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Australian Property Looks To Be A Safe Investment Globally

Australian expatriates should look for properties in their own backyard

Many Australian residents and expatriates who had looked into safe property havens elsewhere are feeling the heat now. Some of them who had invested in US property have suffered a major whitewash of capital gains due to devaluation of US dollars.

 

This was widely expected. The asset-bubble at the root of Sub-Prime crisis was looking for further victims. America had to keep making sacrifices- weakening US dollar against global currencies is one such sacrifice. A simple example will explain this better.

An example to explain the point

Let us suppose you are an Australian expatriate who had invested in US Real Estate. The amount of US dollars that is equivalent to 1 Australian dollar today is more than what it was when you had bought a property in US (let us say a year or 2 ago). To explain, if you had bought a house in US for $100,000 and it had cost you X AUD, you would need to sell it for a price less than X AUD due to devaluation of the US dollar (keeping purchase price = sales price).  Assuming Xa as the sale price in AUD, X-Xa= wipeout in capital gains.

US and Euro Zone investments have suffered alike

Australian expatriates who had invested in Euro Zone have more or less suffered a similar fate. Major currencies of the world are finding a few difficult truths about themselves. In a speculative financial climate, some of these currencies became grossly overvalued. This way they were moving far away from the fundamental valuations or intrinsic value. Having met resistance, one way or the other, they have come down to levels of base support. Naturally, if you had invested in real estate in these parts of the world during their currency boom, you are the one on whom the axe has fallen today.

In fact, the voice of reason says that Australian expatriates would do a lot better by investing in their own backyard. There are various reasons to support the argument.

  • RBA is looking to check inflation in a big way (keeping it at 2-3%).
  • They are looking at asset-price inflation rather than Consumer Price Index as a tool to measure economic strength.
  • Recommendations of State of the Land Report are bound to bring fairer systems of taxation, and create more development-ready land.
  • Easy interest rates have made property purchase a sounder idea than investments in Term deposits.
  • Experts feel that bullishness in the share market is there to stay, thus creating more liquid cash.

All these factors have together made Australia one of the more appropriate places for making Real Estate investments. Economists feel that once the country passes through its much-like-boom-days phase in a stable way, Median price growth will settle down and give a clearer picture of the road ahead.

Have you suffered wipeout in capital gains for investments made abroad?