Before you start thinking of investing in Australian property, it is important to understand the buying process and the rules in Australia.
You may have a preferred location but it’s always good to speak to a real estate agent who can offer you some advice to help you select a good location with great returns.
Here is a buying guide for your reference:
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 deal with that state.
For Western Australia (WA), they are called settlement agents.
A good mortgage broker, with experience in helping foreign buyers to apply for a mortgage is very crucial when buying Australian Property.
Currently there is a lending restriction imposed by the Australian Government for foreign buyers. Local Australian banks have stopped lending to foreigners since 3 years ago. The only options to obtain a mortgage for foreign investors are through private lenders and some Malaysian Banks such as Maybank, CIMB and OCBC or UOB Singapore. If you are an “HSBC premier customer”, then HSBC Australia will offer you their lending services.
It is important now to obtain a tax file even if you are a foreign investor. Hence it’s best for you to appoint a tax consultant/accountant to manage your property investment.
Your tax accountant can help you structure your finances and save your money on tax, since property purchases are on Australian tax legislation. They will advise you on the relevant tax allowance when it comes to offsetting your rental income or capital gains from selling Australian Assets.
If you’d like to set up Australian companies or trusts to hold your investment, then you’ll definitely need an accountant.
A buyer’s agent is also very useful if you’re located overseas and you are not sure about the buying process in Australia.
They are able to source the right property for you based on your requirements and negotiate the best deal with a developer 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.
Also, if you can’t physically inspect the property you’re buying when it’s ready for settlement, don’t worry. A professional agent will be able to assist your purchase from the beginning till the end by offering a one-stop solution for you, making it hassle-free.
2. Applying for a mortgage
In order to qualify for a mortgage, it’s essential that you obtain a pre-approval before you begin looking for properties.
However, the lending criteria for non-residents can be very complex and, for foreign investors as mentioned, only a handful of lenders are willing to lend at the moment.
- There is a guide on the best available Australian interest rates for foreign investors.
- You need to prepare all necessary loan documents, such as payslips, tax returns and even an employment letter to prove your income.
There are specific lending guidelines for the following categories:
- If you’re a foreign citizen looking to buy an investment property in Australia.
- If you’re living in Australia on a temporary visa such as a work visa or a spouse visa.
- If you’re an Australian citizen looking to buy real estate in Australia.
3. Get your loan pre-approved
It’s essential for you to get your mortgage pre-approved 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?
4. Confirm if you qualify with 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 a 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. Below are the fee schedules based on 2018 guidelines (it is subject to change every year):
- $1 million or less: $5,600
- $1 million to $1,999,999: $11,300
- $2 million to $2,999,999: $22,700
- $3 million or $3,999,999: $34,000
- $4 million or $4,999,999: $45,400
- $5 million or $5,999,999: $56,700
- $6 million or $6,999,999: $68,100
- $7 million or $7,999,999: $79,500
- $8 million or $8,999,999: $90,900
- $9 million or $9,999,999: $102,300
- $10 million and above, you need to contact the Australia Taxation office to get a fee estimate (as fees are tiered per million)
You won’t actually need to apply for FIRB approval until you’ve found a property. Usually if you do not have any criminal offences and/or you are not blacklisted by Australia government, your FIRB will be approved.
However, you should investigate their requirements so that you don’t buy an ineligible property for foreign investors.
5. Find a property
Now is the time to visit Australia and begin your search for a property.
Make sure that you compare your properties to other 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. If you are buying a high-risk postcode, as determined by the bank, chances are, the valuation will come in short. In Australia, your mortgage will be based on your valuation at the point the property is ready for settlement and not according to the purchase price as per your contract signed.
Always buy into the area where locals’ demand is higher and not the investor’s stock. Selling will be easier if it is a local area as you can only sell to locals or PRs when the time comes to exit. “Buy what locals want and not what you like,” is a good guideline if it is purely for investment purposes and not for own stay.
6. Signing A Contract
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 in Australia has its own property laws, so use your conveyancer or solicitor’s expertise to help guide you.
If the vendor allows a cooling off period, you can put a holding deposit and sign the contract.
Refer to your conveyancer or solicitor, they’ll 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.
7. 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.
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.
8. Seek FIRB approval
It’s very important that the contract you’re signing has the clause “subject to FIRB approval” and 30 days must be allowed 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 so as 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 prior to your loan being advanced.
9. Final Arrangements
Once you have exchanged the contract, forward a copy of the signed contract to the FIRB for approval. You can get help from your conveyancer or solicitor.
To accept the loan offer, sign the appropriate sections and return the loan documents back to the bank.
Perform a final inspection on your property the day of settlement. This can be completed by your buyer’s agent if you’ve hired one.
“Settlement” is the term used when the property is completed and ready to settle. 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 safe keeping and the keys are available for pick up from the selling real estate agent or developer.