Buying Process
- Locate the desired Property
- Those who choose to use the services of a real estate agency in Australia to find suitable investment properties should make sure the agent is a member of the Real Estate Institute of Australia. The REIA is the national professional association for the real estate industry and about 80% of all estate agents in Australia are members of the organization and are bound by their conduct guidelines
- Non Australian Nationals Only: Majority of cases, approval is required from the Foreign Investment Review Board (FIRB)
For approval consult with your Australian lawyer or visit www.firb.gov.au for the appropriate application form. Once completed fax to +612 6263 2940 or post to:
The Executive Member
Foreign Investment Review Board
The Treasury
Langton Crescent
Parkes Act 2600
Australia
- If you are not a permanent resident of Australia, and want to buy home there, you must get prior approval from the Australian Government. You do not need prior approval if you are
- an Australian citizen with a foreign spouse and wants to buy residential real estate as joint tenants
- an Australian citizen resident abroad
- a foreign national who holds a permanent resident visa, or a “special category visa”, for example, a New Zealand citizen
- Foreigners can normally get approval to buy vacant land, as long as they start continuous construction within 12 months.
- Foreigners can normally get approval to buy vacant land, as long as this will increase the supply of housing. As well, the house must remain unoccupied during redevelopment.
- Foreigners can also normally get approval to buy units, townhouses, and house/land packages in a new development. They can buy these properties before construction, during construction, or when the dwelling is newly constructed, as long as
- the dwelling has never been occupied or sold
- no more than 50 per cent of the dwellings in any one development are sold to foreign investors
- Because Australia’s foreign investment policy is designed to increase the supply of new housing, foreigners cannot normally get approval to buy houses, flats or units which have been occupied. The exceptions to this rule are
- foreign nationals temporarily resident in Australia for more than 12 months, who are buying a home here
- foreign companies buying a home for their senior executives who will be living in Australia for more then 12 months
- When you apply for foreign investment approval, you must give the address of the property you want to buy. The Australian Government cannot give in-principle approval
- Enter into the contract to purchase the property ensuring this is subject to the bank of your choice approving the financing of the property
- It is possible delays may occur due to the Australian Legal and Administrative system
- Independent legal advice is highly recommended, particularly before signing the Sales Contract or paying a deposit
- You should check with your Australian Lawyer or Estate Agent that the costs charged by Legal and Government Authorities are fully clarified. The lawyer may also include within his charges costs for assigning the Australian mortgage.
Costs
In addition to the circa 10% that is required to secure purchase there are additional fees and costs an overseas property buyer will have to pay when purchasing investment property in Australia and these vary from state to state but generally include
- Legal fees
- Stamp duty on both the transfer of the land or property and any mortgage
- Mortgage application fees
- Insurances
- ‘adjustments’ including rates, council taxes, water fees etc
Taxation Issues
- There are effectively no inheritance tax laws in Australia
- Each State Government and the Australian Capital Territory, on the unimproved capital value of the land at varying rates that increase according to the value of the property, levy land tax. Usually the land tax liability arises for land owned at a particular date, which in New South Wales, is at midnight on 31 December in each year
- Capital assets held by an Australian resident company will generally be liable for tax on any capital gain on their disposal at the corporate tax rate, i.e. 30%
Types of Title
There are a number of different types of title used throughout Australia. For example
- Torrens title – this is the most common title, and gives the buyer a guarantee of “good title” because the title is registered
- Strata title – this is used for many flats, units and multiple living areas such as retirement villages. You usually get a title for your individual unit as well as one for your parking space (if you get one). You also have responsibilities for the common area through a structure called a body corporate
- Company share – under this structure you don’t own a title, you are allocated shares in a company that owns the title. When you sell your unit, you transfer your shares in the company. This is also less common now
- General law or old system title – this was the original type of title used – it was made up of a chain of deeds and you had to make sure all the links of the chain were in place to establish ownership. There are not many general titles left.
Investment Potential
Many people question whether property investment in Australia remains a profitable possibility seeing as the real estate sector in Australia has been one of the most positively affected markets during the latest worldwide property boom. As house prices around the country are now at record highs in relation to income levels in Australia this has made property ownership a less achievable goal in real terms for many Australians, this has pushed up demand for rental accommodation so far that a rental crisis is now looming in many major Australian cities – thus creating a ripe market for the property investor seeking immediate income and long term growth
A report in the Economist magazine highlighted the findings of many global forecasters who speculate that because the Australian property market in the major cities of Sydney, Melbourne, Brisbane, Perth and Adelaide has expanded so quickly and so far, real estate is now over priced and due a correction because in real terms property has become unaffordable to the local consumer.
Supporting these findings are the Housing Industry Association of Australia’s own conclusions that the residential real estate market in Australia is due an orderly short term slowdown until 2007. In the interim the HIA’s Chief Economist has introduced a new issue into the equation and that relates to the fact that many major Australian cities beginning with Sydney are facing a rental accommodation crisis. If demand for rental accommodation in Sydney continues at its current high level and approval for new property developments in the city remain at their current low level, the city will face a critical demand/supply situation by 2007 with other cities hot on Sydney’s heals according to the Housing Industry Association.
From these findings there are two conclusions that can be drawn by a property investor. Firstly rental prices will increase in all the major Australian cities making any investment made today into a buy to let property potentially immediately profitable; and secondly, property purchased now will be in demand from a resale point of view in the medium to long term and because the Australian market has proved so popular for so long there is no reason to suspect that this situation will change.
So, in answer to the initial question posed about whether property investment in Australia remains a profitable possibility or not, the answer is most definitely yes! In a bear market a property investor can still profit if he purchases carefully.
Interested?
