S.I.M.M. Sales, Investment, Migration and Marketing

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1 S.I.M.M. Sales, Investment, Migration and Marketing Volume 1 / Issue 1 AUSTRALIAN PROPERTY INVESTOR GUIDE This Guide has been designed as an introduction to property investing in Australia. It is intended as an overview of the Foreign Investment Review Board (F.I.R.B.) requirements and to the processes involved in purchasing a property as a foreign investor. Australia is famous for its white sandy beaches, wide open spaces, Internationally recognized livable cities, Multicultural accepting society and acclaimed clean and green status. It is both politically and socially stable. Australia has consistently been ranked high in the World Competitive Yearbook as one of the most resilient economies in the world. Its strategic location and similar time zone to Asia, positions it well for large export market opportunities. Australia s progressive Immigration policies have driven strong population growth. Population now exceeds 23.8 million and is consistently been growing at around 1.6% Per annum. Australia is experiencing housing shortages and strong rental returns. For property investors this represents outstanding opportunities to buy low risk properties with potential growth in rental demand and therefore strong returns on investment. The stable Political, legal and financial structures in Australia make solid platforms for long term investment and decision making. Australian major cities will account for two thirds of underlying housing demand. If the current building trends were to persist, it is projected that Australia s cumulated housing shortage would reach 466, dwellings by 22. HIRA Housing to 22 WHY INVEST IN AUSTRALIAN REAL ESTATE? Historically Australian properties have been safe, consistent investments providing healthy returns. Add to this an under supply of enough housing for the number of people in the country and demand outstrips supply. Freehold title to the land. Good rent returns for investors over the longer term. 1

2 Real estate has proven to be a more stable, less voulitile investment than the share market. The attraction of property is the stability of income that it provides. Tax incentives, depreciation and potential for capital gains. Provides a hedge against inflation. Banks will lend against residential property, at lower interest rates than other types of investments. It is not necessary to sell the property to access potential capital gains. Strong Population growth supports the need for good quality, well located properties. Stable government, legal and financial structures. WHY INVEST IN WESTERN AUSTRALIA? Strong Chinese population. The Bank of China s biggest branch outside China is located in Perth. Strong Chinese migration. Under supply of housing. Perth population is expected to grow by 4 million over the next 4 years. Tremendous lifestyle, pollution free. Strong, stable government and legal systems. Friendly. Good returns on property investments in sought after areas. Low interest rates. WHEN TO BUY? There are many factors that you need to consider when buying real estate. When to buy is just one of them. Buying at the peak of a boom cycle is not normally a smart decission as you would have to wait longer to see any real appreciable increases in your investment. Buying in an area that is currently low but has strong fundamentals will ultimatly be a better buy. You will also need to look at your financing costs as this can also add up to substantcial amounts of money over the life of the loan. Location of the property will make it attractive to a wider rental market. Currency exchange rates can allow you strong uplift if buying at the right time. Buying the property at the right price will also determine your rate of return. Available rents within the area will dictate your income and therefore your return. Foreign investors, investing into Australia must purchase a new property. There are many benefits to buying a new property such as lower maintenance, tax savings and depreciation. So you can see there are many variables that need to be taken into account when buying real estate. If you try and determine the bottom of a market as your sole buying decision you will be waiting for a long while and possibly miss many good buying opportunities. Remember property should always be viewed as a long term investment. 2

3 For Investment properties, the tax office will allow you to claim the whole construction costs of the apartment, as well as every single item inside by way of depreciating fixtures and fittings. Australia has some of the lowest per square meter rates for properties in the world. HOW COMPLEX IS IT TO INVEST OVERSEAS? In reality there are only a few differences to buying property in your own country. The same fundamental process still applies in regards to the purchasing of property. Australia has a slightly different legal and accounting system. S.I.M.M. can assist and guide you through the whole process. AS AN OVERSEAS RESIDENT CAN I BUY AUSTRALIAN PROPERTY? The Australian Government has foreign investment policies in place that must be adhered to however it recognizes the strong benefits that foreign investment bring to Australia. Foreign investment is encouraged and is managed by the Foreign Investment Review Board (F.I.R.B.). Nonresident investors are able to invest in new or off the plan residential properties. The government policy ensures that the foreign investment into new housing stock assists in stimulating activity in the housing sector as well as increasing new housing stock. New properties, especially off the plan sales satisfy the F.I.R.B. requirements as long as the property has never been sold or lived in before. A dwelling that has not been previously sold and not been previously occupied (Such as tenants). For more than 12 months. The Foreign Investment Review Board (FIRB) must approve property purchases by foreign citizens. Specific properties can only be approved by the FIRB. You should not commit yourself to any purchase without FIRB approval. All buyers must apply to the F.I.R.B. for approval to purchase the property. The approval process is simple, free of charge and takes around 3 days for approval. We would also suggest your consultation with a solicitor in the contract offer process. Alternatively approvals can be made on line and generally you will receive a response within 3 days. 3

4 Please Note. Foreign citizens cannot normally purchase an established property. Foreign citizens can only purchase new dwellings and or vacant land which will be built upon within 24 months. OFF THE PLAN INVESTING? Off the plan purchase (prior to the development completion) is the most common way to buy apartments. Purchasing off the plan requires an initial holding deposit of 1% of the purchase price of the property. Contracts are then offered and must be signed within a 21 day period. All contracts must have a specific condition stating that the contract is subject to the approval of the F.I.R.B. and within a specific time frame. As stated previously the F.I.R.B. approval process is generally completed within 3 days of receiving the application. There are many benefits available when buying new properties such as tax depreciation, low maintenance, brand new appliances, latest construction methods and you will achieve higher rents from a new property. FOREIGN INVESTMENT REVIEW BOARD (FIRB) COSTS? The Australian Government has introduced application fees for FIRB approvals. The Australian Tax Office is responsible for managing compliance of the applications. These fees come into effect on December 1, 215. Real Estate Investment Value Proposed Fee (AUD) (AUD) Less than $1,, $5, $1,, to $1,999,999 $1, $2,, to $2,999,999 $2, $3,, to $3,999,999 $3, $4,, to $4,999,999 $4, $5,, and Greater $5, then a $1, incremental fee increase per additional $1M in property value If you purchase multiple properties you must seek approval for each purchase. 4

5 PURCHASE COSTS? Costs associated with buying property within Australia can be substantial and add to the overall amount needed to be financed or paid at settlement of the property. $6, Purchase with $48, (8%) Mortgage VIC NSW QLD WA SA TAS Stamp Duty $49,7. * $22,811. $2,25. $22,515. $26,83. $22,498. Mortgage $111. $17. $163. $16. $152. $127. Registration Land $1366. $214. $1,457. $27. $4,411. $194. Transfer TOTAL $5,547. $23,132. $21,461. $22,945. $31,393. $22,819. $1,, Purchase with $8, (8%) Mortgage VIC NSW QLD WA SA TAS Stamp Duty $85,. * $4,49. $38,25. $42,616. $48,83. $4,185. Mortgage $111. $99. $163. $16. $152. $127. Registration Land $1,366. $199. $2,689. $35. $7,431. $194. Transfer TOTAL $86,477. $4,811. $4,877. $43,126. $56,413. $4,56. *Denotes additional 3% Stamp Duty Surcharge for Foreign Investors. Other costs that should be considered are legal conveyancing fees, insurance, loan application fees, council rates and or water rates. CONVEYANCING? When you buy a property in Australia you will require some legal representation. S.I.M.M. understands that most overseas buyers will not have established contacts with experienced lawyers and as such we have established contacts with several lawyers who understand your needs and concerns from an overseas buyer s perspective. Your lawyer will review the contract of sale as well as represent your needs in all matters relating to your property purchase. AUSTRALIAN MORTGAGES? You can source your loan funds through an Australian bank. It is wise to get your finance pre-approved by the bank so when you have selected your property you are able to move forward with minimal delays. Banks will generally lend up to 8% of the purchase price of the property. Australia has many lending institutions and S.I.M.M. has qualified finance brokers able to assist you in the selection process to find the best fit for your investing needs. 5

6 INSURANCE? Your investment property must be covered for building, contents and we would also suggest landlords insurance. If your property is under a finance contract the financier will insist on insurance cover. S.I.M.M. can put you in contact with accredited insurance brokers making sure your property is covered. Insurance companies sell what might happen tomorrow. Historians sell what certainly happened yesterday. - Mokoma Mokhonona WHAT RENTAL YIELD WOULD I EXPECT? Australian rental yields vary from state to state but on average to 5% would be expected. There are many variables that affect the return such as supply demand, location and desirability of the development. Your team at S.I.M.M. will work with you to make sure you get the best possible return. WHAT SERVICES CAN S.I.M.M. DELIVER? All investments vary in their required outcomes however our aim is to provide a variety of choices which are tailored to each investor s specific requirements. We have a network of supportive infrastructure from professional service firms. We provide the following services: Off the plan Apartment sales. Finance. Insurance. Business acquisitions. Equity shareholding. Visa migration pathways. Funding options / Alternatives. Sales and Information seminars. Property Education Tours. These services give foreign investors the confidence needed to make informed decisions. 6

7 STEPS TO BUYING AUSTRALIAN PROPERTY? We recommend that you prepare yourself prior to your first property purchasing agreement. You will need to have your finances in order. Our trained consultants can assist with the best loan structure to suit your investment outcomes. You will need some legal advice. A solicitor can review the contract and give you advice. You will need to make application to the F.I.R.B. to purchase your new property within Australia. Property selection. There are many factors to take into consideration. Purchasing price, rent return, finance costs, location, insurance and strata management fees etc. As a foreign investor you must buy a new property. Deposit payment. Australian banks insist on a minimum 1% deposit on the property and the signed contract to purchase. This deposit is held in a trust account and managed by your conveyancing company. The deposit can not be withdrawn by any party without your consent. Contract of sale. The vendors will prepare the contract of sale and send it to you. We suggest you have your solicitor review the document. It is important that you sign the contract in the timeframe specified on the contract. If you do not then your chosen property can be released to others. As stated previously you will need to make payment of the 1% deposit. Off the plan purchases. The vendor will keep all contracted investors up to date with regular reports outlining the progress of the build schedule. Property settlement. The settlement date is the day the purchaser pays the balance of the full purchase price and officially takes ownership of the property. For off the plan property sales it can not settle untill the building is fully complete. We would always recommend a pre-settlement property inspection and suggest you have also arranged insurance cover to take effect from settlement date. The property will then be transferred from the vendors name into your nominated name by the Registar of Titles. S.I.M.M. 7

8 Sales, Investment, Migration and Marketing. 15 Crompton Road ROCKINGHAM WA ian@stackit.net.au 8