An Australian Expat Guide To Buying Property In Australia From Overseas
So you’re thinking of buying property over in Australia? Many Australian permanent residents living overseas buying property in Australia wonder what their home loan options are and what differences are there in investing in Australian real estate as an expat.
However, while there are some additional challenges to buying a residential property from abroad, the buying process is largely the same. We’ll take you through the steps for buying an Australian home as an expat in 2021 and help you overcome any difficulties you might face.
Why should I invest in property in Australia?
Investing in property in Australia is a popular and lucrative decision. In April 2020, we saw an increase in enquiries in the property market by foreign investors, up 50% from 2019. Australia’s success at containing coronavirus and thriving economy has attracted many to purchase property in Oz.
However, many Australians with a permanent visa do not realise that they can apply for a home loan and are missing out on the advantages of Australia’s real estate markets. Whether you want a second home or earn an extra income with a rental property, Australia is a prosperous place to invest in real estate.
It's easy to invest in Australia
It is surprisingly easy to invest in Australia as an Aussie expat. While Australia has strict regulations and investment laws restricting foreign investment, as a permanent resident of Australia, you avoid most of the property laws that prevent foreign investors or those with a temporary visa.
Although, there are some additional challenges for Australian expats purchasing property in Australia. However, if you follow our expert advice, we’ll share how to make a real estate purchase from overseas without any hassle or stress.
In addition, the Australian property industry has proven stable over recent years. Compared to foreign property markets, Australia’s housing market prices are relatively stable.
For example, the Global Financial Crisis saw property prices in the US and UK fall dramatically, however, property prices in Australia actually increased in value. It is a good sign that a property purchase in Australia is a strong investment opportunity.
Consistent growth performance
As the population grows and the demand for housing increases, house prices are continually going up in value. Similarly, the rise in immigration to sunny Australia is pushing property prices up and increasing property development across the country.
Therefore, investing in property in Australia is a lucrative opportunity for the foreign investor and the permanent resident alike. It is an especially lucrative investment prospect for Australian citizens who want to rent their property out to others. The demand for housing similarly increases rental prices.
Get a free Australian mortgage assessment today.
How can I find a property in Australia?
If you’re living abroad, it can be challenging to find the perfect established dwelling or vacant land plot in Australia. The first step is to research where in Australia you want to invest in real estate. Consider house prices, investment returns, demographics, and location. Close proximity to a beach, urban area and good schools and shops are always important factors.
To find your property, you can look online at real estate agent websites, or employ the help of a buyer’s agent. Different from a real estate agent, a buyer’s agent is someone who uses your preferences to find properties that you might be interested in. They present your options and you choose. This is a good option if you cannot easily visit Australia to house hunt yourself.
How much are property prices in Australia?
Property prices vary quite dramatically depending on where you buy your established dwelling in Australia. Housing prices have risen a substantial 22% in the last 12 months, this increase is especially notable in Darwin, Canberra and Hobart. This suggests that there has been a strong demand for housing, despite lockdowns and the impact of coronavirus.
Residential property investment is a strong, lucrative prospect, with the housing market only expected to continue to grow.
The average house price in Sydney, New South Wales (the most expensive city to buy residential property) is currently £1,039,514. The national average is $666,514.
Would I need to hire any professionals?
Although not every buyer needs to enlist the assistance of professionals – it is a good idea to surround yourself with experts to make the buying process run smoothly.
These are the professionals you should consider hiring:
- Buyer’s agent – to assist your property hunt.
- Solicitor – your solicitor is crucial to helping you work your way around all the additional rules and regulations that are imposed on buying property in Australia from overseas. They are also required to read through your property contract and exchange with the seller.
- Mortgage broker – a mortgage broker will help you apply for your mortgage and ensure that you are getting the best possible deal. Look for a broker experienced in helping expats and foreign nationals.
- Accountant – although not essential, your accountant will assist your preparation of all your financial documents to help you get your home loan. They will also structure your finances in the best way possible to suit your lifestyle as an expat.
Get a mortgage in Australia
Applying for a mortgage in Australia is much the same as applying for a home loan in any country. If you have an Australian visa, the process is a lot simpler than for foreign investors trying to purchase real estate in Australia.
Before applying for your home loan, it is sensible to conduct as much research into lenders, mortgage brokers and the property market in Australia. The more of you know of the current housing market, the easier it will be for you to negotiate and ask lenders for more features or a lower interest rate.
To get a mortgage in Australia, you should approach the mortgage broker or lender to see how much money you are eligible to borrow. Lenders will base their decision on the property value, the amount of deposit you can put forward, your credit history and your financial details.
Ensure you are buying property from an established lender with an Australian credit licence and seek legal advice if you are unsure about the process.
As touched on earlier, investment property in Australia is increasingly popular for expats and non-residents outside of the country.
Can you buy property in Australia as an expat?
Yes. All Australian residents can invest in the Australian property market. Whether you want to purchase vacant land or established dwellings, buying property in Australia from overseas as an expat is entirely possible. However, there are some things to watch out for.
Unfortunately, not all banks and lenders offer mortgages to an Australian citizen living overseas. It is a good idea to find a mortgage broker who specialises in home loans for residents living abroad.
Before approaching a lender, make sure you are good at maintaining financial records and personal information to make the buying process smoother.
As an expat, the mortgage broker might conduct more thorough background checks. Banks might often be hesitant to lend money to foreign buyers or Australian citizens residing overseas. This is because foreign countries use different countries. Banks cannot rely on exchange rates and currency value remaining stable.
Therefore, the lender will often look at only 80% of your net income, rather than the full amount as they do for Australian citizens in the country. In some parts of the world, where the currency is less reliable, banks might only look at 50% of your net income. They use your income to judge whether you are able to repay the loan and base their approval decision on that.
When considering lenders and loan options, you should compare interest rates. You have several loan options, available to an expat as well as a permanent resident. You are eligible for interest-only loans, fixed-rate loans and variable-rate loans. Make sure you speak to your lender about the different loan types to see which is best for your situation.
Get a free Australian mortgage assessment today.
How much should my deposit be?
As an expat, your deposit should be 30% of the residential property’s worth. Part of the lender’s decision on whether to offer you a home loan for your real estate investment is based on the size of the deposit.
Generally speaking, the larger the deposit, the more likely you are to receive a better offer from lenders. This is because you can prove your ability to save money. Whereas, a small deposit will be a higher risk for the bank.
Lenders work out how trustworthy you are by calculating your LVR (loan to value ratio). You can work out your loan to value ratio by dividing the loan amount by what the property is worth. As expats need 30% of the purchase price as a deposit, it is unlikely that lenders will offer home loans to anyone with a loan to value ratio higher than 70%.
Although, some banks do offer loans to applicants with an LVR as high as 95%. However, in this instance, the lender will require the person buying property to pay for Lenders Mortgage Insurance. This protects the lender against the borrower defaulting on their monthly payments.
If you can afford to put down a significant deposit, it increases your options. A lender will be willing to offer you a higher loan so you are better able to purchase more expensive properties. Similarly, the lender might reward you with lower interest rates or other benefits.
Can I rent out the properties I have purchased?
While temporary residents cannot rent out their established dwellings, expats with permanent residency can rent out their residential property in Australia. While there are excellent long term gains for residential real estate rental investments, there are some additional costs and legal fees that you must pay alongside the mortgage for your established dwelling.
In fact, one of the main property types the Australian government encourages expats and foreign buyers to invest in is rental properties. As the demand for housing rises, the Australian government introduced restrictions about what a foreign person or expat can buy. These regulations encourage foreign investment to increase housing for Australians.
For example, non-residents can also buy property to knock down an established dwelling and replace it with new housing that accommodates more people. They are also encouraged to invest in vacant land and build housing.
If you’re looking to rent out your property, consider the property fees, such as professional managing agents. As you are living abroad, it is harder to maintain your rental property yourself. For example, most property managers charge between 5-12% of the weekly rent, depending on the state you buy your residential property.
Australian banks and foreign lenders
Unfortunately, securing your loan is one of the most challenging parts of buying investment property in Australia. Financial institutions may restrict borrowing depending on your visa type or status. Many banks are sceptical of lending to non-residents, while some have ended foreign loans completely.
You should reach out to a bank that specialises in foreign loans. Typically, lenders will only consider 50-80% of your net income. This is because non-residents or foreign buyers are paid in a different currency and Australian banks limit the amount of your income they consider to protect themselves against fluctuating exchange rates.
Similarly, expats must pay a 30% deposit, instead of the usual 20% of the purchase price. The bank might also check your credit history more thoroughly than an Australian resident. Make sure you have all your documents in order to present them to the bank.
Are there any barriers to getting a loan approved?
As already mentioned, different currencies might delay or limit your loan approval to purchase Australian property. Some currencies, such as the GBP or USD, are more reliable. However, the lender will still consider only 80% of your net income to account for changing exchange rates. If you earn a less stable currency, it might be harder to get your home loan approved.
Similarly, foreign tax rates might impact your loan application. Banks cannot keep track of tax rates in every country around the globe. Often, the lender will just apply Australian tax rates to your income when considering your ability to pay back the loan.
The Australian tax office is well-known for having one of the highest tax rates in the world, this can disadvantage your ability to borrow money.
If your spouse is a foreign person, many lenders won’t consider their income. Or, if they do, they will be subject to the stamp duty surcharge that can be very costly. If you need their income to afford your residential real estate, you might be able to put them down as co-borrower as opposed to co-buyer.
Also, other types of income, like bonuses, overtime, or foreign rent are ignored by some banks. Plus, some lenders require you to pay loan establishment fees, which could be higher for non-residents or expats.
While Australia does want to encourage foreign investment, Australian expats are treated as non-residents when trying to apply for a home loan. This also means that, beyond the loan application, there are certain land tax surcharge costs and foreign citizen stamp duty fees that you might have to pay.
Also, many foreign investors need to seek approval from the Foreign Investment Review Board FIRB before they can purchase any property.
However, the good news is that even though you are living overseas, Australian banks do not require you to pay a higher interest rate on your mortgage, unless you cannot provide evidence of your income.
What documents do I need to apply for a loan?
It is crucial to be ready to provide all the right documents throughout the home loan process to banks, solicitors, the Australian taxation office and real estate agents.
To apply for your loan you often need to supply the following documents:
- Tax return forms (if you’re self-employed)
- Proof of address
- Australian visa or proof you are an Australian citizen
- Bank statements
The most important documents you need are proof of your foreign income. Most lenders require at least three months of bank statements to evidence your salary being deposited into your account.
Get a free Australian mortgage assessment today.
What are the rules for non-residents living overseas buying property in Australia?
As well as the difficulty of applying for a home loan, Australian expats often struggle with the Australian government’s rules for buying Australian residential property. Usually, commercial buildings are less restricted.
If you are a non-resident or are an Australian living overseas, you might need to apply for approval from the Foreign Investment Review Board FIRB. We’ll take you through the rules surrounding tax, stamp duty and FIRB approval to make the buying process smoother. If you’re still unsure, you might want to seek legal advice as incorrect applications or taxes can result in large fines.
There are often extra rules for non-residents that do not apply to expats.
Capital Gains Tax (CGT)
In June 2020, the Australian taxation office introduced a new amendment to the capital gains tax for all temporary residents, foreign nationals and Australian expats. For the most part, as an expat you only pay tax on your Australian-earned income. However, when you buy or sell property in Australia, you are making a capital gain or loss in Australia and are eligible to pay capital gains tax.
For many years, Australian expats were exempt from paying capital gains on their main residence in Australia, as long as the property was not a financial investment for more than six years.
However, last year, this exemption is no longer (unless one of the exceptions applies to you).
You will have to pay CGT when you sell your property, or if you rent it out for profit. Make sure you speak with your solicitor and property managers about whether you need to pay tax.
How does the stamp duty surcharge work?
Another surcharge that hits temporary residents and expats is the stamp duty fee. State government taxes include paying stamp duty for real estate. Stamp duty is a land tax. Most foreign nationals or people with a temporary visa have to pay a surcharge on their stamp duty.
This particularly impacts expats with a foreign spouse. If your partner is named as co-buyer, you will be required to pay the stamp duty surcharge. The cost of this tax varies from state to state – the surcharge is around 0.75% in the Australian Capital Territory and as much as 7% of the property price in South Australia.
To avoid paying the stamp duty surcharge, don’t name your foreign spouse as a co-buyer. Expats should work out how much stamp duty they need to pay ahead of purchasing a property in Australia.
Get a free Australian mortgage assessment today.
At what stage do I need FIRB approval and will I be disadvantaged?
The Foreign Investment Review Board FIRB is a department within the Australian government that sets out guidelines for investors living overseas buying property in Australian. Australian and New Zealand citizens are usually exempt from paying for approval.
However, if you are buying a property with your foreign spouse, you might need to apply for FIRB approval. FIRB approval is usually granted if you intend to use your property to create more housing for others.
Reasons for FIRB approval are:
- Buying a new build to live in.
- Buying vacant land to build housing.
- Buying a property to rent to others.
- Buying an established dwelling to knock down and redevelop for housing to accommodate more people.
For example, temporary residents will likely get FIRB approval if they purchase a one bedroom apartment to convert for joint tenants.
To apply for FIRB approval, read their application guidelines thoroughly and employ the assistance of your solicitor. Applications for FIRB approval usually come with a hefty fee.
The bottom line
Applying for a home loan and buying a house in Australia as an expat might seem intimidating. However, despite the extra rules and regulations imposed on people living overseas, expats are actually eligible for most of the same rights as citizens living in the country. Make sure you do your research and enlist the assistance of Odin Mortgage to help you get your perfect property.
Frequently Asked Questions
Can foreigners buy property in Australia?
Yes – anyone can buy property in Australia. Foreign nationals are usually required to apply for FIRB approval ahead of purchasing the property. This can come with a hefty application fee.
Also, foreigners usually have to pay an additional stamp duty surcharge and lenders might not consider their entire net income.
How much do you need to buy a property in Australia?
Expats generally need 30% of the house value as a deposit. Similarly, if you are earning income in a foreign currency, lenders typically only look at less than 80% of the net income. Therefore, while there is no set figure of money needed to buy property, you need to prove you have the ability to repay the loan.
Can a New Zealander buy a house in Australia?
New Zealand citizens, unlike other foreign nationals or those with temporary visas, are exempt from paying the FIRB application fee. However, if you are not living and working in Australia, you may need to pay the stamp duty surcharge like other foreign nationals.
What is the process of buying a property in Australia from overseas?
Purchasing a house or property in Australia is much like it is around the rest of the world. Begin by applying for loan pre-approval with a specialist lender or bank. Apply for FIRB approval if required. Then, approach property sellers and make an offer. Your solicitor will review the contract and exchange before settling.