The 2019 Ultimate Foreigner's Guide To Investing In Australia
This guide serves as an introduction to property investment in Australia from a foreign investor’s perspective, along with the regulations and processes involved should a foreign investor decide to purchase an Australian property.
Famed for stunning beaches, scorching red deserts and bustling cities, multi-cultural society, every aspect of Australia’s culture has mesmerized travelers for decades; from its indigenous heritage to its young and vibrant cafe scene.
You are bound to find something exciting in Australia, from its cultural diversity to the thriving economy and skilled workforce. Australia ranks among the most resilient economies in the world by the World Competitive Workbook and has experienced consistent growth for the past 22 years and counting. It is also strategically situated in Asia Pacific - the fastest growing region in the world.
Australia boasts a population of over almost 253 million, (Melbourne, over 5 million and Sydney, over 6 million). Its popularity has also resulted in high continuous international migration over the years, resulting and recent immigration policies have resulted in an increased population of 2.01.6 percent per annum from 2011 to 20142; higher than the world average of 1.2 percent.
This trend is not expected to slowdown in the coming years, resulting in a significant chronic demand shortage of residential properties in the country; translating to better rental yields and surging capital growth. This presents the perfect opportunity for property investors looking for investments with positive growth potential and high Return On Investment.
Australia has consistently experienced strong economic growth and high employment rates.
Why Should I Invest In Australian Properties?
- High population growth is one of the most important criteria in real estate investment. With the population growth in Australia, especially in key cities like Melbourne & Sydney not likely to slow down anytime, it makes investing in these cities attractive to ensure a continuity of both capital and rental growth.
- Australian property is often lauded by investors for its ability to maintain steady rental yield while achieving positive capital growth.
- As one of the world’s most consistent property markets for the past three decades, Australian properties see an average ROI of 7% per annum, with lesser years of decline compared to almost any other property market in the world.
- Overseas property markets such as Hong Kong or the United States have suffered significant crashes that are completely unheard of in Australia. Housing prices in volatile economies have seen drops of up to 70%, leaving investors with huge losses. This is often because of significant speculation from foreign investors or asset price bubbles fueled by debt. Investors have a smaller impact on Australia, as the majority of the housing market is owner-occupied. In fact, during the 2007/09 Global Financial Crisis, which saw property prices in the UK and the USA fall significantly, Australian property prices actually increased in value.
- Australian properties have enjoyed consistent capital growth over the last 100 years, with property prices doubling roughly every 7 to 10 years.
- It’s easy to invest in Australia - Many countries have very restrictive foreign investment laws or banking regulations that make it difficult to invest. This isn’t the case in Australia:
- You don’t need to set up a company in Australia or buy with a citizen.
- Government approval for foreign citizens is simple, although additional taxes apply. Read about the rules below.
- Specialist mortgage brokers can assist you in qualifying for a foreigner mortgage.
- There’s strong and effective consumer protection legislation in Australia through the National Consumer Credit Protection Act 2009 (NCCP Act).
- Australia’s legal system is based on the UK system just like Hong Kong or Singapore, so it’s familiar to many overseas investors.
- There’s minimal political, social or economic instability in Australia.
- Australia is a great place to live. Australia is well known for its diverse international cities and breathtaking natural beauty. Over the next 50 years, it’s expected that the trend of migration to Australia will continue and property prices will rise as a result.
- The Australian property market has also displayed resilience in resisting downward trends, giving investors the confidence needed to hold on to their investments for longer periods. The low volatility of the Australian property market has made it the preferred choice over stock markets and other property markets worldwide.
- Foreigners are welcome to own FREEHOLD properties and enjoy ownerships of such properties as locals would.
Investors see property as a tangible investment that is within their control and has the potential for growth.
Discerning investors have long favored property over other types of investment due to its steady returns, ease of obtaining financing compared to stocks, and its appreciating value, which can be increased through renovation or restoration. Pre-construction properties
What are the things that I should know as a foreign investor? How do I invest if I am not an Australian citizen?
Foreign investment brings forth fundamental benefits to the Australian Government. However, there are foreign investment policies in place to regulate the stability of the Australian property market. Though off-shore investments are welcome, there are certain restrictions that must be abided by, that are managed by the Foreign Investment Review Board (F.I.R.B). Generally, non-residents have the liberty to invest in new and pre-construction residential development. Australia’s foreign investment policy dictates that foreign investments should be channeled to the housing sector to increase the supply of new residential properties.
As a result of this, new residential properties form the majority of purchases by foreign investors, with many of them purchased even before construction is completed.
- Foreign investors are free to invest in pre-construction or newly built residential properties (including apartments and townhouses) as long as the property has never changed hands and has been vacant for more than 12 months. Generally, any residential property purchase by a foreigner is subject to the Foreign Investment Review Board’s (FIRB) approval and application is fairly straightforward and normally approved within 30 days. Buyers must submit their applications to the F.I.R.B before purchasing a property. A contract can also be prepared before obtaining approval from the F.I.R.B, as long as there is a special clause in the contract that states that the sale is ‘subject to approval by the F.I.R.B’ within a specified period.
- Application is fairly straight forward, free, and generally approved within 30 days of submission. We are also here to assist you in the making your property purchase a smooth and hassle-free experience.
- Similar to other banks around the world, many Australian banks generally loan up to 80% of the property’s value to foreign investors. Legal Procedures - It is required to be represented by a lawyer should you decide to purchase an Australian property. Your lawyer in Australia will assist in reviewing the Contract of Sale, sending over the documents to you and be your legal representative in matters about your Australian property.
Sample of A Typical Property Purchaser Process
Note: The sale process above serves as a guide and could differ slightly on case to case basis.
- Property Management - Engaging the services of a property manager is the easiest way for foreign investors to deal with the everyday operations of their properties. A property manager will advertise your property and find the right tenants, submit application forms, and preparing tenancy agreements. They will also settle any maintenance issues that may arise, and compile and update you with cashflow reports, taking the hard work out of property maintenance. Property management fees range from 5.5% to 7.7% on gross rent.
- Stamp Duty - Certain States and Territories offer rebates on stamp duty when purchasing pre-construction properties, therefore buyers only have to pay a fraction of the stamp duty based on the stage of work completed when the contract is signed. Australia’s fairly competitive depreciation rates also make Australian properties fairly tax effective. Stamp Duty varies according to State. (Approximate stamp duty for Victoria (Melbourne) & New South Wales (Sydney) is approximately 5.5%)
- Foreign Investor’s Levy: In addition to the local stamp duty imposed on property purchases, foreign investors are required to pay an additional 7% of the purchase price in stamp duty.
- Taxation - Similar to other countries, you will be taxed if your property investment generates income. But there are many methods of reducing or deferring tax through tax deductions (expenses incurred as a result of generating the income). When it comes to maximizing your tax deductions, you can rely on our specialized expertise and experience will guide you through your claims. Having an accountant who is seasoned in property investment will also help to optimize your cashflow.
- Mortgage – While financing is not offered to foreign investors by Australian banking institutions, some banks in countries like Malaysia and Singapore finance investors in their countries to purchase properties in Australia. There are also finance available from reputable Private Lenders to foreigners.
Is It Difficult To Investing Overseas?
In reality, there is not much difference compared to buying property locally, the buying process is almost identical. There may be variations in the legal and accounting process, but we are here to settle your administrative issues and provide assistance in the buying and holding process.
Where Should I Invest?
We continuously source for good property investment products for our clients. Scour the whole of Australia to find opportunities for property investment. Location is still the most critical criteria, and properties within a 5-10km radius of a major CBD remain highly sought after by prospective owners and tenants. We emphasize on areas with amenities, schools, public transport access, high demand, and not forgetting upcoming areas.
ARE focuses on certain factors when conducting research on a particular development, these include:
- Distance to the CBDKey Commercial Centre
- Demographics of the area
- Reasons for population growth
- Public transportation within the vicinity
- Surrounding amenities and recreational facilities
- Proximity to commercial zones
- Value of surrounding properties
- Past growth trends
- Rental yield statistics
- Property supply and demand in the locale
Other factors we consider are how appealing the property or location will appear to potential tenants, and expected rental yields and demand.
Having a clear understanding of these inter-connected issues is vital to making a prudent investment decision. We have discovered that this is among one of the main reasons why foreign investors haven’t pursued their attempts to purchase Australian property further. Understanding this, we hope that our years of experience, research, and support will make your purchase a smooth and hassle-free process.
You will eventually discover potential investment locations after extensive reading and researching, therefore narrowing your focus to research on that particular location and properties on offer there.
As a value-added service, we also assist our Clients in appointing lawyers, tax consultants, mortgage brokers, and property managers when the time comes. Through our years of experience, we have built up a list of trustworthy consultants who are experienced in helping foreign investors to ease their processes of buying real estate in Australia.
Investing in Pre-Construction Properties
Overseas investors typically prefer to purchase Australia’s pre-construction properties - which are developments that are still under construction. Due to the severe shortage of new residential developments in most major cities in Australia, developments are usually sold out even before construction is completed.
Pre-construction properties are usually apartments, townhouses, or even landed units. To ensure the property is successfully sold before completion, developers often entice buyers with attractive prices that are lower than the expected value of the completed property.
Pre-construction properties usually require a holding deposit of about $1000 - AUD 5000 to reserve the property. A contract is then issued, which must be signed within a 21-day time frame, along with a 10% deposit. No subsequent payments are required until construction of the property is completed, typically in one or two years.
ARE has corresponded with some of the best pre-construction developments in Australia, and will periodically have exclusive access to certain pre-construction projects, giving our investors an early bird privilege to select the best units in a pre-construction development before it is released to the general public.
Disclaimer: This document has been prepared solely for the purpose of a guide. It should not be relied upon as a guarantee. While reasonable care is taken to ensure that the contents in this document are correct at time of print, the information to be used as a guide. Information could be changed by legal authorities at any time. Readers must rely on their own inquiries.
The buying process
Before you begin – budget and plan
It’s essential that you research, plan, and budget your property purchase in Australia.
You may have a location in mind, but it’s always helpful to speak to a real estate agent who can offer you some local advice that will help you select an affordable area with great returns.
Making sure that you can afford the property is also important.
Australian banks won’t lend to you if you can’t prove that you can afford the debt, so you need to have a realistic and affordable budget in place.
Step 1 – Organise your team of professionals
You’ll need a conveyancer or a solicitor to take care of the legal work for you.
Their job is to complete searches on the property, manage the transfer of ownership, and review the contract before you sign it.
Keep in mind that your appointed conveyancer must be in the same state as the property you’re buying or at least be licensed to operate in that state.
For Western Australia (WA), conveyancers are called settlement agents.
It’s common for a real estate agent to recommend a conveyancer to you, but we suggest that you choose one that is likely to be impartial.
It is required to be represented by a lawyer should you decide to purchase an Australian property. Engaging a lawyer who knows the ins and outs of Australian property law will smoothen the buying process.
Understanding that many overseas investors do not have access to a lawyer in Australia, ARE has established connections with some of the leading lawyers who are familiar with your needs and queries as a foreign investor.
Your lawyer in Australia will assist in reviewing the Contract of Sale, sending over the documents to you and be your legal representative in matters about your Australian property. To maximize the efficiency of this service, you will be interacting directly with your lawyer in Australia.
A good Australian mortgage broker with experience in helping non-residents to apply for a mortgage is an essential member of your team of experts.
Brokers don’t need to see the property you are buying so they can be contacted no matter where they work in Australia, and, for most residential mortgages and loans, their services are free.
Accountant (if required)
You don’t need to appoint an accountant but there are many benefits in having one, and we strongly recommend that you appoint one.
Your accountant can help you structure your financials and save you money on tax because they are experts in Australian tax legislation.
If you’d like to set up Australian companies or trusts to hold your investment, then you’ll need an accountant.
Your appointed accountant can be located anywhere in Australia, so it doesn’t matter if you live in another city or state.
In particular, you need to be aware of taxes for leaving your property vacant, stamp duty, foreign citizen stamp duty, land tax, and capital gains tax.
There may be complexities depending on the country you are living in and if your home country has a joint tax agreement with Australia or not.
Certain States and Territories offer rebates on stamp duty when purchasing pre-construction properties. Therefore buyers only have to pay a fraction of the stamp duty based on the stage of work completed when the contract is signed. Australia’s fairly competitive depreciation rates also make Australian properties fairly tax effective.
You should consult with your accountant or contact ARE for further tax-related inquiries.
Similar to other countries, you will be taxed if your property investment generates income. But there are many methods of reducing or deferring tax through tax deductions (expenses incurred as a result of generating the income). When it comes to maximizing your tax deductions, you can rely on our specialized expertise and experience will guide you through your claims. Having an accountant who is seasoned in property investment will also help to optimize your cashflow.
ARE has developed ties with several seasoned tax accountants who will help you with your annual tax returns.
Loan In Other Currencies
As an alternative, you also have the option of applying for a loan from an international bank in a major currency such as the Euro, Pound Sterling, or Singapore dollar, among others. There are two main reasons why you should consider applying for a loan in a foreign currency :
Has substantially lower interest rates compared to Australia
Could potentially lower your capital debt
While lower interest rates may seem enticing, having a loan in a foreign currency incurs currency exchange spreads as your income and loan are in different currencies.
Compared to other countries, insurance is relatively affordable in Australia. There are three insurance covers required for a property, they are Home Contents, Building, and Landlords insurance. ARE has conducted detailed comparisons between all insurance companies and will assist you in the insurance application process.
Buyers agent (if required)
A buyers agent is also very useful if you’re located overseas and can’t physically inspect the property you’re buying.
The main job of a buyers agent is to source the property and negotiate a great deal on your behalf.
They’ll deal with the real estate agents for you and ensure that the property you’re buying represents a good opportunity.
Your buyer's agent must be licensed and have some presence in the state that you’re buying a property in.
Keep in mind that a buyers agent should give independent and objective advice: they shouldn’t be selling his/her own properties.
If they are selling their own properties or are receiving a commission from the developer, then they are not a buyers agent acting for you.
They are a real estate agent acting for the seller!
Some buyers agents will charge a fixed fee while others will charge an upfront fee as well as a percentage of the purchase price of the property.
Step 2 – Get your loan pre-approved
It’s essential for you to get your pre-approval before you begin looking for a property.
Good properties don’t stay on the market long!
The buyer with a pre-approval usually snaps up the best investments while the others are still putting their mortgage applications together.
More importantly, you know that you’re eligible for a loan and how much you can borrow.
Why waste your time looking for a house or unit only to find out that you can’t get a loan?
It’s, for this reason, we strongly recommend that you don’t buy a property that is due to settle more than 3 months from now.
Your pre-approval will expire, and if the lender can’t help you later on, then you may lose your deposit.
Step 3 – Applying for a mortgage
Applying for a mortgage as a non-resident can be tough because lending criteria can be very complex.
For foreign investors, especially, there are less than a handful of lenders who are lending in this space.
If you are thinking of applying for a credit facility to finance your Australian property, a loan can be obtained from an Australian bank. Prudent investors will ensure their loans are pre-approved by the bank so that they can quickly secure a good deal when they see it.
Australia has various financial institutions that provide loan facilities, making interest rates relatively competitive. Similar to other banks around the world, many Australian banks generally loan up to 80% of the property’s value to foreign investors.
Most of the established banks have online banking facilities, making it easy to connect from abroad to monitor transactions, transfer funds to your account and liaise with the bank online.
ARE can help you to manage the loan process and find the most cost-efficient, flexible, and structured loans in the market. Our financial consultants are accustomed to communicating with overseas customers and have flexible working hours so that it is easier for you to get in touch. We will constantly be updating you via e-mail, fax and phone calls throughout the entire process.
Step 4 – Confirm you qualify with the FIRB
If you’re a non-resident or a temporary visa holder, you’re legally required to get permission from the Foreign Investment Review Board (FIRB) to buy property in Australia.
Australian citizens, Australian permanent residents and New Zealand (NZ) citizens don’t require FIRB approval.
Getting FIRB approval is a simple process and usually takes up to two weeks from the date the application is lodged.
Fees can vary depending on the value of the residential property or land that you want to purchase:
- $1 million or less: $5,600
- $1 million to $1,999,999: $11,300
- $2 million to $2,999,999: $22,700
- $3 million to $3,999,999: $34,000
- $4 million to $4,999,999: $45,400
- $5 million to $5,999,999: $56,700
- $6 million to $6,999,999: $68,100
- $7 million to $7,999,999: $79,500
- $8 million to $8,999,999: $90,900
- $9 million to $9,999,999: $102,300
- $10 million or higher: Please contact the Australian Taxation Office for a fee estimate (fees are tiered per million).
- Agricultural land: You must notify FIRB when purchasing farmland worth $15 million or more as the fees can be substantial.
You won’t actually need to apply for FIRB approval until you’ve found a property, but you should start investigating their requirements so that you don’t buy an ineligible property.
Some property developers have obtained FIRB approval for their entire development in advance, which means you don’t need to worry about it if you’re buying a newly-built unit.
If you are looking to purchase Australian property, you will eventually need to transfer money to Australia for the initial deposit or simply add funds to your bank account in Australia. You will also subsequently need to withdraw money in the event of selling your property or to collect payment on your rental.
It is always prudent for foreign investors to take stay abreast of current exchange rates and be aware of the procedure required in moving funds back and forth internationally. Obtaining a loan in the country you are investing in is a wise method of avoiding hefty exchange rates.
Procedure to Invest in Australian Property
The procedure involved in acquiring a property in Australia is not much different from doing so locally. However, there are several vital differences:
Preparing to acquire a property:
Investors can sometimes be hasty when purchasing a property without understanding the procedures involved. Please take note of the following:
Finance: Seek advice from your Australian financial consultant on a comfortable loan amount and structuring of the purchase to maximize tax deductions.
Lawyer: You will require the services of a lawyer to study the Contract of Sale and advice you accordingly. Your documents will be couriered to you to sign and before they can represent you. At your request, we can recommend a local lawyer.
Deposit: A deposit of 10% will be required should you decide to purchase an Australian property. Upon receipt of deposit and signing of Contract of Sale, only are you legally committed to purchasing the property. You may pay the deposit by international transfer or deposit bond (not all developers accept deposit bonds, therefore seek advice from your Property Consultant).
Step 5 – Find a property
Now is the time to visit Australia and begin your search for a property.
The other option is to use a buyers agent (see above).
If you decided not to use a buyers agent, then it may be a good idea to use comparable sales to value the property.
Make sure that you compare your properties to similar-sized properties that have sold outside of the development, so you get a more accurate value.
Often the bank chosen by your mortgage broker will value the property. We recommend that you don’t commit to buying until this has happened as this can save you from paying too much.
The problem is that the banks often don’t tell you if the valuation comes in short!
They are not required by law to tell you and may only tell you if it affects your loan approval.
Choosing a property:
A holding deposit of $2000 - AUD 5000 might be required to be transferred into a Trust Account, depending on the property that you choose. This will ensure that the property is reserved for 21 days so that no other party may purchase it.
Once the property has changed hands or you decide against purchasing the property, the holding deposit will be refunded to your account. The holding deposit cannot be withdrawn without your consent as it is held in a Trust account.
You will receive the legal documents by courier, which you will be required to study, sign and return the Contract of Sale to your lawyer in Australia within 21 days, along with the mandatory 10% deposit.
Factors to Consider by Property Type
Foreign non-residents will normally be allowed to purchase new dwellings in Australia without being subject to any conditions. There is no limit on the number of new dwellings a foreign non-resident may purchase, but approval is generally required before each acquisition.
A new dwelling is a dwelling that will be, is being, or has been built on residential land, has not been previously sold as a dwelling, and has either:
- not been previously occupied; or
- if the dwelling is part of a development (50 or more dwellings) and was sold by the developer of that development, has not been previously occupied for more than 12 months in total.
New dwellings do not include established residential property that has been refurbished or renovated.
A single dwelling that has been built to replace one or more demolished established dwellings would generally not be treated as a new dwelling for the purposes of Australia’s foreign investment framework.
Jon is a foreign non-resident and wants to purchase a recently built dwelling. The owner of the property had demolished an existing dwelling on the property and built a single dwelling in its place. The owner has not occupied the dwelling, and the property has not been sold since the dwelling was rebuilt.
In this case, the dwelling does not represent a genuine increase in Australia’s housing supply. To ensure the sale of the property is consistent with the national interest, the dwelling will not be treated as a new dwelling, under Australia’s foreign investment framework. Jon, as a foreign non-resident, would generally not receive approval to purchase the property
Exemption to purchase a new (or near-new) dwelling in a development
Developers may hold a new (or near-new) dwelling exemption certificate that allows them to sell new (or near-new) dwellings in the development specified in the certificate to foreign persons. Where a developer has this certificate, the foreign resident may not require separate approval. The foreign non-resident should ask the developer for a copy of the exemption certificate for the development in which they are intending to purchase. If the exemption certificate covers their intended purchase, they do not need to seek separate foreign investment approval.
Foreign non-residents will generally be allowed to purchase vacant land for residential dwelling development subject to conditions. The conditions usually imposed are:
- The development must be completed within four years from the date of approval, and
- evidence of completion of the dwellings is submitted within 30 days of being received. This could include a final occupancy or builder’s completion certificate.
In exceptional circumstances where the development cannot be completed within the specified four years, the foreign non-resident could apply for a variation to the condition. The application for a variation must be made at least two months before the end of the period. A fee will apply for this. Variations will be considered on a case-by-case basis.
Vacant land that previously had a dwelling on the land will generally not be treated as vacant for the purposes of Australia’s foreign investment framework. As such, foreign persons will generally not be eligible to purchase vacant land that previously had a dwelling built on it (unless they are proposing to construct multiple dwellings on the land which will increase the housing stock).
Established dwellings for redevelopment
Foreign non-residents will normally be allowed to purchase an established dwelling for redevelopment in Australia provided the redevelopment genuinely increases the housing stock. Such proposals are normally approved subject to conditions that:
- the existing dwelling cannot be rented out before demolition and redevelopment;
- The existing dwelling is demolished, and construction of the new dwellings are completed within four years of the date of approval, and
- evidence of completion of the dwellings is submitted within 30 days of being received by the applicant. This could include a final occupancy or builder’s completion certificate.
Foreign non-residents will generally not be approved to purchase an established dwelling to redevelop into a single new dwelling.
An established dwelling is a dwelling on residential land that is not a new dwelling.
Commercial, residential premises such as hotels, motels, and caravan parks are not included in the definition of an established dwelling. Also, there are different rules for acquisitions of aged care facilities, retirement villages, and certain student accommodation.
Foreign non-residents cannot purchase established dwellings as homes, for use as a holiday home or to rent out.
Foreign persons that operate a substantial Australian business may apply to purchase established dwellings to house their Australian based employees. Eligible applications are normally approved subject to conditions, including that the dwelling is sold if it is expected to remain vacant for more than six months. Whether a business is eligible to purchase established dwellings to house its Australian-based employees is subject to several factors.
Exemption certificates for residential land (other than established dwellings)
Foreign persons may apply for residential land (other than established dwellings) exemption certificate which will allow them to purchase one unspecified property (except established dwellings) including new (and near-new) dwellings and vacant residential land.
This certificate means that foreign persons don’t have to seek individual approval for each property they are interested in and only pay one fee on application for the certificate. The residential land can be purchased by any method (such as auction, ballot, private offer, expression of interest, or tender). No agreements (even conditional agreements) can be entered into before the exemption certificate is given.
All exemption certificates will normally be subject to the same conditions that apply to ordinary approvals and require the foreign person to report on any purchase made.
An application for approval to purchase residential property will not be considered until the relevant application fee has been paid in full.
Strict penalties (including civil and criminal penalties and disposal orders) may apply for breaches of Australia’s foreign investment rules.
Cases of non-compliance with Australia’s foreign investment framework may also be brought to the attention of law enforcement agencies and other Commonwealth departments such as the Department of Immigration and Border Protection.
Step 6 – Negotiate the purchase price
As a general rule, Australian properties usually sell for up to 10% less than the listed price.
This varies depending on the market, location, and type of property. You can look up the suburb profiles on realestate.com.au to find more about the market you are interested in.
Properties in popular suburbs sometimes sell for more than the price that they’re advertised!
Some real estate websites will publish the “discounting percentage” for particular suburbs, which is the average percentage below the listing price that a property sells for.
If you’re using a buyers agent, they’ll help you to negotiate the price.
You can ask for a contract before signing and ask your solicitor or conveyancer to look at the contract and add any additional conditions if necessary.
A common condition is that the sale is “subject to FIRB approval,” which allows you to cancel the contract in the unlikely event that you don’t get approval from the Australian government.
Each state of Australia has its own property laws, so use your conveyancer or solicitor’s expertise to help guide you. That’s what they’re there for!
If the vendor allows a cooling off period, you can put a holding deposit and sign the contract.
It is recommended that you talk to your conveyancer about including a cooling off period of up to two weeks in your contract.
In some states, a subject to finance clause is more common, but this gives you less protection than cooling off period.
Your conveyancer or solicitor will let you know what checks you have to do before buying and will let you know when it’s safe to sign the contract to buy the property (contract of sale).
If you’re unable to get a loan during the cooling off period, your maximum penalty is the holding deposit, usually up to $1000.
Again, please check with your conveyancer or solicitor as this can vary across the different states.
Step 7 – Obtain formal mortgage approval
When you’ve found a property to buy, you can forward the contract of sale to your mortgage broker to proceed with the formal approval.
Remember, don’t commit yourself to buy a property until your mortgage is formally approved.
The real estate agent may pressure you to sign because there are “other buyers” but the only time you should do so is if there’s a cooling off period in place.
Once you forward the sales contract to us, formal approval can be obtained within a week.
Step 8 – Exchange contracts and pay your deposit
You can exchange your contract after your loan has been formally approved and your solicitor or conveyancer gives you the go ahead.
Normally, you’ll need to put down a 10% deposit.
The amount of the deposit is negotiable and differs between the states.
Note that once you’ve committed to a property, you can’t back out so please seek legal advice before signing any contracts or paying your deposit.
Signing the Contract of Sale
The Contract of Sale will be prepared by the developer’s lawyer and sent to your Australian lawyer, who will review the contract and attach a contract summary. The Contract of Sale will then be couriered to you. Kindly take note of the following:
Timeframe: An extended period has been negotiated for you to sign and return the Contract of Sale, factoring in the time needed to courier the documents overseas. Be sure to take note of the stipulated timeframe that is clearly stated in the Contract of Sale (usually 10-21 days). In the event the completed Contract of Sale is not received within the specified time frame, the property will be released onto the market.
Sign and Return the Contract: Ensure that each page of the contract is signed as required by your lawyer. You will want to take note of the tracking number provided by your courier so that you can track the document while it is in transit.
10% deposit: Your Contract of Sale should state the payment details of the 10% deposit. The deposit will usually be required to be transferred through your local bank or international wire transfer.
Exchange: Once all the steps above have been completed, your lawyer in Australia will inform you when the property has been officially ‘exchanged.’
Step 9 – Seek FIRB approval
It’s very important that the contract you’re signing has the clause “subject to FIRB approval,” allowing for 30 days for a FIRB decision.
At this point, it’s vital to check with your conveyancer or solicitor that the clause is stated in such a way to ensure that if your FIRB proposal is rejected, you won’t lose your deposit.
A FIRB application is simple to do and will usually be taken care of by your conveyancer.
You may need to provide a copy of the approval to your lender before your loan being advanced.
Step 10 – Final arrangements
Once you have exchanged the contract, forward a copy of the signed contract to the FIRB for approval.
Your bank would have sent out the loan contract to you after formal approval.
You can ask your mortgage broker to go over it with you or get help from your conveyancer or solicitor.
If you are living overseas, you may need to visit the Australian embassy or consulate to get identified or to have your loan contract witnessed.
If you have a trusted friend or relative living in Australia, then you can appoint them as a Power of Attorney (POA), and they can sign the loan contract for you.
You have the right to obtain independent legal advice about your loan contract, but the good news is that most contracts are in plain English and easy to understand.
To accept the loan offer, sign the appropriate sections, and return the loan documents back to the bank.
Do a final inspection on your property on the day of settlement. This can be completed by your buyer's agent if you’ve hired one.
Step 11 – Settlement
“Settlement” is the term used when the property actually changes hands and your loan is advanced.
This will be handled by your conveyancer or solicitor in conjunction with your bank and mortgage broker, so you don’t need to be there for this to happen.
The title for the property is held by your lender for safekeeping, and the keys are available for pick up from the selling real estate agent. If the property is being rented out, then the property manager can then commence advertising the unit to prospective tenants.
The Settlement date refers to the actual day when the remaining balance of the purchased property is paid in full. You will then receive the keys and take ownership of your property. If it is a pre-construction property, the settlement will only occur upon completion of the property.
- Property loan - This should preferably be arranged three months before the settlement date
- Transfer of funds - The balance payment should be transferred to your lawyer’s Trust account before the settlement date
- Stamp duty - Most states require the stamp duty to be paid at settlement. Therefore the amount should be transferred to your lawyer’s Trust account
- Pre-settlement Inspection - We recommend that you engage a qualified building inspector to inspect the property on your behalf a few days before settlement.
- Property Valuation - You may engage the services of a qualified valuer to ascertain the market value of your property.
- Insurance - We ensure that you are familiarised with Contents Insurance and Landlord Insurance before settlement.
- Property Management - A property manager will be engaged before settlement to begin marketing and seeking prospective tenants. Ideally, your property should be tenanted soon after settlement has been completed.
- Settlement Date - The date when the final payment is settled, and ownership of the property is handed over to the buyer.
The final stage of the settlement process is to transfer the ownership from the developer to the buyer’s name. This is done at the Registrar of Titles and will be handled by your Australian lawyer.
After the settlement process is completed, you will be liaising closely with your Property Manager for day-to-day matters or tenant related inquiries. ARE would also like to have a continuous relationship with you and will be glad to answer your queries and extend our support to make the experience of owning your Australian property a pleasurable and memorable one.
How do I manage the property?
If you’re buying the property as an investment and intending to rent out your property, you have two options.
You can either manage the property yourself, or you can use a property manager.
Professional managing agents will look after every aspect of your tenancy.
Their job includes collecting the rent, maintaining financial records, conducting regular property inspections, handling any disputes, and arranging all repairs.
Most property managers charge a percentage of the weekly rent as a management fee, usually around 5-10% (this is negotiable).
You should also expect to pay additional one-off fees when they find a new tenant or negotiate an extension on the lease.
Many property managers are reactive and do not increase the rent when the market rent increases.
However, we recommend that you contact them once a year and ask them if the rent should be increased. If you have a good property manager, then they’ll be contacting you each year with a recommendation.
Last but not least, please make sure that the managing agent you are interested in using is licensed by the Office of Fair Trading (or state equivalent) before you enter into any formal agreement.
Their license will be displayed in their office or on their website.
Engaging the services of a property manager is the easiest way for foreign investors to deal with the everyday operations of their properties.
A property manager will advertise your property and find the right tenants, submit application forms, and preparing tenancy agreements. They will also settle any maintenance issues that may arise, and compile and update you with cashflow reports, taking the hard work out of property maintenance.
What will tenants be interested in my property?
Your ideal tenant profile would be the “Young Professional.” This group is generally within the 25-39-year-old age group, and are usually socially active and well paid. You can expect to receive your rent on time and enjoy hassle-free, low maintenance tenancy for long periods.
These individuals live within a 10km radius of the city in bustling suburbs with a vibrant cafe culture, retail, recreational, and transportation amenities within close reach.
They typically seek a single bedroom apartment or townhouse that has a car park. It should also be highlighted that they work hard and play equally hard, and look forward to relaxing weekends, so having a garden that they constantly have to tend to is usually out of the question.
It is crucial that the property you invest in appeals to the right tenant group and complements the suburb.
What is the expected rental yield?
Though properties in other major cities in the world experience a steady capital growth, they suffer from poor rental returns. While in Australia, major cities can expect average rental yields of an impressive 4 - 7%. Vacancy rates are at an all-time low of 1 - 3% in Australia’s capital cities, indicating a severe lack of properties available for rent. Low vacancy rates have resulted in increased rental rate due to demand exceeding supply, offering a fantastic opportunity to investors seeking capital appreciation while maintaining a healthy cashflow.