Australia has become extremely attractive to foreign investors over the last decade or so and the ever-changing skylines of our major cities are direct evidence of this. Previously, there have been benefits and incentives for those living overseas and wanting to buy property in Australia. However, this all changed with the release of the 2017–18 Australian Federal Budget, which included a number of changes directly impacting on investment opportunities for foreigners.
There have always been certain rules and regulations applied to property purchases from foreign buyers and the new changes have made things more difficult to foreign buyers as well as developers, dealing mainly with foreign investors. There has been significant enough change that foreign investors may re-evaluate their decision to buy property in Australia altogether. Here are the top five things non-resident foreign buyers need to know.
1. FIRB Approval on residential purchases
The Foreign Investment Review Board (FIRB) regulates the investment activity of non-resident foreigners, choosing to invest in property or business in Australia. When it comes to residential property, there are a few conditions that affect the kind of property foreigners can buy. People living overseas who are not residents of Australia are not eligible to purchase pre-existing or established homes – meaning homes that are not new, have been lived in before and have had previous owners. Foreign investors can however buy a brand-new property, though they need FIRB approval to do so. The best opportunity for non-residents to buy into the Australian property market is to buy off the plan, or buy brand new apartments, direct from the developer, that have not been previously owned to someone else. The good news here is that for this, you do not require FIRB approval.
2. The 50% foreign ownership cap
Australia has experienced a boom in apartment construction in recent years, largely driven by interest and subsequent investment from foreign investors. Although off the plan and brand-new apartment purchases do not require FIRB approval, as of May 2017, developers have been placed under restrictions regarding how many dwellings in a development can be sold to foreigners. Any one development cannot sell more than 50% of dwellings in the development to foreign non-resident buyers. This 50% foreign ownership cap aims to more evenly disburse the demand from abroad and as a result, bring some much-needed to calm to the residential property market on the eastern seaboard.
3. Annual vacancy charge on empty residential properties
Sydney, Melbourne and Brisbane in particular have fallen victim to towering new apartment developments, close to the CBD, with little to no occupancy for months at a time. This has some impact on the rental market, however it also serves to dissuade local buyers in investing in ‘ghost town’ apartment buildings, where nobody lives. The vacancy charge will apply to new owners (non-resident foreigners) who have not occupied the property themselves or with tenants, or made it available on the rental market for a minimum six-month period in one year. When applying to buy property in Australia, a foreign investment application fee will be charged. The vacancy charge will be equivalent to this fee.
4. Fee increase for those applying to purchase residential properties
Foreign buyers have always paid an application fee as part of the process of purchasing residential property in Australia. As of 1st July 2017 however, a 10% increase on the fees charged previously has been implemented. Buyers applying to buy a residential property valued at $10 million dollars or less will be charged the fee. The fee varies depending on the type of investment being applied for and, more specifically, its value. The FIRB website has some helpful information about this, along with a handy Fee Estimator to help you calculate exactly how much you may be charged to apply for a residential investment purchase.
5. Streamlining processes and increasing opportunities
Although most of the above changes seem to have been designed specifically to dissuade foreign investors, there have been changes included that aim to simplify the entry process to the Australian property market. Two new exemption certificates have been introduced that offer some flexibility for residential purchases. The 50% foreign ownership cap certainly presents challenges to property developers, particularly with off the plan purchases not requiring settlement until construction is complete. Technically once the contract has been signed to purchase, the property is then defined as ‘established’, making it ineligible for purchase in the future by foreign buyers. The new exemption certificate however allows developers to resell these properties to foreigners in the instance where the property has failed to settle.
In addition, a subsequent exemption certificate allows foreign purchasers to only require one approval that can be used in consideration of numerous residential properties. The buyer’s intention must be to only purchase one property and although the certificate was previously available with regard to purchasing established dwellings, it is now being extended to be made available to purchases of new dwellings as well.
For more information about the budget changes and how they impact on your opportunities to purchase residential property in Australia, See the FIRB website, specifically the section on 2017 budget changes.