Investments AbroadWith half an eye on the rugby World Cup, Max Reilly looks at the property investment scene in Australia - and finds a market that is mixed but familiar

Some among the thousands of Irish visitors to Australia for the rugby World Cup may be tempted to cast an eye over possible property investments there, given the continuing appetite of Irish investors for foreign property. They will find a property system broadly in line with what they know, thanks to Australia's political and legal roots, and a market that looks quite attractive to holders of euros.

Australia is almost as great a land area as the US and 50 per cent greater than Europe, but has a total population of only 19.5 million. Politically, it is classed as one of the most stable countries in the world and, economically, it transformed itself in the mid 1980s from an inward looking, import-substitution country to an internationally competitive, export-orientated one.

Australia's property market has produced a stable level of return over the medium and long term. Prime property has typically shown investment returns in the region of 7 per cent to 10 per cent p.a. before acquisition costs (depending on the grade of property).

Although the property industry is governed by overall Commonwealth legislation, investors need to be aware that laws are not necessarily uniform across Australia's six states and territories.

Each state has individual acts covering key areas such as local government, town planning, building, property tax and land title and conveyancing.

Two types of tenure exist, freehold and leasehold. Under freehold, however, there are a number of sub-sections such as the "old system" where ownership of title cannot be traced and was established from a series of instruments: it carries no state guarantee. A second subsection is known as a "Torrens Title", which is a certificate of title with a state guarantee.

The third is a "Strata Title", which also carries a state guarantee but allows for the subdivision of airspace. Under leaseholds all mineral lands are reserved to the crown.

Land taxes are imposed in each state and territory at varying rates. They are applied to the unimproved value of the land either at a flat rate or on a progressive scale, often above a minimum value threshold. City, municipal and shire councils also levy rates on the basis of land values.

Stamp duties, are imposed by each state and territory on specified documents and transactions, and on all property instruments including contracts for sale, mortgages and leases.

Conveyancing stamp duty (typically 3 per cent-5 per cent) is levied on a progressive scale based on the value of sale.

Stamp duty can be legally reduced by purchasing land and entering into a building contract for the completion of improvements.

Capital gains are either treated as ordinary income, and hence subject to personal or company tax rates, or are captured under a capital gains tax introduced in 1985.

Non-residents are taxed on Australian income at 30 per cent up to A$20,700 and thereafter on a graduated scale ranging from 17 per cent to 47 per cent. This may be reduced by double tax treaties, usually up to 10 per cent.

Under Australian leasing practices, rent is paid monthly in advance and there are rent reviews to open market value every two years.

The typical lease term is three to five years and there is no legal right of renewal. Repairs to common and external areas and insurance are the responsibility of the landlord but recouped via service charges.

The Australian economy outperformed other OECD nations last year and is expected to continue performing well over the short-term due to low and stable interest rates and inflation, moderate wage growth, and sound corporate balance sheets.

Tenant demand for offices, although remaining subdued, began to pick up at the end of 2002 when it became positive again after six negative quarters. This flowed through to the vacancy rates with four out of the six central business districts experiencing falls in rates over the quarter.

The supply of new property picked up moderately last year but remained below historic levels.

Prime office investment yields remained fairly stable over the last quarter of 2002 in the majority of CBD office market. Yields are lowest in Sydney (6.5 per cent to 7.5 per cent) and are 7.5 per cent-8 per cent in Melbourne and Brisbane.

Capital values had been trending upwards over the five years to 2001 in the majority of CBD markets. Apart from a lull over 2002, most markets are projected to improve over the next five years.

Sydney's central business district dominates the investment market with sales of A$352.7m over the fourth quarter of 2002, slightly ahead of the second ranked city of Melbourne with $313.7m of sales.

Property trusts, otherwise known as Real Estate Investment Trusts, dominated the market for the previous five years but private companies and investors began to dominate from the end of last year.

Some 55 per cent of commercial property is held by institutions compared to 20 per cent in other world markets.

In spite of differences in leasing practices, the Australian investment market is a relatively familiar one for Irish investors, strongly influenced by low interest rates, soft occupational demand, and the emergence of significant private investment.

Let's hope the Irish rugby team will find the Australian pitches as familiar!

Max Reilly is an associate director of Jones Lang LaSalle in Dublin