Buy Your First Home with Confidence

Ever wonder about the overall cost of buying real estate in Australia? When it comes to buying property in Australia, you might be wondering, what are those costs, and how will they affect the bottom line? As a general rule, besides the 10% deposit, you need to pay for an off the planned project (i.e. under construction project), you should also expect to pay roughly 5% of the purchase price for various expenses associated with buying a property. Below you will find a rough estimate of the purchasing costs for your preparations when you are buying/investing in a property in Australia. [UPDATED 5th July] What are the 10 costs when buying or investing in Australian Property? 1. Legal fees Often AUD 800 to 2,500 depending on the type of property. 2. Loan establishment fees Usually AUD 0 to 1,000 depending on the lender. Private funders tend to charge a higher establishment fee. 3. Stamp duty (state government taxes) Applicable for both local and foreign buyers. From around 3.5% to 5.5% depending on the state. 4. Additional foreign stamp duty 7% or 8% of the purchase price. Due to variation in stamp duty prices within different states in Australia, you may refer to the foreign citizen stamp duty for the exact numbers in each state. 5. FIRB approval fees Starts from AUD 6,350 onwards. Fees may vary based on property value and whether you are a temporary resident or foreign investor with no visa to Australia. This fee is subject to change every year. 6. Property inspection fees Normally around AUD 450 to 800 depending on the type of property. 7. Land tax An annual tax payable by owners of the land. Land tax is administered by your state or territory government and is applicable everywhere except for the Northern Territory. The tax will vary, depending on which state you purchase your land and if there is a tier as well. Refer to the Australian Tax Office (ATO) for more details. 8. Land tax Surcharge If you are a foreigner who owns residential land in Australia, you must pay a land tax surcharge in addition to any land tax you may already pay. This varies from state to state and ranges from 0.75% to 2% of the land price. 9. Buyers’ agents’ fee Varies depending on the nature of the services provided. 10. Other minor costs Building insurance, council rates, water rates, adjustments, etc. It will always be good to refer to your conveyancer or solicitor for an exact breakdown of the costs associated with your real estate purchase.   Additional costs for investing in Australian property Capital Gain Tax (CGT) If you sell a capital asset, such as real estate or shares, you usually make a capital gain or a capital loss. This is the difference between what it costs you to acquire the asset and what you receive when you dispose of it. You need to report capital gains and losses in your income tax return and pay tax on your capital gains. Although it's referred to as capital gains tax (CGT), this is actually part of your income tax, not a separate tax.   Annual Vacancy Rate In December 2017, the Australian Government introduced a vacancy fee for foreign owners of residential dwellings. The annual vacancy fee is levied on foreign owners of residential real estate where the property is not occupied or genuinely available on the rental market for at least six months in a 12 month period. The fee is intended to encourage foreign owners of residential real estate to make their properties available for rent. They are not occupied as a residence and increase the number of properties available for Australians to live in. The ATO will assess the vacancy fee amount payable following lodgement of the vacancy fee return by the foreign person. Where a vacancy fee return is not lodged on time (within 30 days of the end of each vacancy year), the foreign owner of the dwelling is taken to be liable to pay a vacancy fee regardless of the number of days during the vacancy year on which the dwelling was residentially occupied. Generally, the vacancy fee payable will be equivalent to the residential land application fee that the foreign person paid when the application for foreign investment approval was made to purchase the property (i.e. FIRB). For further information on residential land application fees, see Guidance Note 29. In the case of joint tenants, only one return needs to be lodged, and only one fee will be payable. For tenants in common, each tenant will need to lodge a return, and the fee payable will be the foreign investment application fee that was payable by each tenant. A property is co-owned by a foreign person and a non-foreign person; the non-foreign person will have no liability to pay a vacancy fee.   Property Management Fee If you’re buying the property as an investment and intend to rent out your property, you have two options. You can either manage the property yourself, or you can use a property manager. Professional managing agents will look after every aspect of your tenancy. Their job includes collecting the rent, maintaining financial records, conducting regular property inspections, handling any disputes and arranging all repairs that need to be done. Most property managers charge a percentage of the weekly rent as a management fee, usually around 7-20%, depending on the state and service. If it is a short term rental, generally, agents will charge higher rates. Some agents will charge a higher % to cover all the miscellaneous possibilities, whereas some will charge a lower % to show more competitive packages, yet may include other expenses.   Agent’s Commission & Fee You should also expect to pay additional one-off fees, i.e. 2 weeks’ rental when agent’s find a new tenant. If you sell your property, an agent’s commission is calculated as a percentage of the home’s sale price. Commission levels vary from state to state and suburb to suburb, so please check with your respective agent. Selling a house costs money. Your agent will generally utilise a variety of channels to advertise your home. These may include online real estate portals, real estate magazines, newspaper ads and window displays. The cost of this advertising will be passed onto you in one form or another. Some agents include advertising and marketing costs in their commission, while for others, this is an additional fee. Likewise, some agents charge a flat fee while others charge based on a percentage of the sale price. According to LocalAgentFinder, you can usually expect advertising and marketing fees to run between 0.5% and 1.0% of the property's sale price.   Tax Depreciation When a building gets older and items within it wear out, they depreciate. The ATO governs legislation that allows owners of any income-producing property to claim a tax deduction for this wear and tear. Essentially, there are three components to a depreciation schedule. The first is Capital Works Depreciation; the second is Depreciation on Plant & Equipment and the third is Renovations and Improvements. Capital Works Depreciation is based on the original construction cost. Depreciation on Plant & Equipment is where carpets, blinds, ovens and many more items can be depreciated at accelerated rates. Renovations and Improvements allow for capital improvements done to the property. Claiming depreciation deductions is a significant taxation benefit and one of which many investment property owners are unaware of. Depreciation is a non-cash deduction, meaning you do not need to spend any money to claim it. Property investors generally need to enlist a Quantity Surveyor to complete comprehensive capital allowances and tax depreciation reports or schedules to claim depreciation deductions. When completed, a tax depreciation schedule outlines the deductions available for both capital works and plant and equipment assets, and this is used each financial year when preparing tax returns. Normally the report will cost about AUD 450 to 1,000 depending on the type of the property. You can check with your tax consultant.   Landlord Insurance Landlord insurance covers several must-haves for investment property owners that are not covered by other types of home and content insurance policies: Theft or burglary by tenants or their guests Malicious damage or vandalism by tenants or their guests Loss of rent due to tenant default Legal expenses required to evict a tenant A good quality landlord insurance policy protects you against several things that other home and contents insurance policies do not cover. And the good news is that because it is an investment expense, your policy premium is tax-deductible. The cost of landlord insurance varies between states and territories and also varies by the risk associated with your property’s postcode. Normally it starts from AUD 400 onwards a year. FAQ Can A Foreigner Buy Property In Australia? Foreigners can buy property in Australia as long as it categorized as investment, and you need to get government approval in order to buy property in Australia. Can I Stay In Australia If I Buy A House? Once you get approval from government, foreigners on temporary visa including spouse visa are allowed to purchase single established dwelling or new dwelling in which to live during their time stay in Australia. Can You Buy Property In Australia As A Permanent Resident? Australian permanent residents have the same rights as Australia citizens There are no government restriction for permanent residents.  Updated: 5th July 2021 The above costing is subject to changes by the Australian government every year. Hence it is always advisable to check with the agents/solicitors/tax consultants for the updated fee. Investing in Australian property can be a smart and lucrative business when done properly. Through IQI, we can provide you with assistance in your investment journey and ensure you will enjoy the benefits at the end of the day.  Please leave your details below, and one of our esteemed team members from the International Sales will be in contact soon. Mandy Chen wrote this article. [hubspot type=form portal=5699703 id=2380afe3-ad4c-4cfa-9abf-d3947e377bf2]

Any support and assistance from our Government is always a bonus. We Australians are very blessed to have a government that is innovative and always finding solutions to help the people it serves – especially for our younger generation and first homebuyers. Despite all good intentions however, I think it is crucial to select the right applicants. Otherwise, we will probably do more harm than good when helping those who are not yet ready for a long-term loan commitment. By simply owning a home with a small deposit, we may even be risking taxpayer money if those first home buyers default on their loans. To make property ownership more achievable, I think we do need to educate our younger generation to be more open minded and flexible. From saving plans, managing their finance, to only spending within their means, all these vital lessons are not incorporated into our education system – but are so important for the younger generation to learn. Also, we all need to accept that the home ownership dream will not always be a huge home with a backyard. We need to forget about the big backyard as our population is growing, unless we choose to live far from amenities. We need to encourage infill area by changing the zoning size with smaller houses, or more apartment living, by providing practical benefits like cheaper stamp duty as well as lower council rates. We must make this kind of living more affordable, not just for the younger generation, but also for retirees and downsizers, so that they don’t need to pay high yearly expenses to enjoy apartment living. Apartment living must be made an attractive option, instead of the last option. When more people consider apartment living and support our government in fulfilling this vision, we can reduce urban sprawl. This also means less money needs to be spent on continuing to extend freeway and train services or building amenities to support such small populations. For me personally, urban sprawl isn’t practical given public transport is empty most of the time as commuters prefer driving. As a real estate agent, I strongly believe people who invest or purchase apartments have contributed to the community by creating jobs. Quality surveyors, builder, electrician, drafter, town planner, architecture, brick layer, suppliers for building materials, the transport industry, real estate agent, banker, broker, settlement agents etc. The fact still remains, new and continuing developments create jobs and keeps Western Australia’s economy moving. Read more: Wamn News

Before you start thinking of investing in Australian property, it is important to understand the buying process and the rules in Australia. You may have a preferred location but it’s always good to speak to a real estate agent who can offer you some advice to help you select a good location with great returns. Here is a buying guide for your reference: 1. Organise your team of professionals Conveyancer You’ll need a conveyancer or a solicitor to take care of the legal work for you. Their job is to complete searches on the property, manage the transfer of ownership and review the contract before you sign it. Keep in mind that your appointed conveyancer must be in the same state as the property you’re buying or at least be licensed to deal with that state. For Western Australia (WA), they are called settlement agents. Mortgage Broker A good mortgage broker, with experience in helping foreign buyers to apply for a mortgage is very crucial when buying Australian Property. Currently there is a lending restriction imposed by the Australian Government for foreign buyers. Local Australian banks have stopped lending to foreigners since 3 years ago. The only options to obtain a mortgage for foreign investors are through private lenders and some Malaysian Banks such as Maybank, CIMB and OCBC or UOB Singapore.  If you are an “HSBC premier customer”, then HSBC Australia will offer you their lending services. Tax Accountant It is important now to obtain a tax file even if you are a foreign investor. Hence it’s best for you to appoint a tax consultant/accountant to manage your property investment. Your tax accountant can help you structure your finances and save your money on tax, since property purchases are on Australian tax legislation. They will advise you on the relevant tax allowance when it comes to offsetting your rental income or capital gains from selling Australian Assets. If you’d like to set up Australian companies or trusts to hold your investment, then you’ll definitely need an accountant. Buyer’s agent A buyer’s agent is also very useful if you’re located overseas and you are not sure about the buying process in Australia. They are able to source the right property for you based on your requirements and negotiate the best deal with a developer on your behalf. They’ll deal with the real estate agents for you and ensure that the property you’re buying represents a good opportunity. Also, if you can’t physically inspect the property you’re buying when it’s ready for settlement, don’t worry. A professional agent will be able to assist your purchase from the beginning till the end by offering a one-stop solution for you, making it hassle-free. 2. Applying for a mortgage In order to qualify for a mortgage, it’s essential that you obtain a pre-approval before you begin looking for properties. However, the lending criteria for non-residents can be very complex and, for foreign investors as mentioned, only a handful of lenders are willing to lend at the moment. There is a guide on the best available Australian interest rates for foreign investors. You need to prepare all necessary loan documents, such as payslips, tax returns and even an employment letter to prove your income. There are specific lending guidelines for the following categories: If you’re a foreign citizen looking to buy an investment property in Australia. If you’re living in Australia on a temporary visa such as a work visa or a spouse visa. If you’re an Australian citizen looking to buy real estate in Australia. 3. Get your loan pre-approved It’s essential for you to get your mortgage pre-approved before you begin looking for a property. Good properties don’t stay on the market long! The buyer with a pre-approval usually snaps up the best investments while the others are still putting their mortgage applications together. More importantly, you know that you’re eligible for a loan and how much you can borrow. Why waste your time looking for a house or unit only to find out that you can’t get a loan? 4. Confirm if you qualify with FIRB If you’re a non-resident or a temporary visa holder, you’re legally required to get permission from the Foreign Investment Review Board (FIRB) to buy property in Australia. Australian citizens, Australian permanent residents and New Zealand (NZ) citizens don’t require FIRB approval. Getting a FIRB approval is a simple process and usually takes up to two weeks from the date the application is lodged. Fees can vary depending on the value of the residential property or land that you want to purchase. Below are the fee schedules based on 2018 guidelines (it is subject to change every year): $1 million or less: $5,600 $1 million to $1,999,999: $11,300 $2 million to $2,999,999: $22,700 $3 million or $3,999,999: $34,000 $4 million or $4,999,999: $45,400 $5 million or $5,999,999: $56,700 $6 million or $6,999,999: $68,100 $7 million or $7,999,999: $79,500 $8 million or $8,999,999: $90,900 $9 million or $9,999,999: $102,300 $10 million and above, you need to contact the Australia Taxation office to get a fee estimate (as fees are tiered per million) You won’t actually need to apply for FIRB approval until you’ve found a property. Usually if you do not have any criminal offences and/or you are not blacklisted by Australia government, your FIRB will be approved. However, you should investigate their requirements so that you don’t buy an ineligible property for foreign investors. 5. Find a property  Now is the time to visit Australia and begin your search for a property. Make sure that you compare your properties to other properties that have sold outside of the development so you get a more accurate value. Often the bank chosen by your mortgage broker will value the property. If you are buying a high-risk postcode, as determined by the bank, chances are, the valuation will come in short. In Australia, your mortgage will be based on your valuation at the point the property is ready for settlement and not according to the purchase price as per your contract signed. Always buy into the area where locals’ demand is higher and not the investor’s stock. Selling will be easier if it is a local area as you can only sell to locals or PRs when the time comes to exit. “Buy what locals want and not what you like,” is a good guideline if it is purely for investment purposes and not for own stay. 6. Signing A Contract You can ask for a contract before signing and ask your solicitor or conveyancer to look at the contract and add any additional conditions if necessary. A common condition is that the sale is “subject to FIRB approval” which allows you to cancel the contract in the unlikely event that you don’t get approval from the Australian government. Each state in Australia has its own property laws, so use your conveyancer or solicitor’s expertise to help guide you. If the vendor allows a cooling off period, you can put a holding deposit and sign the contract. Refer to your conveyancer or solicitor, they’ll let you know what checks you have to do before buying and will let you know when it’s safe to sign the contract to buy the property. 7. Exchange contracts and pay your deposit You can exchange your contract after your loan has been formally approved and your solicitor or conveyancer gives you the go ahead. Normally, you’ll need to put down a 10% deposit. Note that once you’ve committed to a property, you can’t back out, so please seek legal advice before signing any contracts or paying your deposit. 8. Seek FIRB approval It’s very important that the contract you’re signing has the clause “subject to FIRB approval” and 30 days must be allowed for a FIRB decision. At this point, it’s vital to check with your conveyancer or solicitor that the clause is stated in such a way so as to ensure that if your FIRB proposal is rejected, you won’t lose your deposit. A FIRB application is simple to do and will usually be taken care of by your conveyancer. You may need to provide a copy of the approval to your lender prior to your loan being advanced. 9. Final Arrangements Once you have exchanged the contract, forward a copy of the signed contract to the FIRB for approval. You can get help from your conveyancer or solicitor. To accept the loan offer, sign the appropriate sections and return the loan documents back to the bank. Perform a final inspection on your property the day of settlement. This can be completed by your buyer’s agent if you’ve hired one. 10. Settlement “Settlement” is the term used when the property is completed and ready to  settle. This will be handled by your conveyancer or solicitor in conjunction with your bank and mortgage broker so you don’t need to be there for this to happen. The title for the property is held by your lender for safe keeping and the keys are available for pick up from the selling real estate agent or developer.   Liked what you read? Check out this article next: Top 9 Places in Australia to Invest in an Apartment [hubspot type=form portal=5699703 id=2380afe3-ad4c-4cfa-9abf-d3947e377bf2]