Buying an investment property a few postcodes over is the first step in many owners' investment journey. However, hefty returns and an overall safe and successful portfolio come when you start turning your sights on real estate that’s not so close to home. But where should the savvy British investor look if they want to dip their toes into foreign property investment? Many are looking to a (not so) little land down-under for answers!
Why invest in Australian property?
Plenty of British owners are already seeing the benefits of property investment in Australia. According to the Foreign Investment Review Board (FIRB), investors in the United Kingdom plunged $1.58 billion into the Aussie market in 2019-2020 alone.
Not only that, but overall foreign property investment in Australia surged 15.5% going by FIRB’s recent report, the highest level in three years!
Clearly, there are more benefits of property investment in Australia than meet the eye. That’s why we’re here to answer the question on every British investor’s lips: Why invest in Australian property?
Stability, capital growth, tax concessions and more – this is your real estate digest for what British investors stand to gain from overseas property investment in Australia.
Property markets that consistently fluctuate are absolute nightmares for any property investor. Volatility is not your friend if you’re in the real estate game. You want stability and the financial safety net that comes with it.
Perhaps one of the reasons why foreign property investment in Australia has been on the rise is because we have a pretty smashing track record for an impressively stable market.
Thanks to 70% of households being owner-occupied, a constant undersupply of housing, and prudent lending legislation, Australian property prices have never fallen more than 20% in a year, and that includes when the world got hit with the Global Financial Crisis. Now how’s that for stability!
While almost all other developed nations fell into a recession, including the U.K. where London house prices slumped by 19.8%. Australia managed to stave off disaster and actually experience growth in property values.
But there’s another reason overseas property investment in Australia might be particularly appetising to British investors, and that’s because of demand. As we mentioned earlier, Australia has something of a consistent undersupply of dwellings up for sale, and that’s currently doing a stellar job of driving values up.
For the British market, this just hasn’t been the case at all. In 2020, the U.K. demand for residential property fell by 11%, according to HM Revenue & Customs - and with low demand comes low stability.
It’s a fairly safe bet that your Aussie real estate won’t suddenly drop into the red overnight, and that’s a pretty good reason why you should consider investing in Australian property.
Solid rental yields are good, but can you really say you have a solid portfolio if you don’t have investments that are also packing on some serious value year on year? Probably not. Which brings us back to the (potentially) multi-million-dollar question: why invest in Australian property? Answer: capital growth!
It’s easy to see the benefits of investment property in Australia when you just look at the numbers:
House & Unit Prices
1993 Median Value
2021 Median Value (June)
Median Aussie house prices shot up a whopping 857% from 1993 to 2021, with units shooting up 486% in the same period!
These figures should look like a dream to British investors, especially when you realise that the English market struggled to keep up over the same time frame. The average U.K. house prices only climbed 207% from 1999 to 2019, according to Halifax.
When you actually sit down and compare the two countries, it’s really no contest when it comes to whose properties are rocketing in value.
Depending on where you are in the world, tax laws can really make or break your investment returns. Keeping yourself in the financial green really hinges upon how cool the taxman is towards property investors. Lucky for British owners looking at overseas property investment in Australia, the land down under has some very forgiving rules when it comes to tax time.
Two words you should definitely know when it comes to tax benefits of investment property in Australia is negative gearing!
In a nutshell, if the cost of holding your property (mortgage repayments, utilities, insurance etc.) is more than what you earn in rental income for that financial year, you can use that net loss to offset your other Australian income stream. Like a salary, or even the rent you receive from another Aussie investment property.
But why should you care about negative gearing? When you offset your other Aussie income stream, you end up paying less tax on it! And with the majority of Aussie investors opting for this strategy, you know it must be good.
We can guess what you're probably thinking: What if I don’t have other real estate in Australia or don’t earn an Aussie salary?
Well, here’s the great news for British non-residents: The Australian Taxation Office says you can carry forward those tax losses indefinitely until you earn some other form of Aussie income down the track.
The real cherry on top? You can use these carried forward losses to offset the capital gains you make on your Australian property when you decide to sell!
Diversify your portfolio
Stability, capital growth and attractive tax laws aside, the other quality benefit of investment property in Australia is that it’s just a great way to diversify your investments. And given that diversification is the cornerstone of a successful property portfolio, foreign property investment in Australia should almost be a foregone conclusion for British investors.
Why is diversification so important to your property journey? Simple – it’s a financial safety net!
Because real estate markets can be unpredictable and properties can drop in value when you least expect, it’s a bright idea to own properties in a range of areas (and countries). So, if one property plummets in price, you’ll have another strong performer to offset the loss.
As well as reducing your exposure to risk, overseas property investment in Australia can be a prime way to cultivate a mix of high yield and high capital return properties. Which is exactly what you want to do so you can enjoy a passive income from one while also setting yourself up for a big payout when you sell the other.
With Aussie properties already being the go-to purchase for capital growth, you’re already halfway there.
With all the benefits of property investment in Australia it’s actually harder to think of reasons not to get on the Aussie property bandwagon.
Australia has a stable market! Property prices have avoided substantial falls, and even fended off a recession during the GFC. The same can’t be said for the British market, however.
Australia has high capital growth! With house prices jumping over 800% since 1993, Australia beats the U.K. property market on that measure.
Australia has lucrative tax laws! With the Aussie government being such a fan of negative gearing, British investors can treat themselves to all the tax perks of a local investor.
It’s a great location to build your portfolio and British investors can safely diversify their investments with stable, high capital growth properties. Limit your exposure to the risk of your other properties dropping in value, while also investing in real estate that will compliment your other high yield investments.
Like we said, it’s harder to think of reasons not to double down on overseas property investment in Australia.
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Disclaimer: The views, information, or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not taken into account specific situations, facts or circumstances, and no part of this blog post constitutes personal financial, legal, or tax advice to you. You should seek tax advice from your accountant, specific to your situation.