A Complete Guide to Buying an Investment Property in Australia

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Australia, a developed tourism country, is rated as one of the most livable countries globally and is known for its high standard of living. In 2021, Adelaide, Perth, Melbourne and Brisbane all featured in the top ten most livable cities in the world list.

Beautiful beaches, dense tropical rainforests, undulating hills, more than 3000 hours of sunshine throughout the year, significant sports and cultural activities, national parks and wild animals. These precious natural and human environmental resources in Australia are features that attract investors from all over the world. 

Property investment is one of the best ways to build wealth. However, it is a long-term commitment, so it’s important that you’ve done your research before dipping your feet in the Australian real estate investment waters

Are you a permanent resident or expat thinking of buying an investment property in Australia? Read this complete Australian investment property guide to learn the ins and outs!

A Complete Guide to Purchasing an Investment Property in Australia

Reasons To Invest In Australian Property

Here are some reasons why you should buy a property in Australia and invest in the market: 

  • Population growth

When it comes to real estate investment, one of the main factors you need to look into is the population of the place. In Australia, the population is on the rise in major cities like Sydney, Melbourne and Brisbane. 

The vacancy rate in Australia is meagre now, with less than 2% vacancy rate. With low-interest rates and rapid population growth over recent years, the demand for housing is way more than the supply. As long as the property rental price is reasonable, it will be more popular, ensuring both rental and capital growth for investors.

  • Steady growth in property market

Investors are drawn to invest in Australian property because of rental growth. For years, Australia has enjoyed steady rental growth while achieving capital growth. 

Sydney’s current average rental output rate is 5% (annual rental income as a percentage of house prices) (data source RP-DATA Rismark). The rental income can be roughly the same as the cost of holding the property, and some even have pure cash flow income.

According to statistics provided by Australia in the past 120 years, Australia’s real estate investment market is of lower risk compared to the markets of other countries. Property prices have been appreciating at an average annual compound growth rate of 6.8%. 

  • Consistency

Australia’s real estate market is one of the most consistent investment property markets in the world. It has an average ROI of 7% per annum. Not just that, it also has fewer years of decline in comparison to other property markets worldwide. For over 100 years, Australian investment properties have enjoyed a consistent rise in the capital. 

  • Easy to invest

Another good reason is that it is easy to buy and invest in properties in Australia. Unlike other countries, Australia does not have strict foreign investment laws, making it easier for investors to invest in the Australian real estate market. 

Here are some things you should be aware of:

  • Australia has effective and strong consumer protection legislation through the National Consumer Credit Protection Act 2009 (NCCP Act)
  • The legal system in Australia is similar to the UK system
  • It is expected that the immigration trend in Australia will rise in the coming 50 years. 
  • Tax on investment properties: Although the seller must pay VAT after the property is sold, Australia’s tax law has a very generous deduction policy. Most of the expenses incurred during the purchase period can be offset by the income tax.
  • Loan policy: Many Australian banks provide financial products that help overseas investment and lending, including loans that only pay off loans with interest.

Australia has witnessed economic growth in the last 8 to 10 years. Many of the foreign property markets such as the United States market and the Hong Kong market have suffered major losses in the past, with some volatile economies witnessing a price drop of up to 70% in the housing industry. The Australian real estate investment market, on the flip side, remained undefeated. 

The Australian investment property market provides investors the confidence they need and could be the best option for your long term wealth-building commitments. For long-term investment commitment, the Australian property market could be the best option for you. The low volatility of real estate in Australia makes it a desirable choice over other property markets and even stock markets around the world. No matter which country you are from, you are welcome to invest freely in the Australian property market.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.
A Complete Guide To Purchasing Investment Property in Australia

Australian Investment Property Tips & Guide For Beginners

Evaluate your finances and budget

Ask your bank to receive a statement of your credit card, and make sure you clear your outstanding debts. If your credit is not in a good place, now may not be the best time for you to buy a house or non-resident investment property. Lowering your credit card limit will help you obtain a larger financing limit.

  • Think about the total cost 

Deposit: You typically need to take out a 10-20% deposit to guarantee the mortgage. To avoid paying the lender’s mortgage insurance (LMI), a 20% deposit is required. Low deposit mortgages exist, but your mortgage insurance will be much higher.

Stamp Duty: The amount of stamp duty you pay depends on the state your property is in and the property’s purchase price. You can use the stamp duty calculator to get a specific quote.

Legal and Transfer Fees: Depending on the amount of legal work required for property transfer and other standard inspections, you should set aside AUD$2,000-A$5,000.

Financial and Insurance Expenses: If your loan exceeds 80% of the purchase price, you will need to pay for Lenders Mortgage Insurance.  

A mortgage loan application may cost anywhere between A$200 and A$600, depending on the lender. If you get a loan as part of a package this will often be waived. 

  • Be mindful when choosing the location and property type

Consider making a list of all non-negotiable, “must-have” requirements. The following is a sample list of those who want to become a homeowner.

  1. Location – close to work, school, family, and friends
  2. Public transportation, services, and shops
  3. Does the area have a mature infrastructure or development plan?
  4. Suburban features – is there a good atmosphere and friendly community?

When buying an investment property in Australia, the factors to consider are a little different from buying a house. Determine whether you want to fix it up, turn it over, hold the property or rent it out.

When choosing the type of property to invest in, a different set of criteria is required. Look for the following categories of properties while investing:

  • Look at housing prices in areas with higher rental yields
  • Research recent sales prices to understand prices
  • Is the rental demand strong? See if the vacancy rate is tight
  • Are there upcoming developments or zoning changes? What impact will they have?
  • Is it close to schools, shops, hospitals, or public transportation?
  • What will the maintenance cost be?
  • How many bedrooms, bathrooms and parking spaces are there?
  • Property inspection is important!

Ask a qualified inspector to conduct an assessment of the property. They will look for structural defects, pests, faulty wires, plumbing and drainage problems, asbestos, lead paint, etc.

A Complete Guide To Purchasing Investment Property in Australia

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Additional Incentives

Compared with some countries’ cumbersome investment policies, the entire approval process for investing in and buying Australian property is relatively simple.

Most real estate and land in Australia are generally sold and transferred in the form of ownership (ie: buyers have indefinite ownership of the land or house). Owners have the right to live, rent, sell, transfer the ownership or leave it vacant.

First Homeownership Grant

Are you eligible for the first home owners grant? If you and your partner have never bought a property in Australia before, you will likely qualify for a “First Home Buyer Grant” (FHOG). 

FHOG is a nationwide program, but each state has its funding and the amount varies from state to state.

The government will determine whether you can get the subsidy based on whether you have previously purchased a house or investment property and whether your spouse or partner has also purchased a home or investment property in Australia.

Frequently Asked Questions

What are the characteristics of the Australian Real Estate Investment Market?

Answer: Social stability, sound policies, the proper legal system, mature market, stable appreciation, active rental market, low vacancy rate and a chronic shortage of housing supply. 

Can foreigners buy Australian houses with loans?

Answer: Yes. The Australian government encourages foreigners to invest in their real estate and buy non-resident investment property in Australia from overseas countries like Singapore. Overseas investors can mortgage the properties they want to buy with Australian banks.

After an investor buys a property in Australia, would the property lease’s rental income be subject to relevant taxes?

Answer: Yes. According to local laws in Australia, any income earned in Australia must be taxed. This includes a tax on investment properties in Australia. However, this income is the net income after renting. Therefore, it is recommended that investors take a loan from an Australian bank when buying Australian real estate to deduct the rental income to the greatest extent. At the same time, Australian accountants will use the various expenses of the property. With tax deductions, investors can maximise investment income.

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Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

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