Gray Stuart – AUSTRALIA
From our international offices and our local partners on the ground in Australia we help international clients with the following services.
Buying the Best Property in Australia
Very simply we offer our International clients the best of both worlds in that we have proven experienced local knowledge on the ground as well as international expertise from having made many different transactions throughout the world. This will allow you to buy safely and securely in Australia.
Setting Up a Business in the Australia
Very simply our professional directors can help you with the set up your company structures in the most tax efficient manner possible. We only use the very best Lawyers, Accountants and professional advisors to make sure your company structure is 100% safe and secure and the very best you can have in Australia
If you’re an investor and already own assets in Australia or just acquiring them then our team of professionals can offer you the complete asset management services including property management and project management.
These are just a sample of the key services that Gray Stuart Australia provides and should you need any further information do not hesitate to contact us directly.
Gray Stuart Australia
Tel: +44 20 7588 8355
Why Invest in Australia Property?
Last updated January 2018
Australia has been one of the worlds boom real estate market for years now with the Chinese investing over 6.8 Billion Australian Dollars a year. However this has had a negative impact on local Australian citizens being able to buy Property and in August the Government took measures to stop the level of Chinese and Asian investors buying Australia real estate by making it much harder for these buyers to get funding. In some cases this has had the first effect of certain buyers not completing on their purchase. If this actually leads to a slowdown in property price rises in Australia is another story completely.
AUSTRALIA PROPERTY MARKET
After five years of strong house price rises, Australia’s housing market is still powering ahead. House prices in the country’s eight major cities rose by 11.1% during the year to end-Q2 2017 (8.98% inflation-adjusted), a sharp acceleration from an annual rise of 4.65% a year earlier. Quarter-on-quarter, house prices increased 1.9% (1.72% inflation-adjusted) in Q2 2017.
Melbourne saw the biggest increase, with the established house price index surging by 16% (13.8% inflation-adjusted) during the year to Q2 2017, followed by Sydney (14.8%), Hobart (12.2%), Canberra (9%), Adelaide (5.1%), and Brisbane (3.9%). On the other hand, house prices dropped in Darwin (-4.7%) and Perth (-2.8%) over the same period. The mean price of residential dwellings in Australia was AU$679,100 (US$530,173) by end-Q2 2017, up 9% from the same period last year, according to the ABS.
New South Wales, especially Sydney, has the most expensive housing in the country, with the mean house price at AU$903,700 (US$705,880) in Q2 2017, about 33% above the national mean house price. In contrast, Tasmania has the cheapest housing in Australia, at a mean price of AU$360,400 (US$281,508) over the same period.
In the second quarter of 2017, Australia’s economy grew by 1.8% from a year earlier, at par with the previous quarter’s growth. The economy expanded by a modest 2.5% in 2016, after GDP growth of 2.4% in 2015, 2.7% in 2014, 2% in 2013, 3.6% in 2012, 2.7% in 2011, 2.3% in 2010 and 1.8% in 2009, according to the IMF. The RBA kept the official cash rate unchanged at a record low of 1.5% in September 2017, after cutting it by a cumulative 50 basis points last year, in an effort to stoke price growth and bolster the economy. Acquisition of residential real estate by foreign nationals and corporations is subject to FIRB approval. Foreigners are not allowed to buy an established (previously occupied) house. They may buy an unoccupied new dwelling, but only if the FIRB feels that the purchase will not add to the shortage of properties available to native Australians.
WHERE TO INVEST IN AUSTRALIA?
As an overseas investor the two best areas for new property investment that will not be knocked back by the regulators are in Brisbane and Melbourne. Sydney is much more difficult to find value and also depending how strongly the regulators enforce the law maybe the most difficult area to buy in.
Very simply if you’re a cash buyer then you can still invest in Australia and make good real estate investments but if you are one of those investors who need finance to make it a worthwhile investment then you may be looking at other markets right now. At Gray Stuart were only offering New Build property projects that have funding and that are key ready so the investor knows they can complete on the transaction and make a good long term investments.
The Buying Process in Australia
To buy an established property, you must have been a resident for at least 12 months or be buying in partnership with a resident if you meet certain conditions. If you do not qualify as a resident, you may still be able to a newly developed property. This is what you will have to focus on as an international property investor
You will usually pay a tax, known as Stamp Duty, of .3% to 2.5% of the purchase amount, depending on where the property is. You may also have to pay an annual land tax if you own property worth more than a certain amount. These taxes vary between states and territories, so visit the relevant government website to see what taxes will apply to you.
While studio-sized apartments in Manhattan and London and sprawling mansions in Los Angeles or New Delhi are favoured by investors; these properties don’t tend to perform well in Australia. Investors should target apartments which are at least 50 square metres in size, townhouses with a private courtyard and small to middle sized houses with a separate living room and an outdoor area.
THE BUYING PROCESS FOR NON AUSTRALIAN RESIDENTS
What are the advantages in purchasing “off-the-plan”?
Buying off the plan means buying prior to construction. Benefits include the ability to lock in at today’s prices. Many buyers who have got in early have enjoyed the benefits of strong price appreciation.
Another benefit is delayed settlement i.e. buyers are not required to settle or pay for their property in full until construction is completed and settlement has taken place. This allows the buyer to arrange appropriate finance.
Only a small deposit (10%-20%) is required and the remainder is not due until building is complete. There are also significant depreciation tax savings on new or off plan property, and some cities offer stamp duty savings also.
How much deposit do I have to put down when I purchase an apartment off-the-plan?
You normally only need to pay a 10% or 20% deposit.
What happens to my deposit?
The deposit is held in a legislated trust account. By law the deposit funds cannot be used by the developer until the property is completed and final completion and settlement has taken place. This often gives you up to 12-24 months or longer to maximize and organize your financial affairs.
Are there any tax savings?
Yes. New Buildings can qualify for significant depreciation tax savings. (Up to 60% of the purchase price may be given back to you in the form of a tax deduction) Additionally properties bought for investment allow the owner to claim all expenses on the investment against future rental income.
Is there a building warranty?
Usually, depending upon the State Laws. New apartments usually include a structural warranty not available on older buildings.
I am not an Australian. Can I still buy?
Absolutely. Approval is given by the Australian Government for foreign persons to invest in brand new, or “off-the-plan” property.
If I sell, can I get my money out of Australia?
Yes. The funds can be sent anywhere in the world.
Does buying property help me migrate?
No! Buying a property is not a criteria to migrate.
I live overseas. How involved do I have to be?
Property ownership “from afar” is very common. There are very professional property managers. All bills can be paid for you. Rents are banked into your account. Property ownership can be pretty much trouble free.
However, being a landlord does carry with it some responsibilities, and from time to time you may need to get involved. With e-mail and the internet, overseas property investing has become a world-wide reality.
As a foreigner can I obtain a mortgage to buy one of these properties?
Yes. Finance is available for foreign investors. Like many countries, Australia has tightened up on the amount of the loan to the purchase price available. However, 60% of the valuation and up to 70% is available to non-residents for Australian dollar loans. For off-plan apartments, you only start repaying the loan after you take completion. No loan payments are necessary before then. (For House and Land, progress payments are made to the builder.)
Foreign currency loans are also available for residents of certain countries such as Hong Kong, Singapore, the USA and Malaysia. Lower interest rates are available, but buyers should be aware of currency risk if borrowing in a different currency to the asset and there often minimum amounts of loan that must be taken. For Australian citizens living overseas, 70% loans and up to 80% are usually available. VERY IMPORTANT NOT EVERY DEVELOPMENT CAN OFFER FINANCING BUT THE ONES OFFERED BY Gray Stuart ALWAYS DO.
What type of loan is the best?
For investment property, very attractive investment loans are available, where you are only required to make the minimum interest payment each month, with capital or principle payments made at your option. These loans make property investment very attractive, as it means the rents will usually cover the monthly payment.
Am I paying too much?
All prices are fixed. There are no hidden costs. All prices are fair market prices.
EHP guarantees that all prices are offered at exactly the same price offered in Australia to local investors. You pay no extra in the price by buying from overseas, although like many countries some extra taxes may apply for foreign buyers.
I feel that I can buy a cheaper apartment on the second hand, resale market. What advantages are there in buying new?
Legally, foreign buyers cannot buy “old” properties. But if you are an Australian citizen, you can/
How complicated is property investment in Australia?
Not complicated at all. But you do need to follow the 6 Golden Rules shown below. Freehold titles are available. There is strong landlord/tenant legislation. There is an increasing and available pool of tenants. The population is increasing, and land is diminishing. It does not have to be complicated. There are no constantly and complicated changing regulations. There are no age barriers to investment. Seek advice from experienced, successful property agents.
Is it risky investing in property in Australia?
For short term property traders, negotiating a bargain price, finding the best interest rate, and deciding when to buy and sell are extremely important. For those hoping to “flip” or quickly turn off the property, it can be risky and difficult to do so. For long term property investment, the initial price, interest rates and timing have far less impact because of the levelling effect of time. Long term property investment has been relatively unaffected by downturns in the economy, high interest rates, fuel crisis, stock market crashes, natural catastrophes, and unemployment for the past 100 years.
A well located property has low risk, with good returns. The best time to buy is when it suits you financially, and then look to hold for the long term. What if interest rates rise? Interest rates go up and down over time. However, you can also fix rates for up to 5 years.Or you can pay the loan off faster, to reduce the debt. And you will receive extra tax deductions on higher interest rates, reducing the impact. In addition, when rates are up, it tends to mean less people buy property and more people rent, giving you so consider older apartments.
Old apartments of course do not have the latest designs, or structural guarantees or internet wiring. New properties often have swimming pools, security, parking, spas, gyms and possibly other facilities, all of which are very attractive to tenants. As an investor, you need to also look at what tenants are demanding – that is “lock up and leave” security, resort facilities, car parking, usable outdoor areas and convenience. Also up to 60% of a new residential property investment will be tax deductible. This is a huge benefit.
How complicated is property investment in Australia?
Not complicated at all. But you do need to follow the 6 Golden Rules shown below. Freehold titles are available. There is strong landlord/tenant legislation.
There is an increasing and available pool of tenants. The population is increasing, and land is diminishing. It does not have to be complicated. There are no constantly and complicated changing regulations. There are no age barriers to investment. Seek advice from experienced, successful property agents.
What if interest rates rise?
Interest rates go up and down over time. However, you can also fix rates for up to 5 years.Or you can pay the loan off faster, to reduce the debt. And you will receive extra tax deductions on higher interest rates, reducing the impact. In addition, when rates are up, it tends to mean less people buy property and more people rent, giving you higher rental returns. It is not unusual to see the rent increases more than offset the interest rate rises.
I was bought up to believe we shouldn’t borrow money. Were my parents wrong?
Yes and No. The golden rule for borrowing money is to borrow for appreciating assets and pay cash for consumables, cars etc.
Borrowing to buy appreciating assets like property is an important tool in investing.
Are properties self-funding?
Assuming you are borrowing between 60 – 70 percent, and take an Australian dollar investment loan, then the rent will in most cases pretty much cover all the bank’s interest payments.
Why do you think the market will continue to rise?
Prices rise in response to demand. Demand is created by factors such as infrastructure improvements, new shopping business centres, access to transport, population growth, migration and shortages in supply of housing etc. It is important to know what is planned in the area you wish to invest in.
Based on current population and migration forecasts, a healthy increase in the requirement for additional housing exists. In fact, Australia faces a critical shortage of new housing into the future based on current trends.
This means buying investment apartments with starting rentals at 4%-6% are a fairly safe bet and you can reasonably expect to continue to see healthy capital growth. Migration will continue, and for various reasons a shortage of property is likely to continue in Australia for some time to come.
What does Return on Investment (ROI) actually mean?
The Return on Investment (ROI) is a measure of the return a property will achieve after taking into account the amount of money outlaid, compared to the total amount returned at the end of the period. Investors usually only look at the capital growth or rental income a property achieves, but this is misleading. A property purchased for $600,000 and sold for $700,000 could be considered to have achieved a 16.6% capital gain. However, is this the real gain? No. Unless the investor paid cash. But if an investor outlaid 30% deposit on such a property, ROI may go as high as 55% – a substantial difference! Don’t underestimate the power of leverage when buying property
Should I pay cash for an investment property?
Generally no! The golden rule for borrowing money is to use other people’s money to use leverage for an appreciating asset. Interest expenses are fully tax deductible.
Everything looks attractive. But I’m still unsure whether I should leave my money in the Bank as the world situation remains uncertain?
This is a common question and ultimately, only you decide what is best for you.
Nervousness about making the “wrong” decision, and the apparent safety of leaving your money in the bank, often outweighs the “harder” decision of deciding to invest.
That’s why the ABS (Australian Bureau of Statistics) tells us that just 7% (of those ages 18 and over in Australia) owned, or were buying at least one residential rental property for investment. And of those, 78% had only one rental property and just 13% owned two.
Our computer modelling shows that an investment in property, (even a modest 5% growth rate) will outperform cash on deposit (at say 6%) by over 75%. “Annual inflation of just 3% cuts the purchasing power of a $100,000 cash hoard in half over 25 years… The impact of inflation shows putting money under the mattress (hoarding cash) is not a viable long-term strategy” BlackRock Investment Institute
How do I know this is a good area for capital growth?
Although it is human nature to want to find a bargain in an area of great capital growth, it is false economy to spend a huge amount of time searching for gems that are probably buried in your own backyard. It is virtually impossible and really unnecessary to gauge just where the most valuable suburbs will be in the future. History has shown that the right type of property (see the 6 Golden Rules) and one that is well-located should follow the pattern of steady rental and capital growth over the long-term.
Rather than spending weekend after weekend looking at the internet you can maximise your returns and better manage your investment by organising your finances in the best possible way and ensuring that you buy a quality property in a good area, at a fair market price, based on research fundamentals such as vacancy rates, stock on market, amount of rental property available and shortage of supply etc.
Am I better off buying one property for $1,000,000 or two for $500,000?
It depends entirely on the area in which you are buying. A $1000,000 property may be the middle sector of the market in that area, whereas a $500,000 property in a provincial town would probably be a mansion. In the former case, a $500,000 property in the lower to middle end of the market has a higher rental yield, which results in a better cash flow.
Secondly, the lower rent should attract more tenants. Thirdly, if you wish to sell, there’s more flexibility in selling a lower priced small property than one large one. And finally, if you are selling property in the middle part of the market it should attract other investors as well as first-home buyers, so there should be more potential purchasers. However, prime properties will often attract higher capital growth.
I don’t seem to have much spare money as it is now. Can I really afford to buy an investment property in another country?
If you have already made the commitment to pay for necessities first and luxuries last, then the only remaining stumbling block is more of a perceived problem than an actual problem. Too often, we think of an investment property in the same light as our own home. This being the case, we tend to see only the interest bill. But remember after the tenant and the taxman have paid their share, what’s left may be as less than $100 a month in holding cost in the first year and it gets less over time as the rents increase.
Won’t there be a glut of vacant properties when everyone discovers the advantages of owning rental property?
There is such a small percentage of the population in the running to buy rental property. People have been renting property since time eternal, and with more than 30% of the population renting, tenants will not disappear overnight. There should always be a pool of tenants looking for rental accommodation. Australia’s population is expanding, and the demand for rental property is highly likely to keep increasing. Supply and demand in rental properties is cyclic and vacancies can and do occur from time to time. But there are certain things you can do to keep this time to a minimum. Choosing the right location in the first place helps and well-located, well maintained properties with reasonable rents attract more tenants.
Most people seem to emphasize position, position, position. Should I pay more and get prime residential property?
Property in prime locations do experience strong capital growth, perhaps slightly higher than normal, however the real return cannot be measured by the growth alone. You should also ensure you get the current financing, advice and management services in place to maximize your returns.
Is it true that Stamp Duty Savings are only available in the state of Victoria?
No. Stamp Duty Savings are available throughout Australia. If buying a brand new house and land package, you will pay stamp duty only on the land value, not the full price if the home hasn’t yet been built. This saving also applies if buying off plan apartments in the State of Victoria.
Are there a lot of taxes?
Like many countries, Australia taxes its property investors by way of Stamp Duties on purchase, and also has other taxes such as on rental and capital gains. However, there are many ways to offset many of these taxes especially if you take a mortgage and buy new property. Australian property remains one of the most popular and safe property investments in the world.
Is Australian property investment still worthwhile?
Yes. Property Investment is so good in Australia it works even though it’s not perfect. You’ll never find the perfect timing, financing, and property, but you’ll find something that can increase your wealth in a reasonable time. One barrier is simply that there is too much information mostly on the internet around now. People are suffering information overload, and that brings them to a grinding halt. Best of all, Australia still has amongst the lowest per square metre rates for new build projects in the world, and amongst the highest rental return, and very high rental occupancy rates.
What’s the biggest mistake a foreign investor can make?
That’s easy! They often seem to buy “student housing” or serviced apartments”, which often are the worst investment you can possibly make in Australia. Secondly, for some reason they seem to think investing in city centres is best, yet would not necessarily invest in the Central Business district of Hong Kong or Singapore, yet they seem to feel all Australian’s want to live in their CBD’S.
Well, if not CBD’S then where? Outskirts?
No no no! As a rule look to invest in prime residential suburbs within 10 kms of the city centres. Exceptional CBD buildings can definitely be considered as demand is increasing, but not substandard, “all the same”, average quality mass produced blocks.
What is a “simple formula” to follow?
You need to stick to basics; you need to find property that the Australian tenants want to rent in an area they want to live. And something that will resell easily to Australian “owner –occupiers” in the future. Then finance it in the simplest way, perhaps with an Interest-Only Loan that’s fixed for a certain time. Have a good property manager and agent you can trust, and be prepared to hang onto it for 10 or more years. There’s not much else you need to do.
But of course, ALWAYS follow the “6 Golden Rules”:
The 6 “Golden Rules” for Australian Property Investment
Never buy anything under 40 m2. (Internal area) Never buy ‘student housing.’ Never buy a ‘serviced apartment.’
Don’t sell too soon! Hold your investment for a full property cycle. If it was a good property when you bought it, it will be an even better property in 5 years. Allow time to maximize the benefits of leveraging, compounding and inflation.
Always buy the “lesser” property in the best location you can afford. Prime locations in Australia are the last to fall, and the first to recover in a downturn, and hold their value better
Think what tenants what, not what you could live in yourself. But remember to select something that will be able to be resold to local Australian “owner occupiers”, in most cases young couples or singles.
Always look for a ‘point of difference.’ It could be a different floor plan, a 1 bedroom in a block of 2 bedroom apartments, a great view, a never to be repeated location, or something else unique and not easily duplicated. Look for a mix of apartment types in the building for example a building with a combination of 1,2 and or 3 bedroom, not all 2 bedroom apartments, especially if they are all the same.
Check occupancy rates are over 95% in your preferred area, AND make sure they have usually averaged over 95% over the past 5 years also. Your agent can tell you this. (If not it’s time to change your agent.)
There you have our 6 Golden Rules to help ensure investment success in Australia.
Ideally, your investment property should have all 6 of these in place!
If your property has NONE of these in place, then we suggest you implement additional
If you have made a truly poor buying decision, and have bought something that is highly unlikely to move up in value for years to come (if at all) such as student housing, or is getting a very poor rent return, then we suggest ignoring Rule #2 above, and cut your losses and sell sooner rather than later
Australia Location Guide
Australia is a country and continent surrounded by the Indian and Pacific oceans. Its major cities – Sydney, Brisbane, Melbourne, Perth, and Adelaide – are coastal. Its capital, Canberra, is inland. The country is known for its Sydney Opera House, the Great Barrier Reef, a vast interior desert wilderness called the Outback, and unique animal species like kangaroos and duck-billed platypuses.
There is no doubt that Australia is one of the best places on the planet to visit or live but if you have a fear of spiders and Snakes then it’s probably a country to give a miss. Visitors have a choice of so many great cities from Perth to Sydney and North Queensland in Cairns and Port Douglas the gateway to the Great Barrier Reef is something very special indeed. Simply one of the greatest places to visit in the world. It’s just a shame it is so far from anywhere.
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