Australia has established itself as a popular market for Asian investors looking to purchase property overseas – either as a means of generating wealth or gaining residency. Sealing the deal and getting the keys to your Australian dream home, however, may not be as simple or straightforward as it seems. Here are five things every Asian investor should know before buying Australian real estate
1) Property Market Performance Varies From City to City
Although Australia, on the whole, provides an attractive investment environment – which boasts stable GDP growth and consistently low interest and unemployment rates – the property outlook can vary significantly from city to city.
According to Tim Lawless, the head of research at CoreLogic, the Australian housing market delivered a total annual return of 14.7% in 2016, after factoring in gross rental yields and capital gains.
Propelled by strong population growth and robust economic activity, the cities of Sydney and Melbourne experienced positive property market performance last year, as did the smaller cities of Hobart and Canberra.
On the other hand, mining and resource-centered cities like Perth and Darwin saw weak housing market conditions in 2016, but CoreLogic data suggests that these areas may be poised for a recovery in the near future.
The bottom line is that investors looking to purchase Australian properties should take the time to research and carefully evaluate various cities based on past performance and potential growth and yields.
2) Not Every Type of Property Is Up for Grabs
As a foreign investor, unless you are residing in Australia, you are typically only permitted to buy:
- A new dwelling that is built on residential land and has not been previously sold or occupied for more than 12 months.
- Vacant land designated for residential dwelling development.
- Certain established dwellings, which have been designated for redevelopment.
Generally speaking, foreign non-residents are prohibited from purchasing established (second-hand) dwellings that have been previously sold or occupied to use as homes, holiday homes, or to rent out.
It is important to note that there are many conditions and exceptions to these rules. Foreign buyers should refer to official government websites such as the Australian Foreign Investment Review Board or speak to a real estate professional to ensure they have a good grasp of the regulations.
Sydney Harbour at Sunset From Mosman Bay
3) Qualifying for an Australian Home Loan Could Prove to Be Challenging
If you need a loan to finance your property purchase, the first thing you should do is to ensure that you are eligible to apply for a loan in Australia – and this may depend on your nationality. Unfortunately, some countries’ tax laws may make obtaining financing in Australia difficult or even impossible.
Additionally, several of Australia’s largest banks have stopped lending to foreign investors altogether due to difficulties in accurately verifying sources of foreign income. While there are non-bank mortgages available, investors who pursue this avenue may face higher interest rates as well as complex and confusing lending policies.
It is essential that foreign investors do the necessary research or speak with a real estate professional to find out what their lending options are and then figure out which of these would be best for them.
4) Owning Property Does Not Provide a Path to Obtaining Permanent Residence
Many Asian investors are under the impression that buying an Australian property will guarantee permanent residence – and this simply is not the case.
Owning a property in Australia, however, could help bolster one’s permanent residence visa application, as it shows the applicant’s link to Australia prior to migration.
View of Surfers Paradise From Beach on Queensland’s Gold Coast
5) It Is Essential to Understand the Tax Regulations and Implications
The Australian tax system is widely touted as being friendly to Australian property investors based abroad. If you structure your property purchase with a prudent level of borrowing and take advantage of tax incentives, you can dramatically reduce the amount of tax you pay on your investment.
It is imperative that investors make sure they understand the tax implications of their property purchase and check the latest tax policies before buying.
Australian tax policies are subject to change and also vary from state to state. Last year, for example, New South Wales imposed a stamp duty surcharge of 4% for foreign buyers, and a land tax surcharge of 0.75% came into effect this year. Other states including Victoria and Queensland also recently imposed higher stamp duty and land tax surcharges on foreign buyers.
Policies around property investment in Australia are complex and constantly changing, so investors should always strive to stay abreast of the latest developments and, when necessary, seek out professional advice and assistance from tax advisory firms such as Rawlinson & Hunter.