Purchase An Investment Property In Australia Whilst Living Overseas
As a buyer located overseas, property ownership may appear a daunting process, but there are many reasons why now is the right time to purchase an investment property in Australia.
Owning an investment property in Australia whilst based overseas has many advantages such as stability, consistent growth, and a steady supply of capital. You are even entitled to a 50% discount on tax on the capital gain if you own the property for more than 12 months!
As the leading Australian expat mortgage brokers, Odin Mortgage is here to tell you why an investment property makes sense for all those living abroad. Although it poses different problems for expats rather than those living in Australia, we’ll show you why it’s worth the hassle.
Stick with us to learn about the eligibility criteria, tax implications, and what you can gain from owning an investment property even if you’re based abroad!
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How Do I Purchase an Investment Property Whilst Overseas?
First of all, overseas borrowers are still eligible to apply for an investment property in Australia. You can also refinance your existing mortgage. This choice tends to sit well with expats since Australia has a booming property infrastructure.
Many expats may understand the Australian property market well. Even if you don’t plan to return to Australia to invest, you can hire agents to do this for you. Let’s take a look at how one would go about purchasing an investment property whilst overseas.
How Much Can Expats Borrow?
While products and features of expat mortgages remain very similar to domestic mortgages, there are some differences you’ll need to take note of.
Securing an investment property in Australia will depend on a number of factors including foreign tax rates, the fluctuation of exchange rates, and foreign debts you may have accumulated.
Lenders will decide how much you can borrow based on your Loan to Value ratio (LVR). This ratio stands for the value of your home loan as a percentage of the investment property value.
Generally, lenders will consider buyers overseas with LVRs that range between 70% to 80%. This means that you’ll be required to provide an above-normal deposit or use equity from the properties you may already own in Australia.
More often than not, lenders will calculate what you can borrow using the following criteria:
- Australian tax rates (this will apply to all countries, even those with no income tax).
- Looking at between 60% and 90% of your overall income.
- Any loaded repayments that are being made on international loans.
Use the Odin Mortgage Investment Property Calculator
Want to know exactly how much your deposit will be, your tax position, return on investment, and cash flow? Then make use of our all-in-one Investment Property Calculator.
By inputting all the necessary information you can receive a free detailed analysis about your future investment property directly to your email!
Confirm Your Eligibility With FIRB
If you’re living overseas or a temporary visa holder, you must consult with the Australian government first. This means getting permission from the Foreign Investment Review Board (FIRB) to purchase an Australian investment property.
The application process is quite simple and most applications have a statutory timeframe of 30 days once it has been lodged.
FIRB provide their own fees estimator, but as a rule of thumb, it’ll depend on the size and value of your property. Here are a few examples of residential investment entities and the FIRB fees that will be applied:
- Less than $75,000 – $2,000 fee.
- $1 million or less – $6,350.
- $2 million or less – $12,700.
- $10,000 is added for every extra million the property is worth.
Note that fees will change for agricultural land investments and commercial, tenements, or business entities.
Do I Need to Tell the ATO?
Australian expats looking to purchase an investment property in Australia will need to take into account the tax residency considerations. This will cover all types of investment entities, whether it’s a commercial, industrial, or rental property.
The Australian Taxation Office (ATO) will decide whether your tax residency status may have changed depending on any circumstances or arrangements. As an Australian citizen, you’ll need to keep an eye out for how Australian taxes will affect your investment property.
If you’re planning to buy an investment property and only remain overseas for less than two years, it’s unlikely that the ATO will require a change in tax residency.
However, if you have no fixed return date and are planning on staying overseas for longer than three years, your tax residency is likely to change.
What are the Accepted Currencies?
When taking into consideration the accepted currencies by lenders, remember it will be affected by the fluctuating financial market and exchange rate. If you’re using one of the following sources of foreign income, you’ll have a better chance to borrow between 60% and 80% from a lender:
- British Pound
- US Dollar
- Canadian Dollar
- Singapore Dollar
- Japanese Yen
- New Zealand Dollar
- Swiss Franc
- Hong Kong Dollar
- Chinese Yuan
If you’re planning to invest in the Australian property market using a different currency, you may run into some restrictions. For example, with a currency listed below you won’t be able to borrow any more than 80% of the investment property’s value:
- Danish Krone
- Indian Rupee
- Malaysian Rupiah
- Philippine Peso
- Saudi Arabian Riyal
- South African Rand
- Taiwan New Dollar
- Turkish Lira
- United Arab Emirates Dirham
These are just examples of how the currency you earn money in will affect your ability to purchase a property in Australia. Also, if you earn money in a number of different currencies, lenders will still accept this form of foreign income.
Always keep in mind when thinking about foreign income that currencies not as strong as the Australian dollar will reduce your borrowing power.
Why Should I Purchase an Investment Property Whilst Overseas?
Now you know the necessary steps to take in order to make an investment property purchase whilst overseas, you’re probably wondering why Australian property is so popular amongst expats.
Recently, investing in the Australian property market has become more and more fruitful for overseas investors and expats looking for stable and strong returns.
First of all, the Australian property market has a record of stable prices with around 70% of households being owned by homeowners.
More importantly, the Australian lending legislation and economic management have a proven record of honesty and reliability with support from the Australian Prudential Regulation Authority (APRA).
This is a significant factor when considering how volatile economies can see housing prices drop as much as 70%. Australia, however, has never seen house prices fall more than 20% in a single year.
The Australian residential property market has always experienced constant capital gains. Prices have largely risen relative to the ability of the economy to pay for new and existing housing.
This is due to the fact that Australia has a steadily increasing population leading to more and more houses being built. Therefore, opening property has always been at the heart of the Australian way of life which has only increased its demand.
With a consistent level of immigration and a powerful employment demand throughout the country, the need is always high for Australian property.
Expats and Negative Gearing
Negative gearing means that a borrower or investor borrows money from a lender to purchase a property that is a means of income. It’s known as a form of financial leverage where the borrower predicts that the growth on their investment property’s value could offset the rate of owning that property.
Negative gearing is usually associated with investment entities that gain rental income. So, you would say a property is negatively geared if the cost of owning a rental property is more than the income it makes every year.
For example, let’s say you have invested in a rental property in Australia which generates $30,000 a year. However, the property is costing you $35,000 a year to hold, including paying for the mortgage interest. This would mean that you’re facing a taxable loss of $5,000 every year.
This $5,000 in losses can be used to reduce your taxable income and therefore reduce your tax bill.
As overseas buyers, Australian expats can negatively gear an investment property. So, you’re able to use any tax losses and reduce your taxable income. Negative gearing is useful for expats looking for tax benefits.
Engage the Expat Mortgage Specialists
As the leading Australian expat mortgage brokers, we are committed to finding you the best home loan possible. We use all the latest analytics to advise you on the best property investment strategy.
Our passion is securing the financial futures of Australian expats and overseas residents, so let’s get you booked in for a free assessment with one of our top mortgage brokers today. Get in touch with our specialist mortgage brokers today!
Get a free Australian mortgage assessment today.
Frequently asked questions
Yes. If you live overseas as a non-resident or temporary visa holder, you can buy property in Australia. For any Australian non-residents, you must first get approval from the Foreign Investment Review Board (FIRB) before buying a property in Australia.
Yes, you can buy a property in Australia if you don’t live there. All non-residents will need approval from the Foreign Investment Review Board (FIRB) before buying a property in Australia. This usually takes 30 days and is a simple process.
If you work or live overseas and are still considered an Australian resident, you’ll need to lodge an Australian tax return. You’ll need to declare your foreign income. You may also become a tax resident of the country you live in overseas depending on how long you’re there.