Invesitng in property as a non-resident

Investing in property as a non-resident

The laws around buying Australian property using a foreign income have recently changed, so here’s what non-residents need to do to invest in Australian property.

In recent years, the Australian residential property market has been a popular destination for foreign investors, particularly Chinese buyers. Australia’s economic stability, combined with a property market relatively unaffected by the volatility of speculation, has made the land down under a safe choice for these overseas investors.

But legislation changes that took effect in 2015 have tightened the rules surrounding foreign investment in Australia, and it’s now more complex than ever to use foreign income to purchase Australian property. Let’s take a look at how you can invest in Australian property as a non-resident.

Foreign investment regulation changes

Unlike some other countries that place few or no restrictions on foreign buyers, Australia has always taken a regulatory approach to overseas property investors. In December 2015, following growing concern that Chinese buyers were driving values up and pricing first home buyers out of the property market, the Australian Government introduced new laws to make it tougher for overseas investors to purchase Australian property.

Under the new laws, non-resident buyers can only purchase new properties, not established ones. Non-residents who purchase property in Australia without first seeking approval from the Foreign Investment Review Board (FIRB) also face fines of up to $135,000, three years’ imprisonment or both. Companies breaching these rules can be fined up to $675,000, while buyers’ agents and real estate agents who help foreign buyers violate these rules also face stiff penalties.

In addition to these strict conditions, foreigners who want to buy an Australian investment property must pay an application fee. This fee is $5,000 for properties valued under $1 million, and $10,000 for properties over $1 million. It then increases by $10,000 for each additional million dollars in property value. Paying this fee does not guarantee that a buyer will be able to purchase the property they want.

Home loan restrictions

These legislation changes were closely followed by changes to the foreign investor lending policies of major banks. ANZ and Westpac stopped offering home loans to non-residents altogether, while NAB dropped its maximum loan to valuation ratio (LVR) to 60% ­­- meaning overseas buyers need a deposit of at least 40% in order to get mortgage financing. Commonwealth Bank also announced that it would no longer accept home loan applications from temporary residents who don’t earn an income in Australia.

At the same time, other regulatory changes have also had an effect. For example, the Victorian government announced an increase in stamp duty charges for foreign investors from 1 July 2016, and Chinese authorities have put a cap on the amount of cash their citizens can take out of China. While early media reports have suggested these conditions have led to a slowdown in foreign property investment, the full effects of the changes will only be known in coming months.

How can foreign buyers invest in Australian property?

Although foreign investors are not allowed to buy existing homes, they can buy new properties, off-the-plan apartments and vacant land. If you’re a non-resident foreigner and you want to buy any residential property in Australia, you will first need to obtain approval from FIRB. You can apply for approval online and, while there is no limit to the number of new dwellings you can purchase, you will usually need to apply for approval before each purchase.

According to FIRB, a new dwelling must be built on residential land, must not have been previously sold as a dwelling, and must either:

  • not have been previously occupied; or
  • if the dwelling is part of a development and was sold by the developer of that development, not have been previously occupied for more than 12 months.

If you want to buy vacant land for development, the development must be completed within four years of approval. There is also the option of purchasing an established dwelling for redevelopment as long as the redevelopment increases Australia’s housing stock.

You will also need to pay an application fee as per the table below:

Purchase priceFee payable
$1 million or less$5,000
$1 million - $1,999,000$10,000
$2 million - $2,999,000$20,000
$3 million - $3,999,000$30,000
For each further $1 million increase$10,000

Finally, it’s also worth remembering that there are tax implications for investing in Australian property. Any rental income you receive from your investment will need to be declared on an Australian tax return, while you’ll need to pay Capital Gains Tax on any profit you make when selling the property.

The FIRB application process

Before you apply for approval to purchase an investment property, it’s recommended that you obtain expert legal advice to make sure you understand and comply with all the necessary legal requirements. Then, you can follow the steps below to apply for foreign investment approval:

  1. Visit the FIRB website and click on ‘Apply Now’
  2. Follow the link to the Australian Taxation Office’s foreign investment application form
  3. Fill out the application form with your contact details, passport, visa documents and any previous FIRB application reference numbers
  4. Provide the address and title details of the property you wish to purchase
  5. Read and sign the declaration
  6. Submit the application and pay the relevant fee
  7. A decision on your application is usually made within 30 days and you will be informed of that decision within 10 days

You must obtain approval from the FIRB before you can apply for a home loan with an Australian lender.

More about getting FIRB approval when buying a property

What if I’m an Australian resident living abroad?

If you’re an Australian resident temporarily living overseas and you want to buy an investment property in Australia, the good news is that the strict foreign investment laws don’t affect you. You are exempt from needing FIRB approval in a range of circumstances, including if you:

  • Are an Australian or New Zealand citizen
  • Hold an Australian permanent resident visa
  • Have a spouse who fits into either of the above categories and the property is being purchased in both names as joint tenants

However, you’ll need to check whether lending restrictions imposed by the banks will have an impact on your ability to qualify for a home loan. This will depend on your residency status and the lender with which you apply for a loan.

For example, recent changes to NAB’s lending policy mean that it will only lend non-citizens and permanent residents up to 60% of the purchase price of a property. Foreign income is also discounted by 40% when NAB assesses your ability to keep up with loan repayments. This may make it difficult or not financially viable for you to invest in property in Australia, so familiarise yourself with all the rules and regulations before you look to buy.

Using foreign income to invest in Australian property is a complex and confusing topic. So it’s recommended that you seek legal and taxation advice to make sure you satisfy all regulatory requirements.

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