Buy property in Australia from overseas
- Why invest in Australian properties?
- The buying process
- Costs of buying a property
- Managing the property
Why invest in Australian properties?
When it comes to investments, there are a lot of options - businesses, the stock market and properties. However if you want a low risk profitable investment, choices are limited.
Investing in Australian properties has become popular with overseas investors looking for returns and stability not available in their own country.
- Stability
Australia's property market has a proven record of stable prices. Overseas property markets such as Hong Kong or the USA have suffered significant crashes that are completely unheard of in Australia. Housing prices in volatile economies can drop up to 70% within a few weeks, leaving investors with huge losses. Since 1900 when records began the Australian market has not suffered a fall in median house prices over 20% in one year. - Strong growth performance
Australian properties have enjoyed consistent capital growth over the last 100 years, with property prices doubling roughly every 7 to 10 years. One of the reasons behind the growth is Australia's chronic housing shortage in many of the major cities. Population is growing in a rate much faster than dwellings are being constructed. - Australia is a great place to live
Australia is well known for its diverse international cities and breathtaking natural beauty. Queensland (QLD) is famous for its wonderful beaches and reefs, Victoria (VIC) for its stunning coast line stretching to South Australia (SA), The Northern Territory (NT) for its distinctive outback experience and New South Wales (NSW) for the tranquil Blue Mountains, beautiful coast and Sydney.
Stability and growth are not just features of residential houses, townhouses and units. Most commercial properties such as offices, factories and retail outlets have proven themselves to have excellent returns. Larger foreign investors tend to prefer commercial property, resorts, hotels or developments.
The buying process
| Step 1 - | Organise your team of professionals |
A buyers agent is also very useful if you are located overseas and cannot physically inspect the real estate you are buying. The main job of a buyer's agent is to source and negotiate your ideal property for you. They will deal with the real estate agents for you and will ensure that the property you are buying represents a good opportunity. Your buyer's agent must be licensed and have some presence in the state you are buying a property in. Keep in mind that a buyer's agent should give independent and objective advice, so should not be selling his/her own properties. Some buyer's agents will charge a fixed fee, while some other will charge an upfront fee as well as a percentage of the purchase price of the property. |
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| Step 2 - | Get your loan pre-approved |
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It is essential for you to get your mortgage pre-approved before you begin looking for a property. Good properties don't stay on the market long. The buyer with a pre-approved loan usually snaps up the best investments while everyone else is putting their loan applications together. More importantly, you know that you are eligible for a loan and how much you can borrow. Why waste your time looking for a house or unit only to find out that you can't get a loan? |
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| Step 3 - | Australian Government pre-approval |
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If you are a non-resident or a temporary visa holder, you are legally required to get permission from the Foreign Investment Review Board (FIRB) if you want to buy properties in Australia. Australian Citizens, Australian Permanent Residency holders and New Zealand (NZ) Citizens are excempt from obtaining FIRB approval. Getting FIRB approval is a simple process and usually takes around a month from the date the application is lodged. The Government can give you a pre-approval for your FIRB application that will allow you to act quickly when you choose a property. |
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| Step 4 - | Find a property to buy |
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| Step 5 - | Negotiate the purchase |
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As a general rule, Australian properties usually sell for up to 10% less than their list price. If you are using a buyer's agent, they will help you in negotiating the price. You can ask for a contract before signing, and get your solicitor or conveyancer to look at the contract and add any additional conditions if necessary. Each state of Australia has their own property laws, use your conveyancer or solicitor's expertise to help guide you. If the vendor allows a cooling off period, in this case you can put a holding deposit and sign the contract. Refer to your conveyancer or solicitor, they will let you know what checks you have to do before buying and will let you know when it is safe to sign the contract to buy the property. If you are unable to get a loan during the cooling off period, you maximum penalty is the holding deposit, usually up to $1000, and again please check with your conveyancer or solicitor as this can vary across the different states. Before you sign the contract prior to the cooling off period, ensure that the contract of sale must include the clause "subject to FIRB approval", otherwise you will be breaching the law. |
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| Step 6 - | Loan formal approval |
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When you've found a property to buy, you can then forward the contract of sale to the bank to proceed with formal approval. Remember don't commit yourself to buy a property until your mortgage is approved. If there's a cooling off period, in which case it is okay to sign the contract, otherwise do not sign the contract until you know that you can get a loan. Once you forward the contract of sale to the bank, usually the bank will issue a formal approval notice within a week. |
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| Step 7 - | Exchange contracts / pay your deposit |
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You can exchange your contract after your loan has been formally approved and your solicitor or conveyancer gives you the go ahead. Normally you will need to put down a 10% deposit. The amount of the deposit is negotiable and differs between the states. Note that once you have exchanged contacts it is very difficult if not impossible to back out so please seek legal advice before signing any contracts or paying your deposit. It is very important that the contract you are signing has the clause "subject to FIRB approval" and 30 days must be allowed for a FIRB decision. At this point it is vital to check with your conveyancer or solicitor that the clause is stated in such a way so as to ensure that if your FIRB proposal is rejected that you will not lose your deposit. |
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| Step 8 - | Final arrangements |
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Once you have exchanged contract, forward a copy of the signed contract to FIRB for formal approval. Your bank would have sent out the loan documents to you after formal approval. You can ask your mortgage broker to go over it with you, or get help from your conveyancer or solicitor, you have the right to obtain legal advice about your loan contract. To accept the loan offer, sign the appropriate sections and return the loan documents back to the bank. Do a final inspection on your property before settlement. This can be completed by your buyers agent if you hired one. |
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| Step 9 - | Settlement |
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Settlement is the term given to when the property actually changes hands and your loan is advanced. This will be handled by your conveyancer or solicitor in conjunction with your bank & mortgage broker, you don't need to be there for this to happen. The title for the property is held by your lender for safe keeping and the keys are available for pickup from the selling real estate agent. |
Now is the time to visit Australia and begin your search for a property. The other option is to use a buyer's agent (see above). If you decided not to use a buyer's agent, then it may be a good idea to order a valuation on the property to ensure that you are not over paying. Often the bank chosen by your mortgage broker will value the property however the banks often don't tell you if the valuation comes in short!Costs of buying a property
As a general rule you should allow roughly 5% of the purchase price for various expenses associated with purchasing a property.
Expenses:
- Legal fees
- Loan establishment fees
- Stamp duty (State government taxes, often this is the largest expense)
- Property inspection fees
- Buyers agents fee
- Other minor costs - building insurance, council rates, water rates, strata levies, etc
Refer to your conveyancer or solicitor for an exact breakdown of the costs associated with your real estate purchase.
Managing the property
If you are buying the property as an investment and intending to rent out your property, you have two options. You can either manager the property yourself, or you can use a property manager.
Professional managing agents will look after every aspect of your tenancy. Their job includes collecting the rent, maintaining financial records, conducting regular property inspections, handling any disputes and arranging all repairs that need to be done.
Most property managers charge a percentage of the weekly rent as management fee. Usually around 5-10%, however this is negotiable. You should also expect to pay additional one off fees when they find a new tenant. Last but not least, please make sure that the managing agent you are interested in using is licensed by the Office of Fair Trading (or state equivalent) before you enter into any formal agreement. Their license will be displayed in their office or on their website.
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