Your Ultimate Australian Property Guide 2022

Published 02 December 2021 by Team :Different

Investing in a new market can be daunting, especially if you’re not familiar with the local property laws and regulations. But, thanks to our stable economy, high property price growth and range of investment opportunities, Australia is a smart choice to invest in property.

If you’re a foreign investor, the best way to succeed in the Australian property market is to understand the local laws and conditions that apply to you before making that crucial purchase decision.

To save you hours of scrolling through Google, we’ve rounded up everything you need to know as a foreign investor with the ultimate investment property guide for Australia!

Can foreign investors buy property in Australia?

Absolutely yes, but there are a few extra rules and regulations that apply to foreign investors (often called ‘non-residents’ for tax purposes). 

Overseas buyers intent on buying property in Australia need to apply to the Foreign Investment Review Board (FIRB) for approval, before making any property purchase. The whole aim of FIRB is to make sure foreign investors are helping the Australian economy through their investments, rather than taking home ownership opportunities away from local buyers.  

The FIRB has set criteria for what type of properties foreign investors are approved to purchase, those include:

  • New properties: overseas investors are usually approved to purchase any property that hasn’t been previously lived in.
  • Vacant land: overseas investors must build a property on this land within four years of approval and send proof of completion within 30 days to FIRB, too.

In most cases, overseas investors won’t be able to purchase established dwellings in Australia. However, there are a few exceptions, for example, if you plan to rebuild multiple new dwellings on the same lot (like replacing a single home with a duplex or two townhouses). 

The FIRB application process involves an application fee based on the value of the property or land you want to purchase. This can range from $2,000 for property or land valued at under $75,000, and go all the way up to $503,000 for properties valued at over $40 million.

It’s important to stick to these rules and regulations - foreign investors who breach FIRB’s rules could be liable for fines of up to $3.3 million and face a prison sentence of up to 10 years!

Why do foreign investors choose to buy property in Australia?

Overseas investors have always seen the Australian property market as a wise investment for a bunch of reasons. Our strong track record of price growth, stable economy and broad range of investment opportunities in both regional areas and capital cities have made Australia a popular investment destination. 

Even a global pandemic couldn’t slow down foreign investor interest in Australia. The latest data from FIRB’s annual report shows overseas investor activity has surged by 15.5%, now at its highest level in three years. 

These figures make sense considering we’re seeing exponential growth in property prices across the country (increasing by 22% in 2021). This has given many investors the confidence to make a lucrative capital gain. 

Additionally, many Australian suburbs offer low house prices and rising rent, the perfect conditions for investors to score a strong rental yield. Some of the best rental yields have been seen in these areas:

  • Broken Hill, NSW (11.7%)
  • South Hedland, WA (11.1%)
  • Woree, QLD (10.0%)

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How to buy an investment property in Australia as a foreign investor?

With all of this in mind, you’re probably wondering about how the Australian property market works and what the investment journey involves. Let’s run through the key steps a foreign investor like you would need to navigate as part of this Australian investment property guide. 

In Australia, the rules and regulations that exist around foreign property investment are a lot less restrictive than in many other countries. In fact, the Australian Government welcomes overseas investors as an opportunity for job creation and strengthening the local economy.

The Government still wants to make sure local residents aren’t negatively impacted by overseas investors entering the property market - that’s why they’ve set up the foreign investment review framework (outlined in Australian law, under the Foreign Acquisitions and Takeovers Act 1975).

On the bright side, Australia’s legal system is based on English common law, the most common legal system in the world, which might mean that you’re already familiar with some of the processes. However, one of the best things you can do as an overseas investor is to chat with an Australian property lawyer who will have an in-depth knowledge of what rules and regulations apply to you. 

Whether you’re looking to buy residential or commercial property, a good property lawyer will be able advise you on your FIRB approval process and check that you’re meeting your ongoing compliance obligations as a property investor, too.

Lodge your FIRB application

Once you’ve had a chat with an Australian property lawyer, it’s time to get your FIRB application sorted. Before you purchase a property in Australia, you need to gain FIRB’s approval. 

Here’s a snapshot of what this application process looks like:

  • Head to the Australian Tax Office (ATO) website and start your application on the “Foreign Investment in Australia” page.
  • Complete the form and provide all the details required, including your personal information, passport and visa details.
  • Explain what type of property or vacant land you’re planning to purchase.
  • Sign and submit your application. At this stage, you’ll be prompted to pay your application fee too..
  • Now, it’s time to wait and see. Usually, you’ll hear back within 30 to 40 days on the outcome of your application.

If you run into any questions during this process, it’s worth chatting to your Australian property lawyer to make sure you’re providing the correct information. 

Get your finance in order

A common question many foreign investors have is:

“How much of a deposit do I need for an Australian investment property?”.

As a foreign investor, most banks and lenders have different rules when it comes to approving a home loan. While Australian residents typically need 20% (or less) of the property’s value saved as an owner-occupied home loan, foreign investors will need more than the recommended 20% deposit saved up.

There are also a few other challenges with securing an Australian home loan as a foreign investor. Many banks won’t lend to foreigners as they see these investors as having a higher risk. Plus, some lenders will charge foreign investors higher interest rates than regular home loans. 

However, there are ways to secure a home loan as an overseas investor, especially if you work with a local expert such as a mortgage broker. These local real estate professionals will be able to explain your options and help you find the best loan for your needs, which can take a big weight off your shoulders (especially when living abroad). 

Decide the best places to buy an investment property in Australia

Where you decide to purchase in Australia really comes back to your goals as a foreign investor. The good news is that there's plenty of different property options that suit a range of investment goals. 

The trick is knowing where to look and what kind of suburbs will offer you the passive income or price growth you’re looking for. Here’s some things to consider:

Another great way to find a winning investment property as a foreign investor is to work with a local expert known as a buyer’s agent. These property professionals act on your behalf to research good investment properties within your budget and can even handle the entire purchase process from start to finish. 

Understand the property buying journey in Australia

Once you’ve scored your FIRB approval and have sorted out your property finance, it’s time to get buying. In Australia, the property buying journey might be really different to your local market.

So, to help you avoid costly mistakes, we’ve pulled together a snapshot of this process from start to finish:

  • Secure pre-approval: make sure you chat with a bank or lender and find out what they’re willing to lend you before you start making offers (so you don’t overspend!).
  • Find a new property that ticks your boxes: whether you attend an open home inspection yourself (or your buyer’s agent acts on your behalf), make sure to scope out the property and ensure it aligns with your investment goals. Plus, make sure you understand how to pick a good investment property in Australia.
  • Run the numbers on potential investment properties: be sure to research property value trends in the area and key suburb data such as days on market, auction clearance rates and rental yields to ensure you’re investing in a property that will deliver strong returns.
  • Make an offer: once you’re ready to secure a particular property, you or your buyer’s agent will make an offer in writing and negotiate on the sale price with the agent selling the property. Once this is accepted, you’ll have a stack of paperwork to fill out to seal the deal.
  • Pay the deposit: on the day the contracts are exchanged, you’ll pay the amount to the real estate agent. You’ll also need to pay an extra tax called stamp duty (if that applies to you) within three months of signing the contract).
  • Survey report: you’ll receive a copy of this from the seller or your conveyancer to show the boundaries of your property and fence lines.
  • Mortgage documents: your lender will provide a copy of the terms and conditions of your loan (such as how much you need to pay and your loan term).
  • Requisition of title: your property lawyer will send these documents to the seller on your behalf to give you a clear picture of the property you’re purchasing.
  • Settlement: this is the date when your transaction is complete and you’re now the owner of this property.  

Prepare your Australian investment property for leasing

Now you've scored the keys to your Australian property, it’s time to secure a tenant. There are a bunch of different ways to lease and manage your rental property, including working as a DIY landlord or using a traditional property manager.

Many overseas investors choose to hire a good property manager as it takes work off their plate and ensures a local professional is handling everything from screening potential tenants to organising repairs and maintenance and chasing rental arrears.

In Australia, 80% of property owners hire a property manager because:

  • They save you time and stress in the leasing and day-to-day management of your rental property (which is especially helpful if you’re living in a different time zone overseas).
  • They have in-depth knowledge of the local market and can help you score the best tenants and rental yield.
  • They can decrease your risk by reducing the likelihood of vacancy and helping you make strategic decisions around how to boost the value of your rental property.

When it comes to investing in Australian property, the best way to succeed as an overseas investor is to work with experienced local professionals. From lawyers to mortgage brokers, using local experts ensures you’re getting the best deal and meeting all your legal requirements as a foreign investor.

Additionally, having a good property manager will mean a local expert on the ground safeguarding your rental returns for you, making your Australian investment property a stress-free experience!

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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.

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