A Foreigners Guide to Investment in Australian Property

By
Education & Training with Property Investment Wise

Market Overview

 

A prime real estate market, foreign property investment in Australia offers investors a unique opportunity to enter a growing market that promises a good return on investment. Australia is roughly the size of the United States but has only a tenth of the population. This means lots of undeveloped land, making foreign property investment within Australia a sound financial choice. A strong economy, a growing urban population, and steadily rising demand for new residential structures make Australian real estate a growth market. Unlike businesses that fall prey to mismanagement or obsolescence, residential real estate offers stability and reliability over the length of the investment. Australian properties provide foreign investors with strong returns on their investments. 

 

How to Qualify

 

To begin the process of foreign property investment within Australia, foreign investors must appeal to the Foreign Investment Review Board (FIRB). Alternatively, one may choose to reside in Australia for 1 year or to enter into a partnership with an Australian resident. Overseas property investment inside of Australia takes some work, so it may benefit foreign investors to consider a partnership with a resident in order to maintain a contact in the country. Failing that, seeking the approval of FIRB is the next step.

 

Regulations to Follow

 

Overseas investors must seek permission to buy property from FIRB. After applying, investors can expect to hear from the board after 40 days. Unusual circumstances may delay the response, but investors can proceed with the buying process while waiting to hear from FIRB. Buyers can sign and exchange contracts provided the contracts stipulate that all contracts are contingent on the receipt of approval from FIRB. Investors must also pay a deposit, which amounts to 10% of the purchase price of the property.

 

Taxation

 

A good rule of thumb is to allocate approximately 5% of the purchase price of the property to cover taxes and related expenses. Buyers will need to pay a Land Transfer Registration fee. In addition, there are legal fees to consider, as well as the cost of mortgage application, local taxes, and building inspection. Investors will also pay a Stamp Duty and an annual land tax. The exact cost of the Land Transfer Registration fee, Stamp Duty, and the annual land tax will vary on the location of the property. Many expenses are dependent on the state or territory in which the property is located. Foreign property investment in Australia is subject to the capital gains tax. 

 

Return on Investment (ROI)

 

With large areas of undeveloped land and a growing population, Australian foreign investment properties promise great return on investment (ROI). Over the last 40 years, Australian property growth has been a steady 7%. Based on that trend, investors can expect property values to double within 10 years, making Australian foreign investment properties lucrative choices.

 

Property Disputes

 

Complications often arise in property. Tree disputes are very common causes of disagreements between neighbours. Another common dispute is dividing fences. If your neighbour’s tree is affecting your property or your safety, there are a number of things you can legally do. It will quicker and hassle-free if you could resolve any problems you have directly with you neighbour. However, you may need legal advice if you need to know your options to solve the dispute. Each state in Australia has its own process for resolving these disputes. If you buy or reside in NSW, for example, you can get legal advice from property dispute lawyers in your area.

 

Other Things to Consider

 

To maximize overseas property investment inside of Australia, the best practice is to look at growth areas. Growth areas are major cities—Sydney, Melbourne, Perth, and Brisbane—and suburban or coastal areas. Rental properties can yield anywhere from 3.5-5% profit. Increasing demand in urban and surrounding areas, home values will increase. The best Australian investment options are low-rise properties, rather than high-rise properties. Low-rises tend to keep maintenance costs down, and the land value of the properties is generally high. Apartments, townhouses, and small to mid-sized single-family homes are profitable purchases.

 

Unexpected Things to Consider

 

Unlike other assets, lenders see Australian real estate as a low-risk, high-reward investment. Foreign investment in Australia is a great way to leverage assets, with banks willing to lend up to 100% of the price of a property. The lack of risk is thanks, in part, to Australia’s diverse economy and strong GDP, which is expected to grow steadily over the years. Also, Australia has a growing population. In Melbourne alone, estimates suggest that there will be demand for over 20,000 new family homes by 2021. Moreover, countrywide statistics predict the need for 620,000 homes in the next fifteen years. 

 

Timeline to Completion

 

From beginning to end, investing in Australian real estate need not be a lengthy process. Certainly, there are the usual hurdles—paperwork and red tape—to navigate. However, with a bit of background information and research, the process can be completed expeditiously. After determining the location and type of property to buy, investors will need to seek permission from FIRB and wait for the board’s recommendation. While waiting, investors can continue the work of buying properties and navigating the taxes and mortgage companies. At worst, FIRB makes decisions in 130 days. After FIRB approval, the process is complete. 

 

Posted by

Joe McCord works at REAA.

Comments (2)

Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Lend Smart Mortgage, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Joe McCord Excellent and highly informative blog post. I have often wondered what the rules are regarding this very subject. Thank you!

Jul 14, 2015 10:05 PM
Joe McCord
Property Investment Wise - Las Vegas, NV
Making It Rain On The Regular

Thanks for taking the time to read, Sandy Padula and Norm Padula, JD, GRI .

 

If there's anything else you need to know, I can include it in a follow up, so don't be shy.

Jul 14, 2015 10:32 PM