Can foreigners buy investment property in Australia?

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on November 13, 2020
Can foreigners buy investment property in Australia?

Photo by Tania Richardson on Unsplash

Australia is a popular investment location for its lifestyle and strong housing market. So how can foreigners get in on the action?

Combined investment in commercial and residential real estate by foreign buyers totalled $87.8 billion last financial year, according to the Foreign Investment Review Board’s (FIRB) annual report, outstripping investment in all other industries. Commercial property made up $73 billion of this, while residential property made up the remaining $14.8 billion.

Investors from the United States ($19.6 billion) were the biggest buyers of Australian real estate for the second consecutive year, followed by investors from Canada ($13.3 billion), Singapore ($9.8 billion), Hong Kong ($9.3 billion) and China ($6.1 billion).

We’ll look at how foreigners can invest in Australian property, the application process and the costs involved.

Buying an investment property or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for investors.

Lender
Advertised rate Comparison rate* Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Investor, Principal and Interest (Refinance Only)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Investor, Principal and Interest (Refinance Only)

  • No application or ongoing fees.
  • 100% free offset sub account.
  • Fast online application, approval in minutes not weeks.
  • Mobile app, Visa debit card, Apple and Google Pay
  • Refinance loans and variable rates only.
VariableMore details
AN EASY ONLINE APPLICATION
  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
AN EASY ONLINE APPLICATION
VariableMore details
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of January 21, 2022. View disclaimer.

Can foreigners buy investment property in Australia?

Foreigners can buy an investment property in Australia but there are rules and regulations around the type of housing they can purchase.

Foreigners, or non-residents, must apply to the FIRB for approval to buy their desired investment property.

According to the FIRB, the government’s policy is to channel foreign investment into new homes, creating jobs in construction and supporting the economy as a whole.

While foreign investment in real estate can also fuel government revenue (e.g. through stamp duty and taxes), the FIRB says the overarching principle against which applications are generally considered is that the investment should increase housing supply.

With that principle in mind, the types of dwellings foreign investors can purchase are:

  • New buildings: These are usually approved without conditions.

  • Vacant land: Investors will be approved for this provided construction of a dwelling is planned to be completed within four years.

  • Established dwellings: Foreign investors can only buy these if they plan to knock the existing dwelling down and replace it with a greater number than there were previously. For example, if a foreign investor bought a house, demolished it and replaced it with two townhouses.

  • Buying a home to live: Foreign investors can buy a home to live in if they are a temporary Australian resident. However, the home must be sold if you leave it unless you become a citizen or permanent resident.

What to consider prior to investing as a foreigner

If you’re a foreigner looking to purchase a property in Australia, it’s important to consider what makes a good investment property here, as it may differ from your country slightly.

Location is arguably the number one priority for Australian investors, with proximity to a CBD or the beach certain to be attractive to a wide range of people. Proximity to amenities like shops, restaurants, schools, hospitals, and public transport are also big drawcards.

The location of a property should also have potential for capital growth, high demand and maximum appeal to owner-occupiers.

Once you’ve settled on a location you can start thinking about the property itself and the desired demographic you wish to target to live there.

What is the FIRB application process?

Foreigners are required to have approval from the FIRB prior to acquiring an interest in a property. An interest includes things like signing an unconditional contract or an option that provides the right to purchase a property at an agreed time in the future.

Should you believe you may lose the home to another buyer by waiting for approval, you can enter into a contract provided it’s conditional on receiving approval.

The application for approval from the FIRB is as follows:

  1. Go to the Australian Tax Office (ATO) website and click ‘Start your application’ on the ‘Foreign Investment in Australia’ page.

  2. Fill out the form with all relevant personal details, passport and visa details.

  3. Provide details of the dwelling you wish to purchase.

  4. Sign and submit the application, paying the appropriate fee.

  5. Wait to hear back on the decision of your application. There is a statutory period of 30 days available for the decision to be made and a further 10 days to notify the applicant of the outcome.

FIRB fees and penalties

There is a fee payable as part of the FIRB application process, with the amount dependent on the purchase price of the dwelling. The fees are in the table below:

Purchase price

Fee

$1 million or less

$5,700

$1 million - $1,999,999

$11,500

$2 million - $2,999,999

$23,100

$3 million - $3,999,999

$34,600

$4 million - $4,999,999

$46,200

$5 million - $5,999,999

$57,700

$6 million - $6,999,999

$63,300

$7 million - $7,999,999

$80,900

$8 million - $8,999,999

$92,600

$9 million - $9,999,999

$104,100

Source: FIRB. Correct as of November 2020.

Foreign investors are required to contact the ATO for a fee estimate for purchases exceeding $10 million.

If a foreigner acquires property without approval they may be fined up to $166,500 or face three years in prison. If a company does the same it could face up to $832,000 in fines. The same fines for individuals apply if a temporary resident fails to sell their property when they stop living there or if they don’t start construction on land within the required four year period.

Exemptions for Australian residents abroad

If you’re an Aussie abroad, the rules around foreign investment probably won’t apply to you, with a number of other groups also exempt.

Groups that are exempt from needing approval from FIRB are:

  • Australian citizens

  • New Zealand citizens

  • Australian permanent visa holders

  • Foreigners purchasing property as joint tenants who have a spouse which satisfies one of the above.

Home loans for foreigners

Getting a home loan as a foreigner is no easy task in Australia. A basic requirement of many lenders is to be an Australian citizen or permanent resident.

This is due to lenders viewing overseas borrowers as high risk, as their systems aren’t typically set up to appropriately deal with such customers.

Lenders who do offer home loans to foreigners often implement stricter restrictions than they would on Australian borrowers.

Foreigners may be required to front a larger deposit for the property, greater than the typical 20% lenders recommend.

Loans for foreigners also typically have substantially higher interest rates than regular loans.

In some cases, lenders may require foreigners to have an income earned in Australia.

Savings.com.au’s two cents

The government has made it fairly straightforward for foreign investors to purchase residential property in Australia in an effort to fuel housing supply.

If you’re a foreigner looking to buy in the land down under, consider speaking to a local professional to ensure you’re getting a good deal.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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