How does the buying process work and can foreigners get mortgages?
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Why invest in property in Australia?
Investing in Australian property has become popular with overseas investors and Australian expats looking for strong returns and stability.
Surprisingly, many Australian residents who hold temporary visas or permanent visas dont even realise they can qualify for a home loan and are missing out on the benefits of the Australian real estate market.
Australia was already considered a safe place to invest, and with the country successfully flattening the curve for coronavirus / COVID-19 and combined with attractive movements in many exchange rates there has been an increase in foreign citizens looking to buy property in Australia.
In fact, April 2020 saw 50% more enquiries to buy property than any month in 2019.
Stability
Australia’s property market has a proven record of stable prices.
What’s the big difference between Australia and other property markets?
- Around 70% of Australian households are homeowners so there is relatively little speculation.
- There’s been a consistent undersupply of housing in most capital cities.
- Australia has responsible lending legislation and prudent economic management via the Australian Prudential Regulation Authority (APRA), reducing the risk of asset price bubbles.
- Australia has never had prices fall more than 20% in one year.
Overseas property markets such as Hong Kong or the United States have suffered significant crashes that are completely unheard of in Australia.
Housing prices in volatile economies have seen drops of up to 70%, leaving investors with huge losses.
This is often because of significant speculation from foreign investors or asset price bubbles fueled by debt.
Investors have a smaller impact in Australia as the majority of the housing market is owner-occupied.
In fact, during the 2007/09 Global Financial Crisis which saw property prices in the UK and USA fall significantly, Australian property prices actually increased in value.
Want to get started on your home buying journey?
We can help you qualify for a non-resident mortgage in Australia so please call us on 1300 889 743 ( +61 2 9194 1700 if youre overseas) or fill in our free assessment form to speak with one of our home loan specialists.
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Consistent growth performance
Australian properties have enjoyed consistent capital growth over the last 100 years, with property prices doubling roughly every 7 to 10 years.
One of the reasons behind the growth is Australia’s chronic housing shortage in many of our major cities.
The population is growing at a rate much faster than dwellings are being constructed. The primary reason for this is a consistent high level of immigration and strong employment demand.
The main cap on housing prices is affordability.
Prices have largely risen in line with the market’s ability to pay for housing.
Its easy to invest in Australia
Many countries have very restrictive foreign investment laws or banking regulations that make it difficult to invest.
This isn’t the case in Australia:
- You don’t need to set up a company in Australia or buy with a citizen. for foreign citizens is simple although additional taxes apply. Read about the rules below.
- Specialist mortgage brokers can assist you to qualify for a foreigner mortgage.
- There’s strong and effective consumer protection legislation in Australia through the National Consumer Credit Protection Act 2009 (NCCP Act).
- Australia’s legal system is based on the UK system just like Hong Kong or Singapore so it’s familiar to many overseas investors.
- There’s minimal political, social or economic instability in Australia.
Buying property in Australia from countries like China, the UK or USA can be difficult if you don’t have the right information or you don’t have the right professionals on your team.
These professionals include real estate agents or buyers agents, a solicitor, an accountant and a mortgage broker that specialises in foreigner mortgages.
Complete our free assessment form or call us on 1300 889 743 (+61 2 9194 1700 from outside of Australia) and one of our mortgage brokers will contact you to let you know if you qualify for a mortgage.
Non-resident lending has changed quite a lot in recent times and its now harder for a foreign citizen as opposed to an Australian expat or a temporary resident living in Australia.
Australia is a great place to live
Australia is well known for its diverse international cities and breathtaking natural beauty.
- Queensland (QLD) is famous for its wonderful beaches and reefs.
- Victoria (VIC) has a stunning coastline stretching to South Australia (SA).
- The Northern Territory (NT) is renowned for its distinctive outback experience.
- New South Wales (NSW) for the tranquil Blue Mountains, beautiful coast, strong economy and Sydney.
- Many Australian universities are making a name for themselves overseas.
Over the next 50 years, it’s expected that the trend of migration to Australia will continue and property prices will rise as a result.
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Can investors buy both residential and commercial properties?
Stability and growth aren’t just features of residential houses, townhouses and units.
Most commercial properties such as offices, factories and retail outlets have proven themselves to have excellent returns.
Foreign investment regulation changes
In December 2015, the Australian Government introduced new legislation to foreign investors to purchase Australian property.
Under the new laws, non-resident buyers can only invest in new dwellings, off-the-plan properties under construction, or vacant land with a view to development.
Because they’re not residents, they’re not allowed to buy established dwellings unless they plan to demolish said dwelling and construct a new one within 4 years of the date of approval. The redevelopment must add to the housing stock for approval to be given.
Non-residents who purchase property in Australia are required to seek approval from the Foreign Investment Review Board (FIRB), without may face severe penalties including up to $135,000 in fines, three years’ imprisonment or both.
Do you need help with getting approved for a foreigner mortgage?
Call us on 1300 889 743 (+61 2 9194 1700 from outside of Australia) or complete our free assessment form to speak to our specialist mortgage brokers.
They can guide you through the application process.
The buying process
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
Conveyancer
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.
Please view our list of recommended conveyancers if you don’t have one already.
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.
Mortgage broker
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 dont 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.
We’re specialists in non-resident mortgages, hold an Australian Credit Licence (ACL) and are also a member of both the Mortgage and Finance Association of Australia (MFAA) and the Australian Financial Complaints Authority (AFCA).
We can finance properties Australia-wide and we regularly work with international borrowers.
We have a panel of nearly 40 lenders to choose from which ensures that you’re getting the best mortgage for your situation and needs.
If you need finance to purchase property in Australia, call us on 1300 889 743 (+61 2 9194 1700 from outside Australia) or complete our free assessment form to discuss your options.
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 doesnt 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.
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 buyers 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.
We can put you in touch with some reputable buyers agents if you need assistance.
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 cant get a loan?
Its for this reason we strongly recommend that you dont buy a property that is due to settle more than 3 months from now.
Your pre-approval will expire and if the lender cant help you later on then you may lose your deposit.
Step 3 Applying for a mortgage
For foreign investors especially, there are less than a handful of lenders who are lending in this space.
- We have published a handy guide which shows the best available Australian interest rates for foreign investors.
- Ensure that you prepare all necessary loan documents, such as payslips, tax returns and an employment letter to prove your income.
You can find specific lending guidelines for your situation here:
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: If you’re a foreign citizen looking to buy an investment property in Australia. : If you’re living in Australia on a temporary visa such as a work visa or a spouse visa. : If you’re an Australian citizen living overseas looking to buy real estate back home. : If you’re a New Zealand citizen then some lenders have less restrictive lending guidelines.
To ensure that you get approved, speak to us on 1300 889 743 (+61 2 9194 1700 from outside of Australia) or complete our free assessment form and one of our brokers will get back to you.
We offer free assistance and can help you with your home loan application.
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.
Fees can vary depending on the value of the residential property or land that you want to purchase:
- $1 million or less: $5,800
- $1 million to $1,999,999: $11,700
- $2 million to $2,999,999: $23,500
- $3 million to $3,999,999: $32,500
- $4 million to $4,999,999: $47,000
- $5 million to $5,999,999: $58,800
- $6 million to $6,999,999: $70,600
- $7 million to $7,999,999: $82,400
- $8 million to $8,999,999: $94,300
- $9 million to $9,999,999: $106,000
- $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.
We recommend that your refer to the FIRB fee schedule for the most up-to-date figures.
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 dont need to worry about it if youre buying a newly-built unit.
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 dont commit to buy 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.
Our mortgage brokers will always inform you if they become aware that you have overpaid for a property.
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 their own property laws so use your conveyancer or solicitor’s expertise to help guide you. Thats what theyre there for!
If the vendor allows a cooling off period, you can put a holding deposit and sign the contract.
We strongly recommend 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 a 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 theres a cooling off period in place.
Once you forward the sales contract to us, we’ll usually obtain the formal approval 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.
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 so as to ensure that if your FIRB proposal is rejected, you won’t lose your deposit.
You may need to provide a copy of the approval to your lender prior to 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 buyers 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.
What are the costs of buying a property?
As a general rule, you should allow roughly 5% of the purchase price for various expenses associated with purchasing a property.
Expenses:
- Legal fees: Often $800 to $2,000.
- Loan establishment fees: Usually $0 to $895 depending on the lender. For foreign citizens, this may be up to 4% of the loan amount.
- Stamp duty (state government taxes which are often the largest associated expense): Please refer to our stamp duty calculator.
- Additional stamp duty: Please see the foreign citizen stamp duty page for more information about changes made to stamp duty and land tax for foreign buyers. These changes aren’t always reflected accurately by our calculator due to regular changes to state government policy.
- FIRB approval fees: Varies depending on the value of your property and if you are a temporary resident or foreign investor with no Australian visa.
- Property inspection fees: Costs can be upwards of $800 in total for a building, pest and strata inspection.
- Buyers agents fee: The fee varies depending on the nature of the services provided but theyre generally up to 2% of the purchase price (a buyers agent is optional).
- Other minor costs: Building insurance, council rates, water rates and adjustments can be up to 0.5% of the property value in total.
Refer to your conveyancer or solicitor for an exact breakdown of the costs associated with your real estate purchase.
Why was the stamp duty levy introduced?
The idea of a foreigner stamp duty levy was first led by the Victorian, New South Wales and Queensland government, stating that it was only fair that foreign investors pay their fair share to fund government services and infrastructure.
In reality, it was a kneejerk reaction by the government to curb competition from foreign buyers even though the main reason for high property prices was undersupply.
The Australian Capital Territory (ACT), Tasmania (TAS), South Australia (SA) and Western Australia (NT) have introduced their land tax and stamp duty levies. The Northern Territory (NT) is the only state that is free of the foreigner surcharge.
Apart from buying in the NT, there are other ways to avoid the levy, such as purchasing as joint tenants with an Australian citizen or waiting until you become a permanent resident (PR visa).
Please refer to the foreign citizen stamp duty page for more information on exceptions and call your relevant state revenue office to confirm as government legislation changes regularly in this space.
What other rules and taxes that apply to foreign buyers?
The Government has worked to put pressure on foreign ownership of Australian real estate since the levy was introduced in 2016.
Below are changes to foreign property ownership that the Government proposed in the Federal Budget 2017.
CGT exemption scrapped
Previously, foreign residents were subject to Capital Gains Tax (CGT) (withholding tax) of 10% when they sold their own residential home (not an investment). However, this only applied to properties worth $2 million or more.
Since 1 July 2017, a foreign resident capital gains withholding (FRCGW) of 12.5% now applies to foreign residents who sell a property worth $750,000 or more.
This change will affect many foreign investors buying in Sydney and Melbourne metro areas since the median house price is much higher than $750,000.
To be clear, this rule applies to all foreign residents so it also captures Australian citizens, permanent residents and New Zealand citizens who are foreign residents at the time they sell their property. Specifically, this is the date in which you enter a sales contract with a buyer.
You may still be able to qualify for the exemption, such as resuming Australian tax residency prior to selling the property, so please speak to an accountant for advice.
Restriction on new developments
The Government placed a 50% cap on foreign ownership of new developments.
Ghost tax
The so-called ghost tax is a minimum $5,000 per year levy for property they either fail to occupy or lease out for at least six months of the year.
How do I manage the property?
If you’re buying the property as an investment and intending to rent out your property, you have two options.
You can either manage the property yourself or you can use a property manager.
Professional managing agents will look after every aspect of your tenancy.
Their job includes collecting the rent, maintaining financial records, conducting regular property inspections, handling any disputes and arranging all repairs.
Most property managers charge a percentage of the weekly rent as a management fee, usually around 5-10% (this is negotiable).
You should also expect to pay additional one-off fees when they find a new tenant or negotiate an extension on the lease.
Many property managers are reactive and do not increase the rent when the market rent increases.
However, we recommend that you contact them once a year and ask them if the rent should be increased. If you have a good property manager, then theyll be contacting you each year with a recommendation.
Last but not least, please make sure that the managing agent you are interested in using is licensed by the Office of Fair Trading (or state equivalent) before you enter into any formal agreement.
Their licence will be displayed in their office or on their website.
Do I need to lodge a tax return in Australia?
Yes, you’ll need to lodge a tax return each year in Australia but dont worry its not too difficult.
The Australian tax year is the 1st of July to the 30th of June. Most people need to lodge their tax return before the 31st of October each year.
Your property manager should keep all of the records for how much rent you received and which expenses you incurred.
If your strata levy notices, council rates notices, water rates and other expenses are all sent to your property manager, then theyll give you a simple report in July each year with a summary of all expenses.
You can have them transfer these details to your Australian accountant who will then prepare your tax return.
Do you need help with a non-resident mortgage?
Our mortgage brokers specialise in lending to:
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. . .
- Foreign citizens living in Australia (temporary residents)
- Prospective spouses or de facto partners of Australian citizens
Please complete our free assessment form or call us on 1300 889 743, or +61 2 9194 1700 if you’re outside Australia.
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