Buying Property in Australia as a Foreigner: The Ultimate Guide for Potential Buyers in 2021
Famous for its sunny beaches, picturesque views, and vibrant cities, buying Australian real estate is an increasingly attractive option for overseas investors. Its thriving economy and idyllic landscape invite foreign buyers to purchase property in the land down under.
Whether you’re an Australian expat, a foreign investor, or a temporary resident looking to become a permanent resident, we’ve got the ultimate guide on how to purchase property in Australia. Before you dive into the Australian real estate market, it is important that you thoroughly understand how everything works.
Don’t worry, we’ve put together ten easy steps to get you closer to buying your dream Australian property as non-residents.
Can foreigners purchase property in Australia?
Yes, foreigners, or non-residents, can purchase Australian property. However, there are all sorts of rules and regulations that restrict the buying process that doesn’t apply to Australian permanent residents.
Foreign nationals must apply to the Foreign Investment Review Board (FIRB) ahead of purchasing their investment property – but we’ll get into that later.
The Australian government aims to channel foreign investment into new homes, increasing the housing supply and supporting the overall economy. While foreign investment in the housing market can create revenue (stamp duty and land tax), the main aim is to create jobs and property in Australia.
With this in mind, what type of property can foreign investors purchase?
- New buildings: new builds are usually approved without any conditions.
- Vacant land: Investors will typically be approved to buy vacant land if the construction process is completed within four years.
- Established dwellings: Foreign buyers can only be approved for an established dwelling if they plan to demolish the existing structure and create more homes in its place.
- Buying a home to live in: Temporary residents can buy homes to live in, however, they must sell it if they leave Australia – unless they become a permanent resident or Australian citizen.
Commercial property, on the other hand, is typically more relaxed. FIRB does not generally require approval unless the property is over $266,000,000.
If you’re a temporary resident, expat or foreign investor looking to buy residential real estate in Australia, it is crucial you understand the fundamentals of the approval process. Look into what you are eligible to buy. Be careful – breaching foreign investment property laws can saddle you with huge fines, of as much as a few hundred thousand dollars.
What should I consider before investing as a foreigner?
If you’re a foreigner, expat or have a temporary visa, consider what makes a good property purchase in Australia. A good investment in Australia may differ from other countries.
The key factor a lot of Australian citizens consider when buying real estate is location. In such a huge country, it can be challenging to narrow down your dream location to one area. However, proximity to the beach or a CBD is normally a good element to judge. Similarly, accessibility to schools, shops, restaurants, hospitals and public transport is also something to consider.
The location should also have a strong potential for capital growth, high demand and maximum appeal. Queensland, New South Wales, Victoria and Western Australia are all currently the most prosperous parts of Australia to buy real estate.
Once you have settled on your location, you can start thinking about the property itself. What kind of home do you want? What sort of demographic?
For foreign buyers looking to invest in property in Australia, the process of deciding where and what you want to buy is much the same as it is elsewhere on the globe.
The actual process of getting approval and obtaining a mortgage, however, might differ. Luckily, we’ve put together ten easy steps to make your real estate purchase more manageable.
1. Organise your team of professionals
No one should get a home loan for their residential property by themselves. Foreign investors, especially, need a strong team by their side to tackle the Australian government restrictions and hurdles. Ensure that you get to know your team of professionals, so you know you can trust them throughout the buying process.
The professionals you need by your side are:
- Mortgage broker – mortgage brokers act as an intermediary between yourself and the home loan lender. Experienced mortgage brokers can make all the difference for a foreign investor buying property. They don’t actually need to see the property, so can assist your purchase from anywhere in the world.
- Buyer’s agent – unlike real estate agents, a buyer’s agent is totally independent and acts on your behalf. A real estate agent is often employed by the seller, meaning that they don’t always have your best interests at heart. A buyer’s agent will help you research the perfect property, ensure your contract is sound, and protect you from paying too much.
- Solicitor – Seek legal advice. It is essential for anyone interested in an investment property to hire a solicitor. Your solicitor takes care of all the legal aspects of your property in Australia. They conduct searches of the property, manage the transfer of ownership and oversee the contract before you sign it.
Your solicitor must be licensed in the state you are buying your Australian property. They will also help you avoid unnecessary legal fees.
- Home inspector – before you settle on your residential property in Australia, foreign investors will want to pay property inspection fees to ensure the house is fit to buy. This is especially important if you are living overseas and not easily able to travel to see the property yourself.
- Accountant – although not a necessary addition to your team, an accountant can make your life so much easier. From maintaining financial records on your behalf to helping you pay state government taxes, an accountant can save you a lot of money down the road.
Talk with your accountant about your long-term goals, so that they can help you structure your finances in the best way to suit you.
A strong team of professionals by your side can save you a lot of time, money, and hassle when purchasing property in Australia.
2. Get your loan pre-approved
It is never too early to begin talking with your mortgage broker about your home loan. Mortgages are the main way to finance your property purchase. Knowing the amount of money you can feasibly offer to sellers will help you conduct a more efficient property search.
A pre-approval is issued when you submit documents about your financial and personal situation. This might include payslips (or other details of your income), bank statements, marital certificates, current location, passports, and employment contracts.
During the pre-approval process, Australian banks will complete thorough background checks. When the time comes to apply for your formal mortgage approval, the process should be quick and easy as the vetting has already been completed.
Before applying for your home loan pre-approval, take stock of your current finances. You can use a home loan calculator to work out how much you can borrow. Do your research into what your home loan options are. Expats are entitled to interest-only, fixed-rate and variable-rate loans. We’re happy to assist foreign investors with their options.
All you need to do then is to fill out the pre-approval form and submit it to a relevant credit provider. Lenders are often wary of offering loans to anyone other than Australian residents. Different banks will have different lending policies when it comes to foreign investors. There are several potential outcomes from your home loan pre-approval application.
Such as:
- Declined – Unfortunately, foreign investors regularly see their loan applications declined. As a non-resident, you are at higher risk to the lender. With fluctuating exchange rates and the bank’s inability to efficiently cope with overseas customers, some lenders outright decline any foreign investors.
To make this step easier, seek approval from a specialist brokerage, like Odin Mortgage.
- Lends with restrictions – You might find that your loan pre-approval application comes back asking for additional information or supporting documents. Lenders are often hesitant to take foreign income into account when considering your loan application.
You might also see that the loan amount is restricted; banks may lend up to 80% of the purchase price. However, overseas investors may not get this much.
- Special lending parameters – a rare response from lenders, special lending parameters means that the bank offers you a loan without or with minimal restrictions. These banks have special credit teams who are experts in overseas loan applications.
Remember, your home loan application might incur some additional expenses beyond the purchase price. Generally speaking, it is a good idea to reserve an extra 5% of the property value to pay for additional services. These might include loan establishment fees, legal fees, foreign citizen stamp duty, FIRB approval fees, property inspection fees and buyer’s agent fees.
In addition, there are the usual building and maintenance costs that build up with the purchase of any new property.borro
3. Confirm you qualify with the Foreign Investment Review Board
The Foreign Investment Review Board (FIRB) is part of the Australian government that reviews foreign investment applications to purchase property in Australia. FIRB approval is necessary for temporary residents and overseas investors.
Application fees can be quite costly. For property prices under a million Australian dollars, the application fee is $5,700. For properties above $9,000,000, you can expect to pay as much as $104,100 to FIRB.
However, as expensive as this step is, make sure you don’t skip it. Penalties for not confirming you qualify with FIRB might be fines up to $166,500 or three years in prison.
Note: for Australian citizens living abroad, a New Zealand citizen, or if you have a permanent Australian visa or an Australian spouse, you are exempt from paying an application fee for FIRB approval. Similarly, if you are a foreign national and inherit the property or are awarded it by court order or in a divorce settlement, you do not need to seek approval from FIRB.
4. Find Your Property
Now that you know how much you can borrow, the legal costs and whether you qualify to buy real estate in Australia, the next step is to find your dream home. Base your property search on the loan options offered to you by the lender.
Enlisting the help of a buyer’s agent is an excellent way for people living overseas to find the property they want. Buyer’s agents will provide you with a list of homes that suit your requirements for you to choose from. If you decide not to go down this path, real estate websites are also good places to start.
The top places for real estate investment in 2021 are:
- Sunshine Coast, Queensland
- Bendigo, Victoria
- Rockingham, Western Australia
- Central Coast, New South Wales
- Marion, South Australia
Some parts of the Australian Capital Territory also offer excellent property investment returns and good Australian property prices.
Of course, the kind of property or plot of land you want to buy is down to the purpose you envision for it. If you’re investing for yourself, you have the freedom to pick an idyllic home anywhere. If you’re thinking of investing in a rental property, you need to think of what renters want.
For example, if you’re renting to joint tenants, the location is important. Likely, they will want to be near a school if they are starting a family. Also, consider the prosperity of rental properties in the area you are buying.
The weekly rent should cover the cost of professional managing agents and a property manager, and the fees of conducting regular property inspections as well as the mortgage.
Most property managers charge between 5% to 12% of the weekly rent, although it varies between states. Sydney and Melbourne offer the most competitive rates.
5. Seek FIRB approval
The best way to get approved by FIRB is to let your solicitor handle your application and submit your request for foreign investment approval.
In the meantime, there are several steps you can take to get ahead and make the process flow more smoothly.
- Visit the FIRB website and read their guidelines thoroughly to ensure you know everything you need about the approval process.
- Also, check out the Australian Tax Office website to start the process.
- Fill out the application form. Make sure to mention all necessary legal details and any reference numbers from previous FIRB applications.
- List the address and property details of the property you intend to purchase.
- Thoroughly check the details you have provided and ensure all your information is correct. Incorrect or misinformation might cause delays and additional one-off fees.
- Read and sign the declaration form.
- Submit the form alongside the application fee. The turnaround time between submission of the application and response is typically within 30 days.
Note that while coronavirus measures are still applicable, reviews may take up to six months. The review process will not begin until you have paid the full application fee. If you are required to submit more information, the review period might be longer.
6. Negotiate the purchase price
Australian house prices largely differ across the country. Different cities and states have varying purchase prices. Other factors that affect property value include the type of structure and its location in relation to urban areas and up and coming neighbourhoods.
The majority of properties are sold for about 5-10% below the asking price.
Sellers are more likely to be impressed with your offer if you can knowledgeably tell them how much you can pay. This is why it is so important to discuss your loan options with your mortgage broker and lender ahead of searching for your dream home.
House prices in Australia have increased 18.8% in the last year – while this might be a scary prospect when you fork out $955,927 (the average Australian house price), it is good news that real estate is a strong investment as house prices are likely going to keep rising.
Sydney is the most expensive city, with the average home costing $1.41 million. At the slightly lower end of the spectrum, the median price of a house in Perth is $596,000.
Utilise the support of your professional team during negotiations. The home inspector will help you know how much the home property is really worth. The seller will ask you to sign a contract after you have agreed on a price. Ensure your solicitor thoroughly checks the contract before you sign it.
7. Obtain formal mortgage approval
If you have had your pre-approval completed, obtaining formal approval of your loan should be a relatively simple process. It is also known as unconditional approval. Most of the vetting has previously been completed. Your mortgage broker will contact the lender and they will send you formal mortgage approval and loan offer documents.
8. Exchange contracts
This step is conducted by your solicitor. Your legal representation will swap signed contracts with the seller’s solicitor and you will have to pay your deposit. The size of your deposit would have been negotiated with your lender during the pre-approval stage.
When the contracts are exchanged, the agreement is now legally binding. If you want to renegotiate elements of the contract, you will need to discuss them and amend the contract before the exchange.
9. Double-check everything is ready
Your property purchase is almost complete! You will need to agree on a settlement duration with the seller. During this time period, you and your solicitor should organise all your paperwork and contract details. You will also need to ensure that the lender is ready to transfer the funds on settlement day.
This is the time you want to ensure everything is done and all documents are up to date and completed accurately. You will need the assistance of your solicitor, accountant and broker during this important time.
10. Settle
Settling is the last stage to buy your Australian home. Settlement day is the final step in the sale transaction – it is typically around six weeks after the contracts are exchanged. On settlement day, you will confirm all the important details, prepare your money, check the registration fees, approve the settlement statement, and conduct a final inspection of the property.
Settlement day can be overwhelming. There is a long list of tasks to accomplish and you might worry about missing something. Don’t worry, your solicitor, mortgage broker and accountant are experienced professionals who will guide you through every step of the way.
Here are some things to bear in mind that you might have to do during the day:
- Check your solicitor’s invoice
- Check local council rates
- Adjust the water and sewage charge
- Follow up on the registration of title
- Insure the property
- Collect the keys
Key takeaways
Buying property is really not that much different in Australia from anywhere else in the world. Australian residents aren’t required to go through as many hoops as foreign nationals.
The Australian government introduced restrictions for overseas investment, with higher foreign citizen stamp duty. However, despite these extra inhibitions, the government does want to encourage international investment as it supports the economy and improves the housing shortage.
The key takeaway for buying property in the land down under is to gather a strong team of professionals from the beginning. Experienced brokers and solicitors will make your buying process much simpler and more stress-free.
If you want further guidance about buying a home in Australia, we’re here to help at Odin Mortgage.
Frequently Asked Questions
Can a foreigner buy property in Australia?
Yes, anyone can purchase property in Australia. The Australian tax office, however, insists that non-residents apply for approval to invest. Application fees are typically upwards of $5,000. The process is not always easy but with an experienced solicitor and the right mortgage broker with an Australian credit licence.
Why does Australia allow foreigners to buy property?
Australia wants to encourage foreigners to purchase property in order to boost the economy and provide more housing. One of the stipulations of buying a house as an overseas investor is that you have to create more homes out of the land. Similarly, the Australian taxation office can generate revenue through land tax, capital gains tax and stamp duty.
How much do I need to earn to buy a house in Australia?
There is no minimum income required to purchase a house in Australia. However, considering the average house price is $955,927 and non-residents are required to put down a 30% deposit, you will need a hefty amount of savings. Similarly, the additional costs of stamp duty and application fees can hike the costs up significantly.
Also bear in mind that lenders often only consider 50-80% of overseas investors income when deciding to make a home loan offer.
Is it hard to buy a home in Australia?
Purchasing a home in Australia is not the easiest process. However, with a strong team of solicitors, brokers and accountants, you will be in the best hands. Make sure you thoroughly research all the requirements for overseas investors as submitting the wrong information or missing important details can be timely and costly.
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