According to a NAB survey in 2022, nearly 5% of the Australian property market is owned by overseas investors. Foreign ownership is a bit of a controversial topic, with several political figures suggesting Australia should follow the example of New Zealand and Canada and place further restrictions on foreigners owning residential property to stop prices from being driven up.
For the moment, foreign investors are able to purchase Australian property, but there’s a bit of a process they need to go through in order to be approved. According to the Treasury’s Foreign Investment website, Australia welcomes foreign investment, but laws are in place to ensure any overseas investment is in the national interest.
What Australian properties are foreigners allowed to buy?
Foreigners, or non-residents, must apply for approval to buy Australian property with the Australian Taxation Office (ATO). These are reviewed on a case by case basis to ensure they are not contrary to the national interest, and ensure the investment is likely to bring some benefit to Australia. For example, foreigners can generally buy newly constructed dwellings with few restrictions, as this contributes to the housing supply in Australia.
With that principle in mind, the Treasury tends to take the following approaches to specific investment proposals:
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New dwellings: These are usually approved with minimal conditions.
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Vacant land: Investors tend be approved to buy vacant land provided construction of a dwelling is planned to be completed within four years.
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Established dwellings: Foreign investors can apply to purchase an existing dwelling for redevelopment, if the proposed redevelopment genuinely increases Australia’s housing stock. For example, knocking down a single dwelling and replacing it with two townhouses would likely be approved.
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Buying a home to live: Temporary Australian residents are able to apply to purchase one established dwelling to live in while they are in Australia. However, the home must be sold once they leave unless they become a citizen or permanent resident.
Why Australian property is attractive to foreign investors
There are a few reasons why international investors might find Australian property an attractive proposition.
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Land scarcity. It sounds bizarre considering it’s the sixth largest country in the world, but Australia is one of the most urbanised nations in the world. According to the ABS, around 17.5 million of the roughly 26.6 million people in Australia live in the eight largest capital cities, so there’s less land available in these desirable spots. This scarcity can sometimes translate to potential for capital growth.
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Negative gearing. In many countries (the United Kingdom, the Netherlands and Singapore for example), you can’t claim annual losses on investment property as a tax deduction, but negative gearing in Australia is tax deductible. Any investors, foreign or otherwise, who pay income tax in Australia can take advantage of our negative gearing laws.
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Strong commercial returns. The Real Estate Institute of NSW says Chinese investors in particular are attracted by Australia’s high rental yields for commercial property. The REINSW say retail properties in Shanghai or Beijing sometimes return just 3% p.a in rent, while in Australia it isn’t uncommon for commercial properties to return up to 9% each year.
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Private land ownership and free hold. Another advantage Australia has over the likes of China is that private land ownership is private. In China and some other communist/socialist countries, land belongs to the state. Land can effectively be purchased in China through a land grant between the land user and the government, but it is still a long term lease rather than a permanent transfer of ownership. Once the lease expires, the government can reclaim the land.
What is the application process for foreign investors?
Overseas investors looking to buy Australian residential property need to apply for approval with the Australian Taxation Office (ATO). This is where the application is assessed, based on the type of dwelling and how the investment will benefit Australian housing stock. Once an application is approved, it also needs to be registered on the Register of Foreign Ownership of Australian Assets.
Foreigners are required to have approval from the ATO 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 is conditional upon receiving approval.
The application for approval is as follows:
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Go to ‘Online Services for foreign investors’ portal on the Australian Tax Office (ATO) website.
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Create a MyGov account if you don’t already have one.
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Use the MyGov app to access ‘Online services for foreign investors’ and lodge an application.
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Provide details of the dwelling you wish to purchase, as well as information about you or the entity intending to acquire Australian property. Refer to the Foreign Investment Application Checklist to ensure your application is complete.
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Sign and submit the application, paying the appropriate fee.
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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.
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If the application is successful, the property will also need to be registered on the Register of Foreign Ownership of Australian Assets. This can also be done through ‘Online Services for foreign investors.’ Registering an asset is free.
Fees for foreign property investors in Australia
There is a fee payable as part of the application process, with the amount dependent on the purchase price of the dwelling. The fees from July 1st 2023 onwards are in the table below:
|
Amount |
Fee per action |
|---|---|
|
Below $75,000 |
$4,200 |
|
$1 million or lower |
$14,100 |
|
$2 million or lower |
$28,200 |
|
$3 million or lower |
$56,400 |
|
$4 million or lower |
$84,600 |
|
$5 million or lower |
$112,800 |
|
Above $5 million |
Refer to the Foreign Investment website |
Source: FIRB. Correct as of July 2023.
A fee also applies to vary an existing foreign investment approval, of $4,000 (for a simple variation, considered immaterial or minor) or $26,400 (a complex variation), although fees are also capped at the original fee. For example, if you are looking for a complicated amendment to an application that originally cost $14,100, you will be charged $14,100 for the variation rather than $26,400.
From July 1st 2023, there is also an initial application fee for property developers applying for a new or near new dwelling exemption certificate of $60,600.
If a foreigner acquires property without approval they may be fined up to $3,330,000 or face up to ten years in prison. 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. Those exempt are:
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Australian citizens
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New Zealand citizens
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Australian permanent visa holders
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Foreigners purchasing property as joint tenants who have a spouse which satisfies one of the above.
Getting a home loan in Australia as a foreigner
Obtaining a home loan as a foreigner is no easy task in Australia. Many lenders require all prospective borrowers to be either an Australian citizen or permanent resident. Lending institutions often aren’t set up to appropriately assess and deal with overseas borrowers, so they are typically looked at as higher risk. Those who do offer home loans to foreigners often implement stricter restrictions than they would typically impose on Australian borrowers. For example, foreigners may be required to front a larger deposit for the property, greater than the typical 20% threshold usually recommended.
The following are some of the Australian lenders that deal with foreign borrowers:
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Commbank
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Westpac
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ANZ
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NAB
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HSBC Australia
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ING
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Bank of Sydney
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Bank of Melbourne
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Suncorp
How much Australian property is owned by foreign investors?
For transparency, the Foreign Investment Review Board (FIRB) established the Register of Foreign Ownership of Residential Land. The most recent period captured is from July 1st 2020 to June 30th 2021, and recorded the following:
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There were 5,310 Australian properties bought by foreign investors, valued at $4.2 billion
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Of these properties, 83.3% were in Victoria, Queensland or New South Wales
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Overall purchase transactions across Australia fell by 29%
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3,103 properties were sold by foreign owners, with a total value of $2.7 billion
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There was a 58.6% increase in sale transactions compared to 2019/20
The FIRB noted some of the reasons that might explain why the number of foreign investors in Australia is declining:
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Tightening of domestic credit and increased restrictions on capital transfers in home countries
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State taxes and foreign resident stamp duty increases
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Higher foreign investment application fees.
Should we let foreigners buy Australian property?
At the start of the year, the Canadian government introduced a temporary policy prohibiting foreign investors from purchasing residential Canadian property for the next two years. Canadian Prime Minister Justin Trudeau said “profiteers, wealthy corporations and foreign investors” were putting pressure on the housing market.
“This is leading to a real problem of underused and vacant housing, rampant speculation and skyrocketing prices,” Mr Trudeau said.
This is a policy many in Australia feel we should imitate. Australian Senator Pauline Hanson for one believes it’s an easy fix for the housing crisis. It seems it’s a common sentiment: according to an Essential poll, 68% of the Australian public support further restrictions on foreign investors.
It’s unclear whether this would have the intended effect. Take Canada for example, where despite the ban being introduced at the start of the year, the four months to May saw an increase to property values according to The Canadian Real Estate Association.
Still, it’s understandable to be indignant about the idea of Australians unable to get into the housing market because overseas investors keep snapping up all the houses. However, as Investorkit head of research Arjun Paliwal told Savings.com.au’s sister site Your Investment Property, it’s important to remember the positives foreign investment brings.
“New dwellings represented 68.6% of [transactions by foreign investors], followed by 18% for vacant land, and 13.4% for established dwellings in 2020‑21. This means foreign buyers are supporting housing supply creation,” Mr Paliwal said.
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 the proposed investment increases the housing supply, it’s likely to be approved by the Treasury. While we are in the midst of chronic housing shortages, this seems like quite an important part of our economy.
If you’re a foreigner looking to buy down under, it’s worth speaking to a local professional who can help ensure you’re getting a good deal and walk you through the process.
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Article first published 13 November 2020 by Alex Brewster. Updated 10 July 2023
Image by Tania Richardson via Unsplash
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