We can release equity from a property that you own in Australia but we cannot use a property overseas as security.
Is buying property overseas possible?
Many Australian residents choose to buy property in a foreign country to take advantage of capital growth trends or simply because they have a cultural connection to that nation.
Although lenders in Australia can’t fund your purchase outright, there are a few solutions available to you if you already own a property Down Under.
How does buying property overseas work?
Australian banks can’t take a foreign property as security for a home loan.
However, they can help you fund your future investment plans if you have an existing property with enough equity.
Having a good understanding of what you want to do when you have the funds is key.
Which bank can help me?
If you’ve already researched the property market or spoken with a real estate agent to get an understanding of the location you want to buy, you’ll need funds to complete the purchase.
Without your own savings, the next step is to speak to an Australian bank with international branches.
Your mortgage broker may be able to put you in touch with the local branch themselves.
There are also a number of non-Australian owned international banks that may be able to help you with finance.
It’s important you get in touch with the local branch of the country you’re looking to buy.
Find out what interest rates and mortgage terms they have available for your price range.
How much can I borrow?
One important thing to note is that some countries limit you to borrowing 80% of the property value or Loan to Value Ratio (LVR).
This borrowing limit is typical with a lot of countries, particularly those burned by the global financial crisis (GFC).
Australian banks are one of only a few institutions in the world to offer 105% investment loans by way of a guarantor arrangement with your parents.
So because of this 80% LVR restriction that international banks have, you would need your own funds for a 20% deposit, plus an extra 3-5% of the property value to complete the purchase of the property.
These extra costs cover costs relating to stamp duty, conveyancing fees and other legal costs required to be paid when buying in that country.
These extra costs vary from country to country: some of them don’t charge stamp duty at all!
Call us on 1300 889 743 (+61 2 9194 1700 if you’re outside of Australia) or complete our free assessment form to discuss your plans in buying property overseas.
What if I already own a property in Australia?
If you already own a property in Australia and only have 60-70% remaining on the mortgage, you can actually use your equity for buying property overseas.
Your Australian lender won’t accept a foreign property as security outright but you can do a cash out with the help of your mortgage broker.
The broker will normally inform the bank that the cash out is for future investment purposes not necessarily for overseas investment.
In saying that, as long as you’re not borrowing more than 80% of the property value, you can usually get approved for the cash out.
Let’s say you own a property currently valued at $500,000 with $300,000 owing on the home loan.
Your LVR would be around 60%, way below the 80% restriction for accessing equity.
The property you want to buy is in Brazil and it’s worth $250,000 – the 20% deposit (plus purchase costs) you need would be about $60,000.
By refinancing with your existing lender, you can cash out that $60,000 so your new home loan is $360,000.
Should I refinance to another lender?
By speaking with an experienced mortgage broker that has a number of different Australian lenders to choose from, they can properly assess your situation and refinance your mortgage to another lender at a lower interest rate.
When buying property overseas, it helps to have a mortgage broker that will support you going forward.
Call us on 1300 889 743 or complete our free assessment form to find out if you’re in a position to use equity in your property for buying property overseas.
Why do you want to buy property overseas?
Many Australians choose to buy property overseas because they’ve become disillusioned with the overpriced real estate market.
With a strong dollar compared to the currency of many foreign nations, there is the potential to take advantage of comparatively lower property prices and higher growth rates in developing nations.
The first thing you should consider is what countries you’d like to invest in: not all property markets are created equal.
Despite its large economy, the United States real estate market has been in the doldrums for a number of years following the GFC.
Meanwhile, some countries that would be considered developing nations or those badly hit by the global financial crisis (GFC) such as Greece, Brazil, Turkey and Italy are running at much higher growth rates.
Of course, there are investment opportunities anywhere if you’ve done your market research.
Discover more about the risks of overseas property investing in the ‘6 Traps Of Overseas Property Investing’ blog.
Australian residents who are foreigners choose to buy property overseas for investment purposes but they may also have a cultural or family connection.
When they go on holidays or even retire, they may choose to go back and make the property their new home, rent-free.
Buying property overseas: tax FAQs
As you consider buying property overseas, you should speak to a qualified accountant about your plans.
There are a number of tax implications when investing across borders and they can get quite complex.
Taking advantage of tax benefits will help you build a strong investment portfolio over the long-term.
Do I need to tell the ATO?
You don’t need to inform the Australian Taxation Office (ATO) that you’re buying property overseas but you need to disclose that you did so in your next tax return.
This disclosure will cover things like the rental income you earned and your expenses including any capital gains tax (CGT) gains or losses.
When you take into account the double tax agreements (DTA) in place with Australia and a number of different nations and the powers that the ATO has to track and punish tax-dodgers, it’s recommended you be honest to avoid huge fines.
What is a double tax agreement?
In many cases, both Australia and the country in which the property is located have taxing rights over rental income.
In a DTA arrangement, Australia’s foreign income tax offset (FITO) system means the tax payable on rental income is reduced if you’ve already paid foreign tax for the same income.
In other cases, the DTA may grant exclusive rights to the country in which the property resides to tax rental income and CGT, exempting you from tax in Australia.
In Australia, standard CGT requirements apply when selling property overseas, so check out the ‘What Is Capital Gains Tax?’ page for more information.
You should speak to your accountant about whether you’re better off paying tax on rental income or CGT in the foreign country or Australia.
What about foreign exchange?
Foreign exchange rates can be really detrimental to any significant capital gains you made in an overseas real estate market.
It can also be quite complex and can come with a whole host of fees when transferring funds (like rental income or sales proceeds) to and from Australia.
In some cases, you may be better off setting up a bank account in the foreign country.
It’s important to speak to your accountant about this.
What about foreign exchange controls?
There are no foreign exchange controls for transferring funds out of Australia that you need to worry about.
This is really helpful when transferring your deposit overseas.
However, there may be foreign exchange controls in the country you’re investing in.
These controls include fixed exchange rates and restrictions on the amount of currency that can be imported.
Countries with exchange controls are known as “Article 14 countries” and most common in poorer countries even after free trade and globalisation exploded in the 1990s.
They are very few and far between these days but some of these countries include:
Can I claim tax deductions in Australia?
Any outgoings to repair or claim depreciation on overseas investment property are tax-deductible in Australia against the rental income.
What’s not tax-deductible are improvements to the property that are for cosmetic purposes such as extensions or fitting out a new kitchen. These are capital expenses and not necessary for the building itself.
You should check with the local tax jurisdiction as to what you can claim on tax because it may not necessarily be the same as Australia.
Since 1 July 2008, any net foreign loss incurred may be offset against any Australian or overseas income.
In the past, you could only offset against foreign income.
Do you need help buying a property overseas?
If you have an existing mortgage in Australia and want to know if you can cash out to invest in real estate offshore, call us on 1300 889 743 or fill in our online assessment form to find out how our mortgage brokers can help.
Buying property overseas is possible with a little creativity and help from an expert.