The Australian real estate market is well established as one of the most buoyant, exciting, and potentially lucrative in the world. Indeed, Sydney and Melbourne are both ranked as the most expensive cities in the world to buy property ahead of even Dubai and Los Angeles!
While this is pretty bad news for new Aussies looking to put a foot on the property ladder, the Australian property market has long been a magnet for foreign investors and Australians living abroad. And why not? With its stable economy, high-quality lifestyle, and strong real estate performance, Australia continues to attract a diverse range of investors and property buyers.
In recent years, there has been a noticeable increase in the number of overseas buyers seeking to invest in Australian real estate and so with that in mind, we have decided to create this complete and comprehensive guide.
Stats on Property Buying in Australia by Foreigners and Australians Abroad
In recent times, the foreign ownership of Australian property has become the subject of much discussion and there are even some voices on the margin suggesting that non-domestic residents be banned from owning property. Still, according to recent data, up to 10% of property transactions in Australia involve either foreign buyers or expatriates.
While foreign ownership still accounts for only 1% of Australian property ownership, this figure is set to rise fast.
Note: Primarily, foreign demand for property is coming from Asia and in particular, from China. In 2023, Asian investors spent $5.3b AUS buying up land Down Under with $2.5b of this coming from mainland China.
How is it Different from Buying Domestically?
While buying Australian property as a foreigner is relatively straightforward, the process is still distinct from buying property as a resident/citizen.
Let’s take a closer look.
Buying Property As a Foreigner
Foreigners looking to purchase property in Australia have to take several additional steps compared to domestic buyers. The Foreign Investment Review Board (FIRB) oversees and regulates foreign investments in Australian real estate and a foreign buyer must seek FIRB approval before proceeding with a purchase. This typically involves paying a fee and adhering to specific guidelines.
For example, foreign buyers are generally restricted to purchasing new properties only - newly built homes or off-the-plan apartments - and are somewhat limited in their ability to buy ‘old’ or existing properties. These regulations are intended to ensure that foreign investment contributes directly and solely to the development of new housing stock rather than competing directly with local buyers for existing homes. Of course, the effectiveness of this policy is debatable.
Buying As an Australian Abroad
Australians living abroad who wish to invest in property back home also face some unique challenges, particularly in relation to taxation and financial reporting. Australian expatriates must report their Australian property investments to the Australian Taxation Office (ATO), which can have implications for capital gains tax (CGT) as well as income tax.
If the property is let out, then any income it generates will most likely also have to be reported to the tax office of their resident country.
Transferring funds into Australia from overseas also requires some careful planning.
Tips:
Additionally, tax treatment differs between Australian residents and non-residents, so it's crucial to understand these distinctions to avoid unexpected tax liabilities. A qualified advisor is highly recommended.
Property Taxes for Non-Australians
Non-Australian property buyers are subject to various property taxes, including stamp duty (inflated to 7% for foreign buyers) as well as additional surcharges. Additionally, foreign owners who leave their properties unoccupied for extended periods may be liable for an annual vacancy fee which was introduced to encourage the use of housing stock. Finally, depending on their home country, they may also face domestic taxation on any gains especially if the property is rented out.
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Navigating the Australian property market as a foreigner or expatriate is going to require some professional assistance. Not only do you need somebody ‘on the ground’ in Australia, but you need somebody who knows the real estate market intimately, and who is also familiar with the legal, regulatory, and tax implications of buying Australian property as a foreigner.
Ideally, a qualified solicitor or property lawyer with real estate experience is the best option here. The downside is that lawyers tend to charge by the hour, and one with such niche expertise, could ask for anything from $240 - $1k AUS per hour.
However, without the proper local knowledge, guidance, and legal support, buyers risk falling foul of regulations, incurring fines, or missing out on important details that could severely undermine their investment.
Money Transfer to Australia from Overseas
Costs of Transfers Using The Banks
Transferring money to Australia from overseas can be costly and a bit complicated, especially when dealing with large sums of money.
Let’s say an Australian is living and working in the US and wants to send AUS $100k back home to purchase a property. If they instruct their US bank to handle the transfer, the following happens;
- The bank starts by levying a foreign transaction fee. This could be a fixed amount ($15 is pretty representative) or a percentage of the USD amount being transferred.
- The bank then changes USD to AUS. On today's open market, $100 AUS is approximately USD 66,251 and that is the amount we would expect to be debited from our account. However, the bank will use its own ‘markup rate’ which is typically 3% above the market. That means the account is debited something closer to USD 69k.
- The funds are sent from the US bank to the Australian bank. This can take several days.
- Upon receiving the Aussie Dollar, the Australian Bank also levies a transaction fee which could be a fixed amount or a percentage.
It is also worth bearing in mind that if the 2 banks do not have a direct relationship with one another, they will use an intermediary or correspondent bank which may slow the transaction down further. The correspondent bank will also charge a handling fee.
While correspondent banks are relatively rare in Europe/US transfers, they are more common when sending funds to Australia. In some cases, up to 3 intermediary banks can be used in a single transaction which can mean the money takes up to 5 days to arrive.
It is not inconceivable that the property purchase money could be held up for a week. Moreover, According to moneytransfer.com.au, the average cost of sending to Australia is 3% meaning that $3,000AUS could disappear in fees.
Costs of Transfers Using Money Transfer Specialists
An increasingly popular alternative to using banks is using a money transfer specialist.
Put simply, these are companies that allow individuals and businesses to send money across borders quickly and often at lower costs than traditional banks. They typically offer more competitive exchange rates and lower fees than banks making them an attractive option for international transfers. Crucially, they can often also guarantee fast or even instant transfers.
For example, Wise (formerly TransferWise) is well known for its transparent fee structure and real-time exchange rates. Australian-based OFX is another popular service that offers competitive rates and 24/7 support that caters to both personal and business transfers. Understanding these costs, including any hidden fees, is crucial to minimize expenses and maximize the value of your transfer.
Is It Worth It?
Investing in Australian property as a foreigner can prove to be a very powerful investment. However, it ultimately involves weighing the potential return on investment (ROI) against the legal and financial overheads, and headaches. While the Australian property market has historically offered strong returns, the costs of compliance, taxes, and ongoing management can prove to be both significant and stressful.
For those considering a buy-to-let investment, Australia's rental market does present strong opportunities for steady income, particularly in high-demand areas. However, non-residents must be aware of the tax implications of rental income, which can be higher than for Australian residents. They may also have to pay tax on rental income in their resident country which effectively means double taxation. Also bear in mind that managing a rental property from abroad also poses challenges, including the need for local property management services.
Final Thoughts
In summary, investing in Australian property as a foreigner or expatriate offers a wealth of both opportunities and challenges. While the market's strength, stability, and potential for growth are highly attractive, navigating the legal and financial landscape requires careful planning and costly professional advice.
