If you’re one of the many American investors scouring the globe for a promising foreign property market, you may well be shrugging your shoulders, at a loss about which country will yield the best return on your investment. But if you want to let your decisions be driven by numbers and stats (and you absolutely should!) then you might want to cast your sights down under. Buying Australian property as a foreigner has never been more lucrative, say the experts.
The latest annual report by the Foreign Investment Review Board revealed that the United States led the way as Australia’s top international property buyer - pouring $13 billion worth of investment into the booming foreign market.
Clearly, there are plenty of American investors seeing the benefits of investment property in Australia. From greater stability to higher capital growth, to just being a smart avenue to diversify your property portfolio, investors are already enjoying the golden benefits of buying an investment property in Australia. Otherwise, you can rent out your property in order to receive passive income. In this case, you can easily manage your rental property by using the right property management software.
This article delves into the facts and figures of exactly what to look for in an investment property in Australia, and why investment property ownership in Australia is a wise choice for any American investor looking for their next big move.
No owner wants to invest in a market where the price of property can turn on a dime. A wise investor knows stability is key when it comes to safe, steady returns, and that’s something the Aussie market can’t help but pride itself on!
Take a consistent undersupply of housing in major cities, combine that with a prudential regulatory authority who minimises the risk of price bubbles,
add the fact that, 70% of Aussie households are owner-occupied leading to minimal speculation..
..and you have yourself a market which has never had property prices dip by more than 20% in one year. More than can be said for the U.S. we’re afraid.
Remember the Global Financial Crisis? Real estate values in the USA “fell 33 per cent during the recession”, according to the Washington Post analysis.
Australia on the other hand steered clear of a recession and actually experienced an increase in property prices. National median figures for 2009 showed a jump of 3.5% in the June quarter, then 3.9% in September before rising another 4.6% going into December, according to Domain.com
Suffice to say, stability is just one of the things that makes Australian property a prime choice for foreigners.
Having a steady and lucrative rental income is one thing, but you can’t lose sight of the other big factor that ensures a healthy property portfolio for overseas investors: Capital growth!
And when it comes to Australia, we’re nothing if not the poster child for capital growth. Unit and house prices have “enjoyed consistent capital growth over the last 100 years, with property prices doubling roughly every 7 to 10 years”, says Home Loan.
Between 1993 to 2018 alone, Australian house prices shot up by 412%! As recently as the June quarter of 2021, residential dwellings rose by a collective $596.4 billion, “the largest quarterly rise on record”, says the Australian Bureau of Statistics
The proof is in the pudding:
1993 Median Value
2021 Median Value
1993 Median Value
2021 Median Value
For an American investor, capital growth is one of the massive benefits of investment property in Australia. Why? Well because the U.S. market just doesn’t experience the same great increase in value that we do. Don’t get us wrong, American real estate is the go-to place if you’re after significant rental yields, but it’s Australian property you want for that robust capital growth.
With those staggering 2043 property price projections, investment property ownership in Australia should be on the cards of any American investor looking to seriously bolster the value of their portfolio.
Taxes, especially for the common property investor, can feel like a major thorn in the side. Profits are the name of the game, and taxes, well.. they’re kind of the opponent. So, it might come as some great news that Australia has some very enticing concessions when it comes to the topic (concessions that foreign investors are all too welcome to use!).
One of the benefits of buying an investment property in Australia is that the Australian Taxation Office is big on negative gearing. What’s that? Simply put, it’s a strategy where an owner pays more in repayments and holding expenses than they receive in rent. The losses are then used to offset the owner’s other taxable income, like salary. End result: you pay less in tax.
For American investors, this is a prime tax benefit of having investment property in Australia. You can claim all those standard expenses (like repairs, utilities, estate agency fees, insurance, loan repayments), and deduct those losses from other Australian income, “including rental income from another Australian investment property”.
But here’s the real icing on the cake: if you’re negatively gearing an Aussie property and don’t have another source of Australian income to offset, the ATO allows those losses to be carried forward indefinitely until you generate another form of income - like when you sell and make capital gains on your investment property in Australia!
With the tax benefits of owning an investment property in Australia, it’s pretty easy to see why U.S. investors have taken such a shine to the southern market.
Diversify your portfolio
A word to the wise: one of the main pillars of building a successful property portfolio is diversifying your investments.
Not only does owning multiple properties pump up your rental returns and inflate the value of your holdings, but it can also go a long way in reducing your exposure to risk.
Many real estate markets have a tendency to go through ebbs and flows, and experience dizzying highs as well as ghastly recessions (just like the one that hit the U.S. during the GFC).
Luckily, if you're an American property investor, you can shield yourself from these unsightly downturns while trying to grow your real estate business. Spreading your investments over a range of different property markets (like buying an investment property overseas) will help minimise these risks.
So, if the unfortunate happens and one or a few of your properties drop in value in one region, you’ll have the safety net of your Australian properties to counteract those potential losses. (Especially when you factor in how stable the Aussie market is).
Australian properties are known for their high capital growth, and U.S. properties for their high rental yields - you’ll be covering all bases. On the one hand, you’ll have a positive passive cash flow, and on the other, you’ll have a property that will pay out big time when it comes time to sell.
A portfolio with a mix of high rental yield and high capital growth holdings is nothing if not a smart bet.
When it comes right down to it, the numerous benefits of investment property ownership in Australia make the land down under a premium pick for American investors.
The figures don’t lie: the Aussie market offers a great deal more stability than the U.S. variety. Our property prices have never dipped below 20% in a single year, after all.
And while America might be a choice location for high rental yields, it’s Australia that boasts consistent capital growth. (Our properties double in value every 7-10 years if you can believe it).
What’s more are the tax benefits of investment property in Australia. Even though you might be a U.S. citizen living overseas, the income you make in Australia gets taxed just the same as a resident, which means you get to enjoy the spoils of negative gearing.
In other words:
- Get ready to use those net losses on your Aussie rental to pay less tax on a second Aussie income stream
- Carry forward those losses so you can offset the capital gains
on your investment property when you decide to sell.
And let’s not forget that purchasing Australian real estate is just a fundamentally simple way to build a successful property portfolio. By diversifying an Aussie property, you’ll be safeguarding yourself against unexpected dips in the U.S. market.
Plus, you’ll be enjoying a mix of high yield and high capital growth properties, giving you a passive income stream, and a golden egg of a property that’s appreciating in value year by year.
Want to stay up-to-date with all things real estate?
Subscribe to our FREE monthly newsletter for the best property content on the internet!
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.