Investing in Australian residential real estate has become increasingly popular with foreign investors looking for stability, growth, easy investment process and opportunities Australia has to offer.
While conveyancing practices are well established in Australia and understood by the purchasers and vendors, there are a number of specific matters and practical aspects involved in the purchase of Australian residential property by foreign investors who are neither Australian citizens nor permanent residents. To ensure successful completion of the purchase, both a foreign purchaser and the vendor need to be familiar with them and plan ahead.
What follows is an overview of specific items to consider if the proposed purchaser of residential property is a foreign investor.
Foreign Investment Review Board (FIRB) Approval
Generally, any purchase of Australian real estate by a foreign investor requires approval from FIRB. A foreign investor must not acquire an interest in Australian land without such approval. Therefore, the respective purchase contract should be made conditional on FIRB approval and clearly set out what happens if such approval is not obtained. A foreign investor can then apply for FIRB approval online, pay the applicable fee and expect a response within 30 days.
Foreign investors are normally given approval to buy:
- Vacant land for development, including house and land packages where construction has not commenced, subject to a condition that construction is completed within a certain period of time; and
- New dwellings, including house and land packages, apartment units and townhouses purchased ‘off-the-plan’ that is under construction or newly constructed but never occupied or previously sold.
In this respect, a new dwelling is a dwelling that has not been previously sold by the developer and has not been previously occupied for more than 12 months. New dwellings also include those that are part of extensively refurbished buildings where the building’s use has undergone a change from non-residential to residential. It does not include established residential real estate that has been refurbished or renovated.
Foreign investors cannot normally purchase established properties as either residences or investment properties. However, they may be able to buy established dwellings for re-development involving a demolition of the existing dwelling and a new construction where this increases Australia’s housing stock. FIRB approvals in such situations are usually subject to specific conditions.
Furthermore, certain categories of foreign investors who hold a visa that permits them to reside in Australia continuously for at least 12 months may be given approval to purchase established residential property to use as their principal place of residence in Australia. A condition of such approvals is that the property must be sold when the foreign investors’ temporary visas expire, they leave Australia, or when the property is no longer used as their principal place of residence.
Also, foreign investors who operate substantial businesses in Australia may obtain FIRB approval to purchase established dwellings to provide accommodation to their Australia based staff. Such approvals are normally given subject to conditions requiring to sell the property if, for example, the accommodation is unused for a certain period of time.
A foreign investor will not need to separately apply to the FIRB for approval if he or she is purchasing a new property from a developer who has already received pre-approval from FIRB to sell it to foreign investors. However, you should review the conditions imposed by FIRB on such pre-approval to satisfy yourself that your particular purchase is covered and no further action is required from the foreign purchaser.
Purchasing Using a Company or Trust
If you are considering purchasing residential property using an Australian company or trust, you should note that Australian incorporated companies or established trusts where a substantial proportion of the shares or units are beneficially held by a foreign person are deemed to be foreign and therefore require FIRB approval.
Power of Attorney
If a foreign investor who are looking to purchase property in Australia does not have the advantage of being readily available to sign the contract upon completion of negotiations, he or she should consider appointing an attorney to sign on his behalf. A Power of Attorney prepared for this purpose has to satisfy Australian law requirements and be acceptable for registration in the state where the property is located.
The initial contractual documentation is normally prepared by the vendor’s solicitors and may contain a warranty that the foreign purchaser has already obtained FIRB approval. Unless the foreign purchaser has indeed obtained such approval or the property is subject to a sufficient FIRB exemption certificate obtained by the vendor, a contract needs to be made conditional on FIRB approval. Furthermore, it should specify what happens to the deposit already paid by the purchaser if he or she is not successful in obtaining the required approval.
Apart from using their own funds to purchase residential property in Australia, foreign investors may consider obtaining a foreign currency loan or an Australian dollar denominated mortgage to finance the purchase. In any case, the funds should be available to them or their finance approved before entering into the contract. The matters to consider here include foreign currency exposure, bank charges for international money transfers, bank requirements and applicable interest rates.
The costs to buy residential property in Australia, including purchase price, FIRB application fee, stamp duty and surcharge on this duty for foreign investors, land transfer registration fees, can be quite substantial and need to be taken into account when considering the purchase.
For example, in NSW a 4% stamp duty surcharge applies to the purchase of residential real estate by foreign purchasers starting from 21 June 2016. Furthermore, foreign investors are no longer entitled to the 12 month deferral for the payment of stamp duty for off-the-plan purchases of residential property in NSW. Therefore, both the stamp duty and surcharge will have to be paid within 3 months after the date of the contract.
Pavuk Legal can provide you with legal advice regarding foreign investors purchasing Australian real estate, including meeting FIRB compliance requirements, thoroughly reviewing contractual documentation in respect to your purchase and assisting with other matters.
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