out a high Australian dollar and buy US real estate at rock-bottom price, it looks like a good investment today. I'd say US housing is a buy for people in Australia.

EMILY STEWART: Many agree. Since the global financial crisis the investment bank Citi Australia has had so many customer inquiries about getting loans for US property that it's now offering a service to fast-track loans through its US arm.

VIBHA COBURN, HEAD OF MORTGAGES, CITI AUSTRALIA: We will assist customers who don't have a social security numbers but who do want to invest in the US property market to access funding through our US business.

EMILY STEWART: But investment in US real estate is not for the faint of heart. Property prices in the US fell from dramatic highs in 2005 to a low point in 2009. And in some regions, they continue to drop.

The Case Schiller House Price index shows prices fell in 17 of the 20 cities surveyed between December and January.

MARK BOURIS, EXECUTIVE CHAIRMAN, YELLOW BRICK ROAD: Right now, if people are buying property in the US and in a distressed state, and if there is excess supply, that would suggest to me that it's not on its way to increasing in price, where demand starts to outstrip supply. So that's really the issue, when does demand starts to outstrip supply? That's when the recovery starts. I don't think that is the case right now.

EMILY STEWART: Hundreds of properties are listed on internet sites and magazines, spruiking US properties to Australian investors, but Delia Rickard from the Australian Securities and Investments Commission Personal Finance website, MoneySmart, says be wary of property scams.

DELIA RICKARD, MONEYSMART: You need to think about, what are the hidden expenses here? What taxes will you need to pay back in Australia, what will be property taxes there, what's the insurance like there, management costs, ongoing repairs. So often these sort of offers seem fantastic, but if you don't do your homework, you might find they really were too good to be true.

EMILY STEWART: The big risks in buying in the US involve fluctuations in currency and movements in interest rates and the property market, and the tyranny of distance certainly comes into play too.

DECLAN HICKEY: You need to make sure that whoever you buy off can actually manage the property for you. So that is key to enjoying good rental returns coming in.

EMILY STEWART: So while for some, US property could be the key to unlocking good investment returns, it's still very much a case of Australian buyers beware.

Source:  http://www.abc.net.au

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