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There are many reasons why a non-Australian wants to invest a property in Australia. Some reasons like accommodation for their child who studies at an Australian University, a retirement planned home or just for investment. Ownership of Australian property is a trouble-free, secure freehold investment with potential for capital gain and a regular income stream as well as many other advantages compared to what some bad rumours might have indicated.

Whatever your reasons for wanting to invest in an Australian property, he most important factor is buying the right location and property. In property there are a series of legal, financial, governmental and tax issues to be looked at. This guide to the various steps overseas investors must take to investing real estate in Australia will help everyone to have a better understanding of what it is all about.

Where to invest in Australia?

Although Australia is a huge continent, only certain cities have been the most preferred location to invest by overseas investors. Most preferred cities in sequence are: Sydney, Melbourne, Gold Coast, Brisbane and Perth.

Sydney and Melbourne are long established cities and are the centres for business, immigration, education, financial markets, universities, transportation and arts and entertainment.
Gold Coast and Brisbane in Queensland are newer areas with more focus on tourism, leisure and retirement. Although there is a lot of real estate development in Queensland, the area is subject to greater price fluctuations and therefore a riskier proportion for investors than Sydney or Melbourne.

Australia's major capital cities are generally developed around a Central Business District (CBD) at their geographic centre. Surrounding the CBD are called "inner suburbs". These older suburbs have been rejuvenated with new homes, entertainment and leisure facilities. Surrounding the inner suburbs are the further outsuburbs that are characterised by individual detached homes on a block of land with a front and rear garden.

Investors should take note that generally speaking the closer a location is to the CBD the higher the rate of capital growth, even if the land size is smaller just like district 9 and 10 in Singapore.
Overseas Investors should also do some research of the area they are thinking of investing in. A residential property that is not well located will be harder to rent out than a property in a better location like nearer to the Universities. Most properties are 1, 2 or 3 Bedroom apartments which feature good security and common facilities such as a swimming pool, gymnasium and a secured car parking. Houses will generally provide a lower net rental income than an apartment. Overseas investors are strongly advised to proceed with caution if considering buying a house instead of an apartment if the purchase is for investment reasons. Rental yield for houses are lower.

The Sales Process.

The most common way for an overseas purchaser to buy property is through a "private treaty sale", or "off-the-plan" from a developer (see below). A private treaty sales is a sale that is negotiated privately between the buyer and seller (or seller's agent).

On signing the Contract of Sale the purchaser is required to pay a 10% deposit which is held in a trust account until settlement which is when legal freehold ownership passes from seller to buyer. Settlement (completion) normally occurs 60 or 90 days (longer terms are sometimes available) after the signing or "exchange" of contracts.

In some states and under some circumstances here is a "cooling off period". The cooling off period is often used by the purchaser to have certain inspections made on the property like defect inspections, etc. If there are any problems the purchaser can opt out of the contract and have their deposit refunded except for 0.25% which is kept by the seller.

If you decide not to proceed with the purchase after the cooling off period has lapsed then the seller does not need to refund your deposit.

Foreign Investment Review Board (FIRB) approval.

For an overseas investor to buy property in Australia, they must have the Australian Government's Foreign Investment Review Board approve them to buy the particular property. The Australian Government has laws which determine what foreigners can or cannot buy Australian property. If you purchase a property without FIRBapproval, and are not subsequently granted approval, then the sale cannot proceed and you will forfeit your 10% deposit.

If you do purchase without FIRB approval ensure that the contract includes a clause that allows 30 days to get FIRB approval. Overseas purchasers should be aware that approval is not normally granted for the purchaser of single older properties for investment.

Buying "Off-The-Plan": a better way for overseas purchasers.

One of the most popular, as well as easiest, most reliable and least time consuming ways for foreigner to enter the Australian real estate market is to purchase "off-the-plan" (i.e. Before construction has commenced) from a reputable developer. The developer will normally already have obtained FIRB approval for overseas purchasers to buy into the project. You need only pay 10% deposit with no more payments until completion which may be 1 to 2 years away. It is important to select a reliable developer with an established track record of good, completed properties. Otherwise there is a risk that the project may never get started or completed. This would mean that your 10% deposit could be held up for some time and the project will be delayed.

In the State of Victoria, an additional advantage to buying "off-the-plan is you can save thousands of dollars Stamp duty (a State Government tax) by purchasing before construction has commenced.

Law Firms and Conveyancing.

The seller or developer will have the contract of sale available for perusal for any property you are interested in purchasing.

It is important to make an initial check of the contract to see if there are any special conditions or restrictions on the property that you should be aware of. Information in the contract will include: he names of the seller/s, he address of the property, the price, details of any chattels (these are items that are included in the sale such as light fittings, carpets, etc) and local government zoning (which states what activities can be legally conducted from the property).

Contracts of Sales can be very long, detailed and confusing, so it is best to leave it to your appointed Australian qualified solicitor to examine the contract on the purchaser's behalf.
If you do not know a solicitor, Ray International can recommend one to you or usually the developer will have one. However, it is not advisable to use the same solicitor as the developer uses as there might be a conflict of interest.

The next step is conveyancing and this is the process by which ownership of a property is transferred from the seller to the buyer and your appointed solicitor shall take care of all legal matters for you.

Costs in Purchasing Australian Property.

When purchasing investors should take note that there are "extras" and certain duties that need to be paid to State and Local (Municipal) governments. The major extra charge is Stamp Duty, a State Government tax (GST) levied as a percentage of the purchase price.

Other charges are:
• Registered of Mortgage
• Land transfer registration fee
• Registration of Title Deed
• Municipal/council rates (covers the cost of local services such as garbage removal, street maintenance, etc.)
• Water Rates (covers provision of clean water and sewerage removal). The owner pays a basic service provision charge and the tenant or occupier pays for water and sewerage usage.

These charges can vary from one city to the next. Check with the developers or the marketing agent as to what the actual charges are for the property that you are interested in.
There are also bank administrative fees, interest changes that you should find out before choosing that loan package. Such fees may include Stamp Duty (on the loan amount), property valuation fee, loan establishment fee, legal fees and any other servicing fees. Please take note that the home loan market is very competitive so it is important to shop around for the best bank not only the one with the lowest fees. Most of the major Australian banks have offices in the world's major cities and also offer very competitive financial packages to overseas investors.

Other expenses to take:

• Solicitor's conveyancing fees
• Insurance on the building and contents
• Body corporate fees if a body corporate is in place.
• Maintenance. The owner is responsible for structural repairs and ongoing maintenance (such as hot water, heating, etc.)

Tax Deductions.

There is virtually no tax to pay on a new property investment due to the large number of available deductions. Rental income from the residential property is taxable at the owners Australian personal income tax rate or the company tax rate if the property is owned by a corporation. Taxable income can be minimised by deducting the following: interest on the principle borrowed, loan fees, municipal rates, water rates, body corporate charges and agency fees. Purchasers can appoint an Australian accountant to organize a yearly return for them. Foreign investors need only declare Australian sourced income.

Capital Gains Tax.

In Australia, investors may pay a Capital Gains Tax on the capital gain (profit) on the sale of real estate. This applies to property that was purchased after September 19, 1985. A person's primary residence is Capital Gains Tax exempt provided it is not used for earning income. The tax is levied on the actual capital gain after it has been adjusted for inflation and other tax deductions not claimed against rental income. The effect of these deductions is to greatly reduce any potential tax on the investment.

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