A guide to buying property in Australia for foreigners

A Guide to Buying Property in Australia for Foreigners

The number one question that foreigners looking to settle into Australia ask is how and when to buy residential or investment property in Australia?

The answer to this question depends on the status of your residence. Separate rules, procedures and costs apply to individuals with temporary and permanent visas. 

Australians with permanent visas have the same rights as Australian citizens when it comes to buying property in Australia. Which means that they can buy property without seeking prior approval. Permanent residents also have to pay lower stamp duty and are exempt from certain fees and charges.

As a foreigner with a temporary visa, you will have to go through a different process to buy property in Australia. This is not a surprise but it is important to be aware of the process so that you can choose the best property in Australia that suits your needs and budget.

Regulatory and Legal Process

For temporary residents, the path to buying their first property in Australia goes through the Foreign Investment Review Board (FIRB). All non-residents and temporary visa holders have to get approval from FIRB and/or the Australian Tax Office(ATO) before buying a residential or investment property in Australia.

Based on the rules set out by FIRB, approval is given to temporary residents who qualify the following criteria

  1. The applicant must hold a temporary visa that allows the period of stay to be at least 12 months.
  2. The applicant must have a bridging visa and must have applied for a permanent visa.

If you fulfil these conditions then you will need to apply for FIRB approval. You can start looking for the residential or investment property of your choice. The best way to look for a suitable property is by hiring an agent or a property dealer. Once you have found a suitable property, you will need to check whether it fulfils FIRB criteria for residential property or not(non-residential properties have separate criteria).

  1. Vacant land: Temporary residents can purchase vacant land if they intend to develop it into a residential property.
  2. New dwelling: The Australian government encourages foreigners to invest into new dwellings. 
  3. Established dwelling: Temporary residents can only purchase established dwellings if they intend to use them as their principal residence or redevelop/reconstruct them.

If the property meets the above-stated criteria, then you can file the application for your residential property with the Australia Tax Office (ATO). 

Rules for Residential property

Click here to go to the Australian Tax Office (ATO) site, to learn more about applying for residential property in Australia. 

  1. Submit the residential application form available on the above link.
  2. Pay the application fee for approval from FIRB. The review on the application will not start unless the fee is paid in full.
  3. Purchase the property and register it through the land and water registration form within 30 days of settlement. There is no fee for registration.
  4. Deposit the vacancy fee with your tax return annually. The vacancy fee is approximately the same as the application fee.

You can click here to find out more about the rules for investment into residential property in Australia.

Rules for Commercial property

The rules for foreign investment into commercial property are slightly different. Non-residents require FIRB approval if the monetary value of the land in question is above the following thresholds:

  • The threshold for vacant commercial land is AUD 0 for all investors.
  • The threshold for developed commercial land is AUD 289 million. For sensitive properties, the threshold is AUD 63 million.
  • Investors associated with any foreign government require approval for any type of commercial property.

Click here to find out more about the rules for investment into commercial property in Australia.

Exemption from FIRB approval

The following persons are exempt from FIRB approval:

  • Australian residents
  • Permanent visa holders 
  • Citizens of New Zealand living in Australia do not need prior approval from FIRB as they are given the same home buying rights as Australians. 
  • Temporary visa holders purchasing property as joint tenants with their Australian, Kiwi or permanent visa holder spouse.

Financing Options

Once you have chosen the property and applied for FIRB approval, you will need to apply for a mortgage. Finding suitable lending options can be difficult if you hold a temporary visa. 

Australian banks see temporary visa holders as high risk borrowers, which is why banks charge high interest rates and down payments. Temporary residents may also have to pay up to 40% of the property value instead of the normal 10% that most Australian residents have to pay.

This is where hiring a good mortgage broker can help you get a good deal on your mortgage. 

Permanent visa holders have the added advantage of accessing the First Home Owner Grant(FHOG), subject to eligibility. Under FHOG Australian citizens and permanent visa holders can get up to AUD 10,000 as a one time grant for their first home. 

Cost of Investment

In addition to knowing the legal and procedural requirements, it is also very important to understand the cost structure of buying a property in Australia as an expat. 

 

Application fee: 

The application fee for FIRB is calculated on a tiered basis. 

  • Fee starts at AUD 6350 for residential property valued AUD 1 million or less. The fee increases for each million to be capped at AUD 503,000 for properties valued AUD 40 million or above.
  • Fee starts at AUD 6350 for commercial property valued AUD 50 million or less. The fee increases after every 50 million to be capped at AUD 503,000 for properties valued AUD 2 billion or above.
  • Click here for further details.

 

Vacancy fee:

The vacancy fee is applicable on residential dwellings, 12 months after the first occupation day. It is only applicable if the dwelling is not residentially occupied for at least 183 days in a year. 

The property does not have to be continuously occupied for 183 days. It can be divided into blocks of minimum of 30 days of residence. 

The vacancy fee will not be required if

  • The property is sold
  • The property is transferred legally in case of the death of the owner
  • The owner ceases to be a temporary resident

The value of the vacancy fee is the same as the FIRB application fee.

Click here for more details about the vacancy fees

 

Legal fee:

Hiring a lawyer or a solicitor can cost anywhere between AUD 800 and AUD 1200 or more, depending on the legal consultant that you have chosen. 

 

Stamp duty:

Stamp duty will vary from one state to another. It is roughly going to be around 3% of the consideration paid for the property. However, in some states like NSW, the foreign stamp duty is around 8% plus an additional 2% land surcharge. So make sure to check the stamp duty for the state you are interested in.

 

Lender processing fee:

Your mortgage broker will also charge a processing fee. This will be around AUD 150. The mortgage agent will also charge a commission of approximately 2% of the property value.

 

Inspection costs:

Property inspection costs can be up to AUD 800. 

Checklist

  1. Check your residential status to determine whether you need FIRB approval or not.
  2. Get a property agent, who can help you find a suitable residential or investment property.
  3. Check if your desired property is eligible for FIRB approval. 
  4. Negotiate the purchase price and prepare a contract after necessary inspection of the property.
  5. Submit the application for FIRB approval.
  6. Hire a mortgage broker and apply for a mortgage.
  7. Settle the purchase contract and apply for registration of your property.
  8. Pay vacancy fee 12 months later, if applicable. 
  9. Carry out your own due diligence at each step.

Takeaway

Buying a property in Australia as a temporary resident is a big decision to make and it takes a lot of planning to get it right. Before you buy, you need to do your research, find a qualified real estate agent and have a clear idea of what you’re looking for. It’s also a big financial commitment, so you need to make sure you can afford the place you want to live.

 We hope that this article will help you plan out how to purchase your property in Australia as an ex-pat. 

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