As an investor, you’re in the business of finding real estate markets with low vacancy rates, strong rental property demand and a solid track record of price growth.
That’s exactly why plenty of investors choose to invest in Australian property. Not only does Australia’s property market offer everything from picturesque coastal homes to trendy inner-city townhouses, but property prices have been skyrocketing (yes, even during the pandemic).
To help you make an informed decision, we’ve rounded up everything you need to know about investing in Australian property, what the process looks like and how to succeed as an overseas investor.
So, why invest in Australian property as a foreign or expat investor?
You don’t need to look far to find news about Australia’s booming property market. Even during a global pandemic, Australia’s property prices continue to climb to record highs (with prices rising by 19% in Sydney and 15% in Melbourne over the past 12 months alone).
To put that into perspective, national property prices are now at their highest growth rate since 1989. Obviously, this shows strong potential for investors to score a capital gain from their investment when it comes time to sell the property.
Wondering what’s behind this trend? Well, Australia has managed the pandemic relatively well with a lower number of cases and fewer deaths than many other developed countries.
Plus, Australia’s national bank has slashed interest rates to their lowest levels on record and increased Government stimulus packages have helped more home buyers get their foot in the door, too.
But even putting this latest price rise aside, Australia’s property market has continued to prove a consistent and stable option for investors. Our well-managed economy protects investors against big highs and lows in the market. Plus, our legal system and policies make it simple for overseas investors to secure property in Australia.
The benefits of investment properties in Australia
Along with strong local demand for rental properties, Australia’s laid-back lifestyle attracts overseas students, travellers and international workers in their thousands each year (with roughly 240,000 people migrating to Australia in 2019 alone).
With Australia now reopening its international borders, experts expect that rental prices are likely to rise in 2022 (and beyond) due to high demand and low stock levels.
Already, vacancy rates across Australia also remain consistently low (sitting at just 1.7% for the fifth month in a row, the longest period of stability since 2017).
Clearly, there are plenty of opportunities for investors in Australia's property market, including:
- High capital growth opportunities: over the past 25 years, median house prices have risen over 412%, with this rate of price growth only expected to accelerate into 2022 and beyond.
- Strong performance inside and outside of capital cities: over the past 16 months, capital city house values have jumped by 14.2%. But, Australia’s regional areas have also been booming in price and popularity, offering huge scope for investors to score a good return no matter where they invest.
- A smart passive investment: with the right local experts by your side (including a mortgage broker, a buyers agent and a good property manager) you’ll be able to secure a good investment property in Australia without having to lift a finger.
With all of these benefits of investing in property in Australia in mind, it’s no surprise that foreign investors spent a whopping $87.8 billion on real estate in Australia in 2019.
How to invest in Australian property as an overseas investor?
There are unique rules and regulations that apply to foreign investors when buying Australian property. So, let’s run you through what you need to know about property investment in Australia for foreigners.
Getting your FIRB approval
First up, overseas investors (referred to as non-residents for tax purposes) need to apply to FIRB (the Foreign Investment Review Board) for approval before buying property in Australia.
That’s because there are a few restrictions that apply when it comes to what type of properties foreign investors can purchase, including:
- New buildings: the Australian Government wants to use foreign investment to create local jobs in construction, meaning these applications are usually approved without conditions.
- Vacant land: if you plan to build a home on this land (and you plan to complete it within four years), your application should be approved.
- Established dwelling: here’s where things get a bit trickier. Typically, you’ll only be able to buy these properties if you plan to knock the property down and rebuild on the lot with more dwellings (such as knocking down one home to build two townhouses).
Once you submit your FIRB application (which can all be done online), you should hear back within 40 days. Plus, you’ll have to pay a FIRB fee (depending on the purchase price of your property).
Understanding your finance options
If you’re thinking about taking out a home loan to buy an investment property in Australia, you’ll need to be aware of the challenges you might face. Many local lenders will only offer home loans to Australian citizens or permanent residents, as they can see overseas investors as a riskier option.
There are some lenders that do work with foreign investors, but they often come with stricter lending criteria, higher interest rates and may need you to have a larger deposit ready (more than the usual 20% recommended).
But if you have the money ready to go, you’ll be able to skip this step entirely and get straight into your property search.
Finding your local property experts
Many overseas investors choose to work with local Australian property experts to help them make their investment decisions.
A buyers agent (sometimes referred to as a buyers advocate) can help you scout out potential properties and even handle the buying process on your behalf (such as bidding at an auction or placing an offer by private treaty).
Once you’ve made an offer or purchased at auction, you’ll finalise your purchase at settlement (which is when the property title is transferred into your name).
After that, it’s time to get your property leased. If you’re looking to gain the benefit of a local expert who understands how to set a fair rental price and how to attract high-quality tenants, it can be helpful to work with a property manager.
These local experts can manage the leasing process on your behalf (including holding inspections, vetting potential tenants and getting your lease agreement sorted). Plus, they’ll be able to handle ongoing tasks like routine inspections, repairs and maintenance, chasing rental arrears and keeping your property compliant with local laws and regulations.
Where to invest in Australian property as a foreigner?
It’s the question on every investor's lips: where are the best places to invest in Australia?
As we mentioned, both inner-city and regional areas are booming in terms of property prices and demand in Australia. Across all states and territories, there has been a shift towards big spacious houses (as opposed to small apartments) and a growing demand for lifestyle-driven properties in coastal areas.
The key for investors is to find Australia’s growth suburbs that are showing year-on-year price increases of 20% and even 30%.
But big capital gains isn’t your only option. If you’re looking for stable, consistent rental returns, it’s worth checking out some of the best positively geared suburbs in Australia that are delivering reliable passive income for investors.
Clearly, there are loads of opportunities for overseas investors in the Australian property market. An attractive lifestyle, strong market performance and a good track record of price growth make investing in Australian property a safe bet.
The best way to secure a successful investment property is to work with local experts, like property managers, who will be able to keep your tenants happy and ensure you’re making the most of your investment (minus the hassle of managing the property yourself).
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