Buying Property in Australia as a Foreign Investor
Famed for stunning beaches, scorching red deserts and bustling cities, multi-cultural society, every aspect of Australia’s culture has mesmerized travelers for decades; from its indigenous heritage to its young and vibrant cafe scene.
You are bound to find something exciting in Australia, from its cultural diversity to the thriving economy and skilled workforce. Australia ranks among the most resilient economies in the world by the World Competitive Workbook and has experienced consistent growth for the past 22 years and counting. It is also strategically situated in Asia Pacific - the fastest growing region in the world.
High population growth is one of the most important criteria in real estate investment. With the population growth in Australia, especially in key cities like Melbourne & Sydney not likely to slow down anytime, it makes investing in these cities attractive to ensure a continuity of both capital and rental growth.
As one of the world’s most consistent property markets for the past three decades, Australian properties see an average ROI of 7% per annum, with lesser years of decline compared to almost any other property market in the world.
The Australian property market has also displayed resilience in resisting downward trends, giving investors the confidence needed to hold on to their investments for longer periods. The low volatility of the Australian property market has made it the preferred choice over stock markets and other property markets worldwide.
Foreigners are welcome to own FREEHOLD properties and enjoy ownerships of such properties as locals would.
Before you begin – budget and plan
It’s essential that you research, plan, and budget your property purchase in Australia.
You may have a location in mind, but it’s always helpful to speak to a real estate agent who can offer you some local advice that will help you select an affordable area with great returns.
Making sure that you can afford the property is also important.
Australian banks won’t lend to you if you can’t prove that you can afford the debt, so you need to have a realistic and affordable budget in place.
Step 1 – Organise your team of professionals
You’ll need a conveyancer or a solicitor to take care of the legal work for you.
Their job is to complete searches on the property, manage the transfer of ownership, and review the contract before you sign it.
Keep in mind that your appointed conveyancer must be in the same state as the property you’re buying or at least be licensed to operate in that state.
For Western Australia (WA), conveyancers are called settlement agents.
It’s common for a real estate agent to recommend a conveyancer to you, but we suggest that you choose one that is likely to be impartial.
It is required to be represented by a lawyer should you decide to purchase an Australian property. Engaging a lawyer who knows the ins and outs of Australian property law will smoothen the buying process.
Understanding that many overseas investors do not have access to a lawyer in Australia, ARE has established connections with some of the leading lawyers who are familiar with your needs and queries as a foreign investor.
Your lawyer in Australia will assist in reviewing the Contract of Sale, sending over the documents to you and be your legal representative in matters about your Australian property. To maximize the efficiency of this service, you will be interacting directly with your lawyer in Australia.
A good Australian mortgage broker with experience in helping non-residents to apply for a mortgage is an essential member of your team of experts.
Brokers don’t need to see the property you are buying so they can be contacted no matter where they work in Australia, and, for most residential mortgages and loans, their services are free.
Accountant (if required)
You don’t need to appoint an accountant but there are many benefits in having one, and we strongly recommend that you appoint one.
Your accountant can help you structure your financials and save you money on tax because they are experts in Australian tax legislation.
If you’d like to set up Australian companies or trusts to hold your investment, then you’ll need an accountant.
Your appointed accountant can be located anywhere in Australia, so it doesn’t matter if you live in another city or state.
In particular, you need to be aware of taxes for leaving your property vacant, stamp duty, foreign citizen stamp duty, land tax, and capital gains tax.
There may be complexities depending on the country you are living in and if your home country has a joint tax agreement with Australia or not.
Certain States and Territories offer rebates on stamp duty when purchasing pre-construction properties. Therefore buyers only have to pay a fraction of the stamp duty based on the stage of work completed when the contract is signed. Australia’s fairly competitive depreciation rates also make Australian properties fairly tax effective.
You should consult with your tax accountant or contact ARE for further tax-related inquiries.
Similar to other countries, you will be taxed if your property investment generates income. But there are many methods of reducing or deferring tax through tax deductions (expenses incurred as a result of generating the income). When it comes to maximizing your tax deductions, you can rely on our specialized expertise and experience will guide you through your claims. Having an accountant who is seasoned in property investment will also help to optimize your cashflow.
ARE has developed ties with several seasoned tax accountants who will help you with your annual tax returns.
Loan In Other Currencies
As an alternative, you also have the option of applying for a loan from an international bank in a major currency such as the Euro, Pound Sterling, or Singapore dollar, among others. There are two main reasons why you should consider applying for a loan in a foreign currency :
- Has substantially lower interest rates compared to Australia
- Could potentially lower your capital debt
While lower interest rates may seem enticing, having a loan in a foreign currency incurs currency exchange spreads as your income and loan are in different currencies.
Compared to other countries, insurance is relatively affordable in Australia. There are three insurance covers required for a property, they are Home Contents, Building, and Landlords insurance. ARE has conducted detailed comparisons between all insurance companies and will assist you in the insurance application process.
Buyers agent (if required)
A buyers agent is also very useful if you’re located overseas and can’t physically inspect the property you’re buying.
The main job of a buyers agent is to source the property and negotiate a great deal on your behalf.
They’ll deal with the real estate agents for you and ensure that the property you’re buying represents a good opportunity.
Your buyer's agent must be licensed and have some presence in the state that you’re buying a property in.
Keep in mind that a buyers agent should give independent and objective advice: they shouldn’t be selling his/her own properties.
If they are selling their own properties or are receiving a commission from the developer, then they are not a buyers agent acting for you.
They are a real estate agent acting for the seller!
Some buyers agents will charge a fixed fee while others will charge an upfront fee as well as a percentage of the purchase price of the property.
Step 2 – Get your loan pre-approved
It’s essential for you to get your pre-approval before you begin looking for a property.
Good properties don’t stay on the market long!
The buyer with a pre-approval usually snaps up the best investments while the others are still putting their mortgage applications together.
More importantly, you know that you’re eligible for a loan and how much you can borrow.
Why waste your time looking for a house or unit only to find out that you can’t get a loan?
It’s, for this reason, we strongly recommend that you don’t buy a property that is due to settle more than 3 months from now.
Your pre-approval will expire, and if the lender can’t help you later on, then you may lose your deposit.
Step 3 – Applying for a mortgage
Applying for a mortgage as a non-resident can be tough because lending criteria can be very complex.
For foreign investors, especially, there are less than a handful of lenders who are lending in this space.
If you are thinking of applying for a credit facility to finance your Australian property, a loan can be obtained from an Australian bank. Prudent investors will ensure their loans are pre-approved by the bank so that they can quickly secure a good deal when they see it.
Australia has various financial institutions that provide loan facilities, making interest rates relatively competitive. Similar to other banks around the world, many Australian banks generally loan up to 80% of the property’s value to foreign investors.
Most of the established banks have online banking facilities, making it easy to connect from abroad to monitor transactions, transfer funds to your account and liaise with the bank online.
ARE can help you to manage the loan process and find the most cost-efficient, flexible, and structured loans in the market. Our financial consultants are accustomed to communicating with overseas customers and have flexible working hours so that it is easier for you to get in touch. We will constantly be updating you via e-mail, fax and phone calls throughout the entire process.
Step 4 – Confirm you qualify with the FIRB
If you’re a non-resident or a temporary visa holder, you’re legally required to get permission from the Foreign Investment Review Board (FIRB) to buy property in Australia.
Australian citizens, Australian permanent residents and New Zealand (NZ) citizens don’t require FIRB approval.
Getting FIRB approval is a simple process and usually takes up to two weeks from the date the application is lodged.
Fees can vary depending on the value of the residential property or land that you want to purchase:
$1 million or less: $5,600
$1 million to $1,999,999: $11,300
$2 million to $2,999,999: $22,700
$3 million to $3,999,999: $34,000
$4 million to $4,999,999: $45,400
$5 million to $5,999,999: $56,700
$6 million to $6,999,999: $68,100
$7 million to $7,999,999: $79,500
$8 million to $8,999,999: $90,900
$9 million to $9,999,999: $102,300
$10 million or higher: Please contact the Australian Taxation Office for a fee estimate (fees are tiered per million).
Agricultural land: You must notify FIRB when purchasing farmland worth $15 million or more as the fees can be substantial.
You won’t actually need to apply for FIRB approval until you’ve found a property, but you should start investigating their requirements so that you don’t buy an ineligible property.
Some property developers have obtained FIRB approval for their entire development in advance, which means you don’t need to worry about it if you’re buying a newly-built unit.
If you are looking to purchase Australian property, you will eventually need to transfer money to Australia for the initial deposit or simply add funds to your bank account in Australia. You will also subsequently need to withdraw money in the event of selling your property or to collect payment on your rental.
It is always prudent for foreign investors to take stay abreast of current exchange rates and be aware of the procedure required in moving funds back and forth internationally. Obtaining a loan in the country you are investing in is a wise method of avoiding hefty exchange rates.
Step 5 – Find a property
Now is the time to visit Australia and begin your search for a property.
The other option is to use a buyers agent (see above).
If you decided not to use a buyers agent, then it may be a good idea to use comparable sales to value the property.
Make sure that you compare your properties to similar-sized properties that have sold outside of the development, so you get a more accurate value.
Often the bank chosen by your mortgage broker will value the property. We recommend that you don’t commit to buying until this has happened as this can save you from paying too much.
The problem is that the banks often don’t tell you if the valuation comes in short!
They are not required by law to tell you and may only tell you if it affects your loan approval.
Step 6 – Negotiate the purchase price
As a general rule, Australian properties usually sell for up to 10% less than the listed price.
This varies depending on the market, location, and type of property. You can look up the suburb profiles on realestate.com.au to find more about the market you are interested in.
Properties in popular suburbs sometimes sell for more than the price that they’re advertised!
Some real estate websites will publish the “discounting percentage” for particular suburbs, which is the average percentage below the listing price that a property sells for.
If you’re using a buyers agent, they’ll help you to negotiate the price.
You can ask for a contract before signing and ask your solicitor or conveyancer to look at the contract and add any additional conditions if necessary.
A common condition is that the sale is “subject to FIRB approval,” which allows you to cancel the contract in the unlikely event that you don’t get approval from the Australian government.
Each state of Australia has its own property laws, so use your conveyancer or solicitor’s expertise to help guide you. That’s what they’re there for!
If the vendor allows a cooling off period, you can put a holding deposit and sign the contract.
It is recommended that you talk to your conveyancer about including a cooling off period of up to two weeks in your contract.
In some states, a subject to finance clause is more common, but this gives you less protection than cooling off period.
Your conveyancer or solicitor will let you know what checks you have to do before buying and will let you know when it’s safe to sign the contract to buy the property (contract of sale).
If you’re unable to get a loan during the cooling off period, your maximum penalty is the holding deposit, usually up to $1000.
Again, please check with your conveyancer or solicitor as this can vary across the different states.
Step 7 – Obtain formal mortgage approval
When you’ve found a property to buy, you can forward the contract of sale to your mortgage broker to proceed with the formal approval.
Remember, don’t commit yourself to buy a property until your mortgage is formally approved.
The real estate agent may pressure you to sign because there are “other buyers” but the only time you should do so is if there’s a cooling off period in place.
Once you forward the sales contract to us, formal approval can be obtained within a week.
Step 8 – Exchange contracts and pay your deposit
You can exchange your contract after your loan has been formally approved and your solicitor or conveyancer gives you the go ahead.
Normally, you’ll need to put down a 10% deposit.
The amount of the deposit is negotiable and differs between the states.
Note that once you’ve committed to a property, you can’t back out so please seek legal advice before signing any contracts or paying your deposit.
Signing the Contract of Sale
The Contract of Sale will be prepared by the developer’s lawyer and sent to your Australian lawyer, who will review the contract and attach a contract summary. The Contract of Sale will then be couriered to you. Kindly take note of the following:
Timeframe: An extended period has been negotiated for you to sign and return the Contract of Sale, factoring in the time needed to courier the documents overseas. Be sure to take note of the stipulated timeframe that is clearly stated in the Contract of Sale (usually 10-21 days). In the event the completed Contract of Sale is not received within the specified time frame, the property will be released onto the market.
Sign and Return the Contract: Ensure that each page of the contract is signed as required by your lawyer. You will want to take note of the tracking number provided by your courier so that you can track the document while it is in transit.
10% deposit: Your Contract of Sale should state the payment details of the 10% deposit. The deposit will usually be required to be transferred through your local bank or international wire transfer.
Exchange: Once all the steps above have been completed, your lawyer in Australia will inform you when the property has been officially ‘exchanged.’
Step 9 – Seek FIRB approval
It’s very important that the contract you’re signing has the clause “subject to FIRB approval,” allowing for 30 days for a FIRB decision.
At this point, it’s vital to check with your conveyancer or solicitor that the clause is stated in such a way to ensure that if your FIRB proposal is rejected, you won’t lose your deposit.
A FIRB application is simple to do and will usually be taken care of by your conveyancer.
You may need to provide a copy of the approval to your lender before your loan being advanced.
Step 10 – Final arrangements
Once you have exchanged the contract, forward a copy of the signed contract to the FIRB for approval.
Your bank would have sent out the loan contract to you after formal approval.
You can ask your mortgage broker to go over it with you or get help from your conveyancer or solicitor.
If you are living overseas, you may need to visit the Australian embassy or consulate to get identified or to have your loan contract witnessed.
If you have a trusted friend or relative living in Australia, then you can appoint them as a Power of Attorney (POA), and they can sign the loan contract for you.
You have the right to obtain independent legal advice about your loan contract, but the good news is that most contracts are in plain English and easy to understand.
To accept the loan offer, sign the appropriate sections, and return the loan documents back to the bank.
Do a final inspection on your property on the day of settlement. This can be completed by your buyer's agent if you’ve hired one.
Step 11 – Settlement
“Settlement” is the term used when the property actually changes hands and your loan is advanced.
This will be handled by your conveyancer or solicitor in conjunction with your bank and mortgage broker, so you don’t need to be there for this to happen.
The title for the property is held by your lender for safekeeping, and the keys are available for pick up from the selling real estate agent. If the property is being rented out, then the property manager can then commence advertising the unit to prospective tenants.
The Settlement date refers to the actual day when the remaining balance of the purchased property is paid in full. You will then receive the keys and take ownership of your property. If it is a pre-construction property, the settlement will only occur upon completion of the property.
Property loan - This should preferably be arranged three months before the settlement date
Transfer of funds - The balance payment should be transferred to your lawyer’s Trust account before the settlement date
Stamp duty - Most states require the stamp duty to be paid at settlement. Therefore the amount should be transferred to your lawyer’s Trust account
Pre-settlement Inspection - We recommend that you engage a qualified building inspector to inspect the property on your behalf a few days before settlement.
Property Valuation - You may engage the services of a qualified valuer to ascertain the market value of your property.
Insurance - We ensure that you are familiarised with Contents Insurance and Landlord Insurance before settlement.
Property Management - A property manager will be engaged before settlement to begin marketing and seeking prospective tenants. Ideally, your property should be tenanted soon after settlement has been completed.
Settlement Date - The date when the final payment is settled, and ownership of the property is handed over to the buyer.
The final stage of the settlement process is to transfer the ownership from the developer to the buyer’s name. This is done at the Registrar of Titles and will be handled by your Australian lawyer.
After the settlement process is completed, you will be liaising closely with your Property Manager for day-to-day matters or tenant related inquiries. ARE would also like to have a continuous relationship with you and will be glad to answer your queries and extend our support to make the experience of owning your Australian property a pleasurable and memorable one.