Guide To Foreign Investors Buying Australian Real Estate

The ongoing strength and stability of Australia’s property market is continuing to attract a large number of foreign investors into the sector. If you’re looking to invest in Australia’s real estate, read on as Your Investment Property presents a definitive guide to the recent changes to the rules and regulations as well as the taxes and costs involved in buying a property in Australia.

Despite the current cyclical slow-down in price growth, the underlying fundamentals of Australia’s property market remains sound. In fact, Australia has continued to outperform many developing countries’ performances, with only a couple of Asian countries such as Singapore and Hong Kong recording stronger price growth according to the Global Property Guide. Australia’s economy is also the envy of the world, with its GDP rising by 2.7% on a yearon-year basis, and overall unemployment hovering around 5% during February. While the federal government has recently tightened its policies regarding immigration and foreign investments, the overall investment landscape remains open to foreign buyers.

Why the Rules have Changed

Fears that foreign buyers were driving excessive house price growth and forcing domestic buyers out of the market saw the government reinstate the rules it removed at the end of 2008 restricting foreign and temporary resident purchases of Australian residential property, according to Paul Braddick, property analyst with ANZ. During late 2008, at the height of the GFC, the federal government lifted the restrictions of rules on foreign buyers in the hope of boosting supply. “At the time, global economic uncertainty was also generating fears of potential collapse of Australian house prices. As it turned out, these fears were unfounded and Australian house prices rebounded sharply in 2009, in part supported by an influx of foreign buyers,” explains Braddick. “It appeared that relaxation of the foreign investment rules drove prices of established homes higher rather than directly stimulating supply.”

Braddick adds that housing shortages and affordability are set to become increasingly sensitive political issues and the decision to reinstate restrictions on foreign purchases of Australian residential property was widely expected in the lead up to the election. He points out that while no official data exists to quantify the impact of foreign purchases since the rules were relaxed at the end of 2008, widespread reports from the real estate industry suggest the rise in foreign buying has been significant. In addition, Braddick says anecdotal evidence indicates that foreign buying was particularly strong in the inner suburbs of Melbourne and Sydney which could go some way towards explaining the recent out-performance of these markets.

The Current Rule on Foreign Investors

Under current regulations, the acquisition of both residential and commercial properties in Australia by foreigners requires prior approval by the Foreign Investment Review Board (FIRB), which regulates a foreign investor’s ability to purchase assets, such as investment properties, in Australia. Unless a specific exemption applies (eg, a New Zealand citizen buying a residential property), foreign nationals are subject to certain restrictions imposed by the FIRB regardless of the value of the property and the nationality of the purchaser. In addition, temporary residents are compelled to sell the property when they leave Australia and are also required to commence development of undeveloped land within 24 months. Generally, foreign investors can acquire most types of real estate in Australia. The one exception is secondhand (not new) residential properties. Individual non-resident investors cannot acquire second-hand residential property. Individuals holding a ‘temporary resident’ visa (such as a 457 visa), can acquire second-hand residential property if they intend to live in the property. However, they cannot acquire it for investment purposes. Temporary residents are also limited to buying just one established dwelling. Foreign companies may acquire second-hand residential properties if they have the intention of providing it to accommodate staff, but only provided they undertake to sell or rent out the property if it remains vacant for six months or more. Other types of real estate, eg, vacant land, new residential property or commercial property are normally able to be purchased by foreign investors. However, prior approval is generally required before the investor can acquire the property. Investors should check whether FIRB approval is required before contracting to purchase any property.

Exemptions

The FIRB states that you do not need government approval to buy residential real estate if you are:

• an Australian citizen (living at home or overseas) or you are ordinarily resident in Australia

• a New Zealand citizen

• a foreign national who holds a permanent resident visa

• a foreign national buying a property as joint tenants with their Australian citizen spouse

Regardless of your citizenship or residency, you do not need government approval for:

• new dwellings bought from a developer who has pre-approval to sell them to foreign persons

• an interest in a time share scheme that allows you (and any associates) to use the property for up to four weeks per year

• certain residential real estate in Integrated Tourism Resorts (ITR) – the definition of these can be found on the FIRB website listed below

• an interest acquired by will or devolution by operation of law

• an interest acquired from a government in Australia (commonwealth, state, territory, or local) or a statutory corporation formed for a public purpose

These regulations extend to the indirect acquisition of property through Australian company and trust structures. Therefore, it is important for a foreign national to understand these rules before entering into any contract to purchase property in Australia. Further information on these FIR can be found out here.