Buying Properties in Australia Rules and Regulations for Non-Residents

Australia has become an attractive destination for international real estate investors due to its buoyant residential property market, economic stability, natural beauty, and favorable climate. However, the rules for non-residents buying property in Australia can be complex and subject to regular changes, making it difficult for foreigners to understand the process of applying for approval to buy an investment property. Additionally, there are stiff penalties for breaches of the foreign investment rules. In this article, we aim to provide non-residents with all the information they need to understand the rules for buying a residential property in Australia.

Foreign Investment Review Board (FIRB) Rules

The Foreign Investment Review Board (FIRB) is the authority on non-resident property purchases in Australia. Any non-resident wanting to buy a residential house, apartment, or block of land in Australia must satisfy the rules laid out by the FIRB. Failure to obtain FIRB approval can result in fines up to AUD$157,500 and three years in prison for individuals, and penalties for real estate agents involved in breaches of the rules.

Types of Property Non-Residents Can Buy in Australia

The FIRB rules restrict the types of property that non-residents can buy. Since December 2015, non-residents may only buy new residential property, established dwellings for redevelopment, or vacant blocks of land for development. The Australian Government implemented this policy to encourage non-resident investors to add to the Australian housing stock rather than compete with residents for existing properties. However, there are exceptions to this rule.

Buying a New Dwelling as a Non-Resident

According to the FIRB, a new dwelling is one that has been built or is under construction and meets the following criteria:
– It has not been previously sold as a dwelling.
– It has not been previously occupied or has not been occupied for more than 12 months in total if it is part of a development sold by the developer.

New dwellings do not include established dwellings that have been renovated or refurbished.

Annual Vacancy Charge

Non-residents who buy Australian residential property but do not live in it or rent it out for at least six months of every year are subject to an annual vacancy charge. The amount of the charge is determined by the Australian Taxation Office (ATO) when non-resident owners of Australian real estate lodge their annual vacancy fee returns.

Paying Tax on Investment Property in Australia

Non-residents who buy an investment property in Australia must declare the income received by lodging an Australian tax return. The costs of maintenance of the property can be claimed as a tax deduction. If the property’s value increases while owned, capital gains tax (CGT) may also be applicable upon selling it.

Buying an Established Dwelling for Redevelopment

Non-residents can buy established dwellings for redevelopment, but certain conditions must be met. The completed development must increase the Australian housing stock, meaning at least one additional dwelling must be created. Other conditions include keeping the existing dwelling vacant prior to demolition and completing construction of the new dwelling within four years of approval.

Buying Vacant Land as a Non-Resident

Non-residents may buy vacant land for development after obtaining FIRB approval. Conditions for the development of the land include completing construction of a residential dwelling within four years of approval and providing proof of completion within 30 days. Vacant land that previously had an established dwelling on it is not considered vacant land by the FIRB.

Property Ownership for Temporary Residents

Temporary residents in Australia, including those on temporary visas or bridging visas, have some restrictions on property ownership. The FIRB defines a temporary resident as an individual who holds a temporary visa that permits them to remain in Australia for a continuous period of more than 12 months or is residing in Australia and has submitted an application for a permanent visa.

Temporary residents are allowed to purchase a single established dwelling or new dwelling in which to live during their time in Australia, once they receive FIRB approval. They can also purchase a vacant block of land for future construction. In addition to using the property as their principal residence, temporary residents must not rent any part of the property and sell it within three months from when it ceases to be their principal place of residence.

Temporary residents can also buy an unlimited number of new properties for investment purposes, subject to FIRB approval for each development.

Foreign Investment Review Board Exemptions

Certain individuals and types of property are exempt from the requirement to seek FIRB approval. Exempt persons include Australian citizens, New Zealand citizens, holders of Australian permanent visas, and foreigners buying property as joint tenants with their Australian citizen, New Zealand citizen, or Australian permanent resident spouse.

Certain categories of residential real estate in Australia are also exempt from FIRB rules, such as new or near-new dwellings purchased from a developer with the appropriate exemption certificate, aged care facilities, retirement villages, certain student accommodations, and properties acquired directly from the government.

Australian Banks and Foreign Lenders

Australian banks have become less accommodating to non-resident loan applicants in recent years, leading to a rise in non-bank lending from foreign lenders. Some established banks have ceased non-resident mortgages entirely, while others have lowered their loan-to-value ratio (LVR) for foreigners to around 60%. The LVR is the figure used by lenders to determine the level of risk of a borrower.

When to Apply for FIRB Approval

Non-residents must seek FIRB approval before taking an interest in any Australian residential property. An interest can include signing a contract to purchase a dwelling, having a security interest under a real property mortgage, holding an option to purchase in the future, or having a leasehold agreement. It is crucial to obtain FIRB approval before proceeding with any property transactions.

Changing Your Mind After Receiving FIRB Approval

If FIRB approval is granted but the sale of a property does not go ahead, the potential buyer must inform the FIRB of the circumstances.

In conclusion, non-residents and temporary residents face specific rules and regulations when buying property in Australia. It is essential to understand and comply with the FIRB rules to avoid penalties and fines. Seeking professional advice and guidance can help navigate the complex process of buying property as a non-resident or temporary resident in Australia.