Why Invest in Property in Australia?
Australia is a secure investment prospect. The country has dealt well with the Covid-19 pandemic. This combined with various movements in exchange rates has encouraged foreign nationals to buy property in Australia.
It is surprising that many residents who hold visas don’t know that they could qualify for a mortgage and buy a home in Australia.
Buying property in Australia comes with many benefits.
Stable prices
Unlike many other property markets, Australia has a proven track record when it comes to price stability. There are reasons for this;
- There is not much speculation in the Australian real estate market as around 70% of Australian households own their home
- The Australian Prudential Regulation Authority APRA ensures responsible lending and economic management. This has helped the country to avoid any property bubbles
- Most capital cities in the country have a consistent housing shortage.
The types of property crashes experienced in the US and Hong Kong have never happened in Australia. Other economies have seen massive drops in property prices leaving investors out of pocket. This is often caused by irresponsible lending or speculation in the market.
Property prices dropped significantly in the USA and the UK during the Global Financial Crisis of 2007 to 2009. Over that period Australian property increased in value.
Consistent growth in value
In Australia the value of property has doubled every 7 to 10 years for the last 100 years. This is partly due to the short supply of houses in most large cities.
High immigration and demand for employment has meant that the Australian housing market has not kept pace with the growth in population.
Investing in Australia is easy
Foreign investment legislation and financial regulations do not discourage or restrict investment in Australia as they do in many foreign countries.
- Although foreigners will pay additional taxes on property, government approval is easy to apply for
- You don’t have to buy with an Australian citizen nor do you have to create a company before you can buy
- Mortgage brokers who specialize in foreign mortgages can help you with the paperwork
- The legal system is similar to the UK system so many foreigners understand how it works.
Property investments are not limited only to residential property. Commercial property also offers excellent returns.
The easiest way to navigate through the system is to hire experts.
Legislative changes
New legislation governing the purchase of Australian property by foreign investors came into play in December 2015.
Under these laws, buyers who are not residents may only buy off-the-plan properties under construction, new homes and vacant land. In the case of the latter, they must plan to develop it.
Non-residents are no permitted to buy established homes unless they plan to pull it down and build a new home within four years of approval. The new dwelling must add to Australia’s housing stock or it will not receive approval.
The Foreign Investment Approval Board must approve the purchase of any home by a non-resident. Failure to obtain this approval can result in penalties of up to $135,000 and three years in prison or both.
How to buy a house if you’re a non-resident
Plan and budget
Although you may have a pretty good idea of where in Australia you want to buy, it pays to talk to a local real estate agent. They can help you with advice on the best places to buy. This is an important consideration to ensure an excellent return on your investment.
Repayment affordability is also a vital consideration. Australian banks are very disciplined when it comes to responsible lending so they won’t finance your property unless you can afford it. So, you need a budget before you even start to look for the property.
Gather your team
Conveyancer
A conveyancer or solicitor will ensure that all the legal aspects of buying a house are taken care of. They should research the property, review the contract and advise you of any problems before you sign it. They will also manage the transfer of the property.
The conveyancer must have a license to operate in the state where you plan to buy.
Mortgage broker
Choose a mortgage broker who is experienced in assisting non-residents to invest in property. You can contact a broker from anywhere in Australia. Most of them offer their services to buyers free of charge.
Accountant
Most buyers don’t bother with employing an accountant but there are several advantages to using one. An accountant will help you to structure your finances so that you can save on tax. There may be complications if you live in another country. So, you must find out whether your country has a joint tax agreement with Australia or not.
You must also find out about penalties for leaving the property vacant, stamp duties, capital gains tax, land tax and foreign citizen stamp duty.
Buyer’s agent if necessary
If you live overseas and can’t get to view your property you may benefit from appointing a buyer’s agent. Buyer’s agents must have a licence to operate in the state in which you plan to buy.
A buyer’s agent is paid to find a property for you and then to negotiate the price on your behalf. They will deal with the real estate agents to find you a good deal.
A person selling the property is not a buyer’s agent as they are not able to give you fair and objective advice.
Buyers’ agents will charge a fixed fee or a fixed fee and commission.
Get pre-approval
Good properties move quickly. Get mortgage pre-approval to ensure that you are ready to make an offer when you see the property that you like.
Pre-approval also ensures that you know exactly how much you can buy for so you save time and energy in your search for the right property.
Mortgage application
The mortgage requirements for non-residents can get quite complicated. There are not many lenders who have the capacity to assist foreign investors with mortgage applications.
Make sure that you have all the documents that you will need for the loan application. These include tax returns, payslips and a letter of employment as proof of income.
Look for guidelines appropriate to your circumstances at the following links:
- Investors from overseas: for foreigners wanting to buy Australian investment
Property
- Australian expatriates: If you want to buy Australian property but you’re currently living in a foreign land
- Temporary residents: for foreigners living in Australia on a temporary visa
Apply for permission to buy
If you are a non-resident or hold a temporary visa you must apply for a permission from the FIRB before you can buy property in Australia. It is not a difficult process and takes around a fortnight to obtain.
You’ll pay fees based on the value of the property.
Find your property
You will have to plan a visit to Australia or hire a buyer’s agent in Australia. If you choose not to use a buyer’s agent do your research well. Compare your planned purchase with other properties in similar developments to ascertain whether the price is fair.
Your bank may want to value the property. Don’t commit to anything before the bank has completed the valuation. Banks will not always let you know whether the value of the property you want to buy is below the price unless it affects the loan. A mortgage broker can help with this.
Negotiate the price
A buyer’s agent can help you to negotiate the price. If you’re not using an agent, it is important that you do your research well so you know what the property is worth. Australian properties can sell for as much as 10% below the listed price. What you pay will differ depending on the location and the property features.
Make sure that you get a licenced conveyancer or solicitor to go over your contract to ensure that the conditions cover your requirements. “Subject to FIRB approval” is common on property sales to foreign buyers. The inclusion of this clause will allow you to cancel the contract if you fail to get approval.
Apply for loan approval
Your mortgage broker can now apply for formal approval of the mortgage on your behalf. Wait for the approval of the mortgage before you commit yourself even if the real estate agent pressurises you to do otherwise.
Your bank will send you the mortgage contract. If you live overseas you may have to the Australian embassy witness the signing of the contract. Alternatively, you may give Power of Attorney to someone trusted and resident in Australia to sign on your behalf.
Sign the contract and pay the deposit
Once your solicitor or conveyancer has been through the contract and given it the green light, you can sign and pay the deposit. The deposit is usually 10%. Though this may differ between states and is negotiable.
Get FIRB approval
The contract that you sign must allow thirty days for FIRB approval and must be conditional on attaining approval or you could lose your deposit.
Settlement
Once your mortgage is approved and advanced, the property changes hands. Now we have settlement. You don’t have to be there for settlement to take place.
Your lender will keep the title deeds and you can pick up the keys from the real estate agent.