Rules for Non-Residents Buying Property in Australia

Non-residents who are interested in purchasing property in Australia may find the process complex and subject to regular changes. The Foreign Investment Review Board (FIRB) is the authority responsible for overseeing and approving non-resident property purchases in the country. It is important for non-residents to understand the rules and regulations surrounding property ownership in Australia to avoid potential penalties and fines. This article aims to provide a comprehensive guide to the rules for non-residents buying residential property in Australia.

Foreign Investment Review Board (FIRB) Rules

The FIRB is responsible for regulating non-resident property purchases in Australia. Any non-resident who wishes to buy a residential house, apartment, or block of land in Australia must comply with the rules set out by the FIRB. Failure to obtain FIRB approval can result in fines up to AUD$157,500 and even imprisonment. Real estate agents involved in breaches of the FIRB rules also face penalties.

Types of Property Non-Residents Can Buy

The FIRB rules restrict the types of property that non-residents can purchase. Since December 2015, non-residents are only allowed to buy new residential properties, established dwellings for redevelopment, or vacant blocks of land for development. The Australian government implemented this policy to encourage non-resident investors to contribute to the housing stock in Australia, rather than competing with residents for existing properties. This policy also aims to prevent foreigners from driving up property prices through speculative investments. However, there are some exceptions to this rule.

Buying a New Dwelling

The FIRB defines a new dwelling as a property 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 if it is part of a development sold by the developer, it has not been previously occupied for more than 12 months in total.

It is important to note that new dwellings do not include established dwellings that have been renovated or refurbished.

Annual Vacancy Charge

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

Paying Tax on Investment Property

Non-residents who buy an investment property in Australia must declare the income received by lodging an Australian tax return. They can also claim the costs of property maintenance as a tax deduction. If the value of the property increases during ownership, non-residents may be required to pay capital gains tax (CGT) when selling the property.

Buying an Established Dwelling for Redevelopment

Non-residents can purchase established dwellings for redevelopment, but certain conditions must be met to increase the Australian housing stock. For example:

• The existing dwelling(s) must remain vacant prior to demolition and redevelopment.
• The existing dwelling(s) must be demolished, and the construction of the new dwelling must be completed within four years of approval.
• Evidence of the completed dwellings must be submitted within 30 days of receipt, such as final occupancy or builder’s completion certification.

Buying Vacant Land

Non-residents can purchase vacant land for development after obtaining FIRB approval. They must meet certain conditions, including completing the construction of a residential dwelling within four years of approval and providing proof of completion within 30 days. It’s important to note that vacant land with a previously established dwelling is not considered vacant land by the FIRB.

Rules for Temporary Residents Buying Property

Temporary residents of Australia, such as those holding temporary visas or bridging visas, have specific rules regarding property ownership. Temporary residents are allowed to purchase a single established dwelling or new dwelling to live in during their time in Australia, with FIRB approval. They can also purchase vacant land for construction purposes. Temporary residents must use the property as their principal residence while in Australia, cannot rent any part of the property, and must sell it within three months when it is no longer their principal place of residence. If permanent residency is obtained, the property does not need to be sold.

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

Exemptions from FIRB Approval

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 spouse, New Zealand citizen spouse, or Australian permanent resident spouse. Exempt residential real estate includes new or near-new dwellings purchased from a developer with an exemption certificate, certain aged care facilities, retirement villages, student accommodations, time share schemes, and properties acquired directly from the government.

Australian Banks and Foreign Lenders

Non-residents looking for home loans in Australia may face challenges with traditional banks, as many have become less accommodating to non-resident loan applicants. Non-bank lenders have emerged as an alternative for non-residents seeking financing options. Some established banks have ceased offering non-resident mortgages, while others have reduced the loan-to-value ratio (LVR) for foreigners to around 60%. The LVR is a measure of the loan amount compared to the property value, and a higher LVR indicates a higher level of risk for the lender.

Applying for FIRB Approval

Non-residents must seek FIRB approval before taking any interest in an Australian residential property. This includes signing a purchase contract, obtaining a real property mortgage, acquiring an option to purchase, entering into a leasehold agreement, or increasing the share of ownership in a dwelling. Any changes in circumstances after obtaining FIRB approval must be reported to the FIRB.

Conclusion

Non-residents interested in buying residential property in Australia must navigate complex rules and regulations set out by the FIRB. It is crucial to understand these rules to avoid penalties and fines. The types of property that non-residents can purchase are restricted, with a focus on new dwellings, established dwellings for redevelopment, and vacant land for development. Temporary residents have specific rules regarding property ownership, and certain individuals and property types are exempt from FIRB approval. Non-residents may face challenges with traditional banks and may need to consider non-bank lenders. Seeking professional guidance and obtaining FIRB approval are essential steps in the process of buying property in Australia.