Thinking about buying a residential property in Australia?
A Guide for Foreign Purchasers
As one of the most popular property markets around the world, Australian property market has been experiencing steady growth for many decades. As the most liveable city in the world 7 years running, Melbourne has very strong attraction for new Australians and foreign investors around the world.
Over the past two years or so, the Australian Federal Government brought in multiple measures to dampen enthusiasm for the property market which has raised some concerns amongst foreign investors. Restrictions on investor loans brought upon by Australian Prudential Regulation Authority (“APRA”) and the establishment of the Banking Royal Commission combined with other existing measures including Foreign Investment Review Board (“FIRB”) approval, property taxes etc, to a large extent, have led to the recent down turn in Australian Property Market. While it is expected that Australian housing price may experience further decline, many economists and commentators are suggesting this is merely a part of the price cycle and it is a sign of a healthy property market.
So, as a foreign purchaser, if you want to purchase a residential property in Victoria either for investment purpose or otherwise, what are the things you need to know?
FIRB is a non-statutory body that is responsible for advising the government and the Treasurer on Australia’s Foreign Investment Policy. Foreign buyers must obtain an FIRB approval before acquiring an interest in a residential property. Of course, depending on whether you are a temporary resident or a non-resident and whether you are purchasing an established dwelling or a newly constructed dwelling/vacant land, the requirements around FIRB approval differs.
Here are some of the conditions which might be imposed with a FIRB Approval:
Types of Residential Property
Generally no restrictions
Construction requirements such as construction be completed within 4 years
Foreign investors are generally prohibited from purchasing an established dwelling, however, a temporary resident may be permitted to purchase an established dwelling as their residence during their stay in Australia, and the purchaser normally has to sell this property upon their departure from Australia
Please note FIRB approval must be obtained prior to your acquisition of an interest in a residential real estate. However, it is permissible for a purchaser to enter into a contract of sale that is conditional upon FIRB approval being granted. Generally, it can take up to 30 days for a decision to be made and another 10 days for a purchaser to be notified. Ample time should be allowed obtain an approval before entering an unconditional contract.
If you are unsure about the specific requirements applicable to you, or if you believe you are eligible for an exemption, please contact Barrett Walker Lawyers.
Foreign Resident Capital Gains Withholding
For Contracts of Sale entered into after 1 July 2017, any real property where the contract price is AUD $750,000 and above, foreign resident capital gains withholding payments will need to be made by the purchaser. This means when a foreign resident disposes of a taxable Australian property, the purchaser is required to withhold 12.5% of the purchase price and remit it to the Australian Tax Office.
Different requirements also apply for foreign purchasers in relation to Land Transfer Duty (also known as Stamp Duty). There are a few categories of concessions, but not all of them are available to foreign purchasers.
Generally, foreign purchasers are not eligible first-home buyer (FHB) concession unless the property is purchased together with an Australian citizen/permanent resident. However, a foreign purchaser may be eligible for principal place of residence (PPR) concession (for low value properties less than AUD $550,000) If all criteria are met. If you are buying off-the-plan, you might also be eligible for off-the-plan concession, however, this will only be available if you are eligible for FHB or PPR concession. If you intend to purchase a residential property for investment purposes or if you are buying a commercial property, off-the-plan concession will not be available.
If you are uncertain about the stamp duty payable, a calculator is available on the SRO website here.
For a foreign purchaser, you may also be liable for an additional duty on your share of the property known as Foreign Purchaser Additional Duty (FPAD). It is currently payable at 7% based on the dutiable value of the property.
If the seller is registered or required to be registered for GST, they must pay GST on the sale of a new residential property, and you as the purchaser will often bear the costs (10% of the purchase price). It is important that you identify whether GST is payable for a property prior to entering the Contract so that you can prepare your finances accordingly.
A property is generally exempt from land tax if it is used as a principal place of residence. However, if you are purchasing a property which was used as an investment property by the owner, the seller will be liable to pay land tax, and you will need to make sure this requirement has been complied with by the seller or you might be liable for the outstanding land tax as the subsequent owner.
For many foreign investors, another issue with land tax would be the Absentee Owner Surcharge. Generally, an absentee owner will be liable for an additional 1.5% surcharge on top of the general land tax rate which can be found here.
Borrowing and foreign exchange
The four major banks in Australia are no longer offering home loans for foreign investors with no Australian income sources. However, foreign investors might still able to borrow from smaller lending institutions. You should be cautious if you are borrowing from smaller lending institutions as they may have a higher fee structure than the larger banks. If you are borrowing money from an overseas bank you should also be aware of the impact exchange rates might have on your loan and the value of the property If you borrowing in foreign currency.
Contact us today
At Barrett Walker Lawyers, our combined legal and accounting practice ensures that you receive the most comprehensive, accurate legal and taxation advice tailored for your needs. If you are thinking about purchasing a property, Barrett Walker Lawyers will guide you through the process from Pre-Contractual advice to settlement. We also offer advice on different investment structures based on your circumstances so you can invest with confidence.
Disclaimer: Please note this article does not purport to offer any investment or financial advice and any advice is general only. You should seek specific advice in relation to any proposed transaction.