Australia has become a haven for overseas investors looking for safe and solid property investments.
Foreign investors are buying up Australian real estate and they’re growing in numbers.
It’s easy to see why foreign buyers would want to grab a slice of Australia’s property markets. Despite predictions of price crash, the housing markets continued to stage a robust performance.
However, how do banks view foreign investors, and more importantly, is it difficult to qualify for an investment loan in Australia?
Investing in Australian real estate
Property investment is one of the best, if not the best form of foreign investment in Australia today. Unlike other forms of investment, it offers greater potential returns, while still offering security and stability.
Australian properties are well known for their:
- Stability: The Australian property market has a proven record of stable prices. This is a big plus for property investors.
- Growth: Australian properties have experienced consistent capital growth since 1900. In average, the growth has been doubling roughly every 7 to 10 years.
- Ease to invest: If you provide the right information and enlist the services of the right people, buying and applying for a foreign investment in Australia can be easier that expected.
What types of properties are acceptable?
Be aware though that lenders don’t accept every type of property.
As a general rule, your property needs to meet certain criteria set by lenders. As such, the property should be:
- A standard unit, house, townhouse, or land and construction.
- Greater than 50m2 living area.
- In a good condition.
- Located in a high demand location, usually a major city with more than 10,000 people.
Check out the property types page for more information about how you can borrow on other types of investment properties.
How much can I borrow?
Despite this, you can still qualify for the same rates and discounts as any Australian citizen living down under.
Find out if you qualify for a foreign investment in Australia by calling us on 1300 889 743 (+61 2 9194 1700 if you’re overseas) or by completing our free online assessment form. Our mortgage brokers are experts at handling investment loans and can help you qualify with a suitable lender.
What do I need to do?
Australian mortgages can be quite complicated, especially if you don’t know what the lenders require from you.
On top of this, investment loans are considered riskier than ordinary home loans, especially foreign investment in Australia. This is the reason lenders prefer applicants who are in a strong financial position.
However, in Australia, each lender has a different criteria to qualify.
The key to getting a great investment loan deal is to apply with the right lender that can meet your financial goals. It’s also better to look for a bank that encourages investors rather than one that is conservative towards investment loans.
What are the basic requirements I need to meet?
Lenders prefer applicants who are in a strong financial position to get approval. Some basic criteria that you need to meet include:
- At least 5% to 10% in genuine savings.
- Sufficient equity in other properties (i.e. this isn’t your first investment property) if you’re borrowing more than 90%.
- A good credit history.
- An above average credit score.
- Stable employment and strong finances.
Not sure if you can qualify for an investment loan?
Call us on 1300 889 743 or fill in our free online assessment form to speak with a broker about your situation and they can help find a suitable lender that can meet your home loan needs.
Do I need the Australian government’s approval?
Foreigners must get approval from the Foreign Investment Review Board (FIRB) before they can buy a property in Australia.
However, if you’re an Australian expat living overseas or a permanent resident (PR) then you won’t need FIRB approval. This is because Australia expats and PR holders are essentially Australian citizens.
If you’re a foreigner:
- The property that you’re buying needs to be a new property or vacant land to build a new property.
- You can’t buy an established dwelling as an investment property.
- You can buy a new property in your name and rent it out to your child that is on a temporary visa.
You can refer to the FIRB government website for more information.
What documents and information does my accountant require?
Generally, property investors like to provide their accountants with all of their documents and let them take care of everything. The documents that you usually need to provide are:
- Purchasing expenses (if applicable): Costs associated with the purchase, including stamp duty, government fees, inspection fees, conveyancing fees and so on.
- Management expenses: If you have a property manager then they will provide an annual statement at the end of the fiscal year. The statement includes total rent received as well as the total charges associated with managing the property. For instance, property manager fees, letting fees, tribunal expenses and handling fees.
- Rates and levies: These include council rates, water rates, body corporate or strata levies and land tax.
- Loan expenses: These include the costs associated with mortgage. They generally include interest expenses, annual package fee or monthly fees and loan set up fees.
- Maintenance cost: These costs are associated with repairs and renovations done on your property. Keep in mind that they are treated differently by the Australian Tax Office (ATO). These usually include repairs, renovations, cost of construction, gardening, cleaning and so on.
- Income: Generally, the annual statement from your property manager will also include your annual rental income, claims on insurance policies and water usage charged to tenants.
- Misc expenses: These include building insurance, landlords insurance, depreciation schedule, stationery, telephone and postage expenses and legal fees.
What else do I need to provide?
Aside from these documents, you’ll also need to provide certain additional information to your accountant, these include:
- The address of the property.
- The percentage of the property that you own.
- The date purchased (if purchased this year).
- The date the property started earning rental income.
- Number of days rented this year (ask your property manager).
- Number of days used for private purposes (e.g. holiday homes).
- Provide a list of assets purchased and sold to assist your accountant to calculate your depreciation deductions.
- Did you redraw any funds from your loan this year?
The above information is a general guide only. Please speak with your accountant for a more personalised list of required documents and information for your investment property.
What do I need to look out for?
Finding a suitable foreign investment in Australia depends on your own financial goals. Many different borrowing options and strategies may only confuse you more.
Generally, investment loans are riskier than standard home loans and may have a more complicated approval criteria depending on the lender. This is especially true if you require negative gearing benefits to prove that you can afford the loan.
As such, you need to understand how foreign investment in Australia works, as well as what options are available to you before deciding on investing in property in Australia.
Why should I invest in Australian property?
One of the biggest benefits of property investments is that they’re highly leveraged. This means that you may be able to magnify your potential returns with minimal funds available.
Other notable benefits of investing in property include:
- Security: Property investors have the security of fixed returns on their investments. On the other hand, although other investments such as stocks provide financial benefits for investors, they involve a higher risk.
- Greater returns: If your rental yields are more than the mortgage repayments then the property may as well be paying itself off. This means that you may not have to worry about affording the loan. You may even be able to cover the additional costs of property ownership if you have surplus left over.
- Growth: If you buy in a good location then the value of your property can go up substantially. By adopting a long term growth strategy, you’ll eventually be able to enjoy its benefits. Keep in mind that Australian property prices also rise at a constant rate, which is about 2% in average.
- Tax reductions: You can often claim significant tax deductions on any expenditure on the property, including maintenance, rates and insurance.
- Asset base: With an investment property, you can use the existing equity in it to secure other loans and buy more property.This is a good advantage to have if you’re looking for additional finance.
What are the costs associated with property investment?
There are several fees and charges involved with foreign investment in Australia. Some of the most common costs include:
- Valuation costs: You’ll be required to have your property valued by the lender. This may require you to hire someone who can determine the property’s market value and rental income potential.
- Stamp duty: The government stamp duty can be quite expensive, sometimes adding up to 6% of the property value. This varies from each state and territory.
- Legal fees and costs: These costs are payable when you purchase the property. However, they may be waived for investors.
- Transferring property title: On buying a property, you’ll need to pay a transfer fee in order to register the property in your name.
What discounts and loan features are available?
You can get the same features as other loans when you apply for a foreign investment in Australia:
You may be able to qualify for an investment professional package and basic investment discounts.
Our mortgage brokers are investment loan experts and can help you qualify for a great deal with a suitable lender.
Call us on 1300 889 743 (+61 2 9194 1700 if you’re overseas) or fill in our free online assessment form to find out if you qualify today.
Foreign investment in Australia FAQs
What is negative gearing?
Negative gearing is the loss you make when your interest and running costs exceed the income you make from the investment.
Generally, you can claim the net loss as a tax deduction against your other income. Investors with high taxable incomes can benefit from the capital gains and other tax benefits, which usually outweigh the holding costs.
It’s recommended that you seek independent financial advice before you decide to apply for a foreign investment in Australia.
What is capital gains tax?
Capital gains is the profit you make when you sell your property or investment. Capital Gains Tax (CGT) is a tax that is set off when you sell the property, usually at the date of the contract of sale.
The CGT is calculated by subtracting the cost of your base property with the capital proceeds that that you receive.
The proceeds also include the amount that the property was sold for. The cost base includes the amount that you paid for the property, as well as incidental costs, less building depreciation claimed over time.
For example, if you sold your property for $450,000 then your proceeds are $500,000.
Now, suppose you bought the property for $280,000, paid $2,000 of legal fees to buy, $20,000 of stamp duty, $2,000 of legal fees to sell, $10,000 commission for selling agents and claimed $6,000 of building depreciation at the end. Your cost base will be $320,000.
As such, their gross capital gain will be the proceeds less the cost base, that is, $130,000. However, if you owned the property for over a year then the net taxable capital can be halved. This means that you can only declare $65,000 in your tax return.
This amount is added to your regular income and the tax is paid accordingly.
Keep in mind that this is general information only. For professional tax advice, it’s recommended that you seek assistance from a professional tax advisor such as Lucentor Pty Ltd before making any decision related to investment or their finances.
Do I have to lodge a tax return in Australia?
Yes, you’ll need to lodge a tax return in Australia every year even if you’re buying a foreign investment in Australia.
Luckily, this is quite easy to do.
It’s important to ensure that your property manager keeps all of the records for how much rent you received as well as your expenses. They can then transfer these records to your Australian accountant who will prepare your tax return.
Does my employment status affect my chances of getting approved?
Certain lenders don’t accept foreigners that are self-employed. Other than this, the employment status doesn’t make a significant impact on getting approval.
However, you still need to show that you can affor your loan, irrespective of your employment status. Some lenders require you to be in a strong financial situation to even consider giving an approval.