Can foreigners buy investment property in Australia?

author-avatar By 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 variable interest rates on the market for investors.

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) investment home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

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 which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

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.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

Latest Articles

author-avatar
Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

Collections:

Get free insights & tips monthly

By subscribing you agree to the Savings Privacy Policy

Loading data please wait...

{{returnData.productName}}

Overview

Current Rate

{{returnData.currentRate | percentage:2}}

Comparison Rate*

{{returnData.comparisonRate | percentage:2}}

Rate Type

{{returnData.rateType}}

Advertised Rate

{{returnData.advertisedInterestRate}}

Comparison Rate*

{{returnData.comparisonRate}}

Monthly Repayment

{{returnData.monthlyRepayment}}

Interest Type

{{returnData.interestType}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Bonus Interest Rate

{{returnData.bonusInterestRate | percentage:2}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Introductory Rate

{{returnData.introductoryRate | percentage:2}}

Introductory Term

{{returnData.introductoryTerm}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Term

{{returnData.term}}

Advertised Interest Rate

{{returnData.advertisedInterestRate | percentage:2}}

Interest Frequency

{{returnData.interestFrequency}}


Fees and Features

Ongoing Annualised Fee

{{returnData.annualFee}}

Upfront Fee

{{returnData.upfrontFee}}

Offset Account

Redraw

Principal & Interest

Interest Only

N/A{{returnData.interestOnly}}

Max loan to value ratio (LVR)

{{returnData.maxLVR | percentage:0}}

Lump sum repayments

N/A

Additional repayments

Maximum Loan Term

{{returnData.maximumLoanTerm}}

Upfront Fee

${{returnData.upfrontFee}}

Ongoing Monthly Fee

{{returnData.ongoingFees}}

Early Repayment Fee Applies

N/A

Vehicle Types

{{returnData.vehicleType}}

Maximum Vehicle Age

{{returnData.maximumVehicleAge}}

Pre Approval Available

N/A

Online Application

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Minimum Deposit

{{returnData.minDeposit | currency : '$' : 0}}

Upfront Fees

{{returnData.upfrontFee | currency : '$' : 0}}

Annual Fees

{{returnData.annualFee | currency : '$' : 0}}

Notice Period to Withdraw

{{returnData.noticePeriodToWithdraw}}

Online Application

N/A

Automatic Rollover

N/A

Maturity Alert

N/A