The rules around foreign ownership
With every man and his dog seemingly having an opinion on who can own property in Australia, it can prove difficult to sort the fact from the fiction.
People from all walks of life wish to achieve the Australian dream of owning their own strata residence, but for those who are not normally a resident here it can be a long and drawn out path.
For this reason, the federal government has a strict set of laws that determines that would-be purchasers it classes as ‘foreign persons’ must seek approval from the government’s Foreign Investment Review Board (FIRB) before any money is exchanged.
Following concerns that overseas buyers were driving values up and pricing first home buyers out of the property market, in December 2015 the Australian Government introduced new laws to make it more difficult for overseas investors to purchase Australian property.
As the legislation stands currently, non-resident buyers can only purchase new properties, off-the-plan apartments and vacant land. They are not entitled to purchase existing homes.
According to FIRB, a new dwelling must be built on residential land, must not have been previously sold as a dwelling, and must either: Not have been previously occupied or if the dwelling is part of a development and was sold by the developer of that development, not have been previously occupied for more than 12 months.
If, as a non-resident buyer, you want to buy vacant land for development, the laws stipulate that the development must be completed within four years of approval.
There is also the option of purchasing an established dwelling for redevelopment as long as the redevelopment increases Australia’s housing stock.
In addition, foreigners who want to buy an Australian investment property must pay an application fee. This fee is $5,000 for properties valued under $1 million, and $10,000 for properties over $1 million.
It then increases by $10,000 for each additional million dollars in property value. It should be noted, however, that paying this fee does not guarantee that a buyer will be able to purchase the property they want.
Those who refuse to abide by the rules also face stiff penalties if caught. Non-residents who purchase property in Australia without first seeking approval from the FIRB can potentially face fines of up to $135,000, three years’ imprisonment or both.
Companies breaching these rules can be fined up to $675,000, while buyers’ agents and real estate agents who help foreign buyers violate these rules may also face severe financial penalties.
Australian and New Zealand residents living abroad and who wish to invest in a strata residence in Australia are exempt from the strict foreign investment laws but may face other challenges.
Lending restrictions imposed by some banks may have an impact on your ability to qualify for a home loan, however this will vary from person to person depending on your residency status and the lender with which you apply for a loan.
Many major banks altered their foreign investor lending policies once the legislation was brought in, including ANZ and Westpac which stopped offering home loans to non-residents while the NAB dropped its maximum loan to valuation ratio (LVR) to 60% – meaning overseas buyers need a deposit of at least 40% in order to get mortgage financing. Other regulatory changes have also had an effect with Chinese and South African authorities placing a cap on the amount of cash their citizens can take out of their respective countries.
It is recommended that any non-residents or offshore-based Australian or New Zealand residents looking to purchase a strata property in Australia first seek legal and taxation advice to make sure they satisfy all regulatory requirements.