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You’ve probably spotted headlines about Australia’s booming property market in recent years - and you wouldn't be the only one. Many foreign investors have been taking advantage of the Australian property market and tapping into the reliable, high-growth opportunities of this real estate market.
Some experts are predicting the American property market will cool significantly (or even crash) in 2022. On the flip side, overseas buyers are buying property in Australia to capitalise on the country’s strong rental yields, diverse investment options and stable home prices.
If you’re wondering why overseas buyers are buying property in Australia (particularly American investors), keep reading to discover the benefits of an investment property in Australia, what to look for in an investment property in Australia and the latest data on the Australian property market.
Why buy property in Australia?
Even a global pandemic couldn’t slow down Australia’s historically strong property market. In fact, this is just one of the many reasons why overseas buyers are buying property in Australia.
The latest figures from the Australian Bureau of Statistics reveal that the value of residential property in Australia has hit an all time high of $9.25 trillion (rising by $1 trillion in value over the past six months alone).
Record-low interest rates, limited housing stock and significant Government support have all driven property prices to record-breaking new heights in Australia.
Along with a high chance of capital gains, Australia's rental market is looking stronger than ever. Recent data from CoreLogic reveals that national rental rates rose 6.6% in 2021, the highest rate of annual growth since 2009. And it’s not just capital cities that are seeing huge potential for high rental yields, with regional properties outpacing Australian cities’ rental returns in 2021.
With such strong results, it's no wonder stacks of overseas investors are turning their attention to the Australian property market. No matter what investment strategy you’re following, overseas buyers are buying property in Australia to score both capital gains and strong rental yields.
The benefits of owning an investment property in Australia
Scoring an investment property in Australia continues to be a popular choice for foreign investors. A big part of this is Australia’s strong, stable property market that has historically delivered strong returns for investors.
But that’s not the only reason why overseas buyers are purchasing investment properties in Australia.
- Well-managed COVID-19 response: Australia has successfully managed the outbreak of COVID-19, especially compared to countries such as America. Relatively low case numbers and a strong Government support system in place have all kept the Australian economy stable throughout the pandemic.
- Strong property price growth: even lockdowns and pandemic restrictions couldn’t slow down Australia’s real estate market. In fact, prices have skyrocketed since the start of the pandemic and are expected to continue to climb well into 2022.
- Rising demand for rental properties: with international borders reopening, the return of international students, migrants and tourists is expected to accelerate demand for rental properties (particularly in Australia's capital cities) and increase rental returns for investors.
The opening of international borders will make it easier for overseas buyers buying property in Australia. Coupled with strong local demand, there’s plenty of evidence to suggest that rental yields and prices will continue to grow into the new year and beyond.
Why buy property in Australia as an American investor?
For overseas investors who have bought into the American property market, you’d already be aware that the US market is known for delivering strong rental yields. However, capital growth isn’t necessarily as easy to achieve when investing in the US property market.
The Australian property market has a stack of investment opportunities from regional areas to capital cities that can deliver both stable rental returns and a strong chance of capital growth.
To help you make an informed decision as an overseas buyer buying property in Australia, let’s run you through the pros and cons of investing in Australia.
Advantages of buying property in Australia
- Diversify your investment portfolio: it’s important to ensure you’ve created a balanced property portfolio as an investor. If you’ve already secured plenty of real estate in the American market, it’s worth diversifying your portfolio into a new market (like the Australian property market) to lower your risk as an investor.
- Strong track record of price growth: one of the biggest benefits of an investment property in Australia is its high chance of capital growth. There are stacks of suburbs across Australia tipped to grow in value that back up Australia’s reputation for being a market with a good chance of price increases.
- Easier to manage your investment property: Australia has the right infrastructure in place to make it simple and stress-free to manage rental properties remotely. With a good Australian property manager by your side, you’ll have a local property expert on-hand to lease your investment property, keep your tenants and ensure you’re getting the best rental returns, too.
Disadvantages of buying property in Australia
Like any real estate market, the Australian property market does come with a few considerations (especially for temporary residents and overseas buyers buying property in Australia).
- Limited property options for foreign property investments in Australia: unfortunately, overseas investors are limited to purchasing a few types of properties in Australia (including new homes, vacant land and established dwellings with the plan to knock down and rebuild). Plus, you’ll need to submit an application via the Foreign Investment Review Board to gain approval prior to purchasing real estate in Australia.
- Minimal tax advantages: plus, foreign investors (without permanent residency) are also required to pay tax on any Australian sourced income and on capital gains, they earn when selling their Australian property.
Ultimately, despite these drawbacks, there are plenty of benefits for overseas buyers buying property in Australia. Whether you’re looking for stable rental income, capital gains or a bit of both, there are plenty of opportunities in the Australian real estate market for overseas investors to succeed.
What to look for in an Australian investment property?
When making a foreign property investment in Australia, you want to ensure you’re purchasing the right kind of property that will deliver the results you’re looking for. So, we’re giving you an expert insight into what to look for in an investment property in Australia.
Match your property to your investment goals
First up, it’s important to look for Australian properties that align with your big picture investment goals.
Whether you’re in the market for stable rental income (a positive gearing strategy) or the chance of making a capital gain (a negative gearing strategy), matching your property type to your investment goals will help you succeed as an overseas buyer buying property in Australia.
- If you’re looking for stable rental income: look for Australian suburbs with low vacancy rates and limited rental properties to allow you earn a solid rental yield.
- If you’re looking for long-term capital growth: look for Australian suburbs with affordable property prices, limited stock and a high chance of property price growth.
Understand what tenants are looking for in the local market
Once you've narrowed down your property search to align with your investment goals, it’s time to pick the right property type for the local market.
By understanding what tenants are searching for in the local area, you’ll be more likely to pick the right property type to attract the best tenants.
Here are a few questions to consider when researching the local Australian market as an overseas buyer buying property in Australia:
- Do apartments, houses or townhouses rent more easily in this suburb?
- Are the people renting in this area families, students, singles or couples?
- How many bathrooms and bedrooms do local tenants expect?
- What other features will help you stand out to local tenants (such as outdoor space or secure underground parking)?
Scout out low maintenance rental properties
Maintenance and repairs are unavoidable as an investor. However, you can reduce how much you need to spend on maintenance by choosing a well-maintained, easy-care property.
Generally speaking, newer properties and well-maintained apartments tend to come with lower maintenance costs. The older and larger the property is, the more you’ll probably spend on repairs and maintenance.
Plus, as an overseas buyer buying property in Australia you don’t want to have the hassle of getting repairs sorted while living internationally (and potentially in a different time zone).
Check the location and access to local amenities from this investment property
Lastly, it’s important to look beyond the individual rental property and see how desirable this investment property might be to potential tenants and buyers.
The better located your property is to public transport, amenities and schools, the stronger demand will be (and the more likely you’ll be to score positive cashflow and even a capital gain).
So, make sure to look at how convenient a potential property is to nearby supermarkets and amenities to boost your chances of making a successful property purchase in Australia.
When it comes to buying property in Australia as an overseas investor, there are plenty of opportunities to earn a good return and diversify your property portfolio. The key to succeeding as a foreign investor is to get the right local help on the ground (such as an experienced property manager) to ensure you’re selecting the right tenants, setting a fair rental rate and getting repairs and maintenance sorted quickly.
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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.