A couple stand outside a prospective new property in Australia

From beaches to the bush, there is no denying Australia is the place to be if you want the best of culture, lifestyle, and investment opportunities. For the latter, Australia's property market witnessed a recent frenzy, with Australian investors flocking to both cities and regions far and wide, to grab a slice of the property pie. Now with the world reopen and property prices falling courtesy of inflationary pressures, it could be the perfect time for foreign property investors to look to enter the property market.

If you are a foreigner and you are planning to purchase a piece of real estate in Australia, there are certain rules and regulations in place to facilitate a smooth transaction. While the process might seem tricky to navigate initially, once you obtain a proper understanding of the foreign investment framework utilised by the Australian Government to approve foreign property purchases, your questions should (hopefully!) be answered.

What type of properties can foreigners purchase?

As a general rule of thumb, foreigners are allowed to purchase new properties rather than those existing or established. Prior to the purchase, you must be able to secure approval from the Foreign Investment Review Board (FIRB), which is responsible for ensuring that foreign investments are beneficial to Australia's economy. This explains the logic behind forcing foreigners to purchase new dwellings, as this adds to the current housing stock.

As an example, let's assume that you as a foreigner want to purchase a recently built dwelling sitting on a piece of land where a previous dwelling once stood. The owner of the new property has yet to occupy the new dwelling and you are going to be the first buyer if the sale goes through. In this scenario, you would not be allowed to purchase the property, as the new dwelling does not add to existing housing stock. The dwelling, even if newly-built, will not be considered a new home under Australia's foreign investment framework.

Foreigners can purchase vacant land, provided that they can complete the development of a residential property within four years from the date approval is granted by the FIRB. However, if vacant land has previously been home to a dwelling, foreigners will not be allowed to purchase that asset. There is a workaround to this, as foreigners interested in a previously-occupied land can propose building multiple dwellings. This way, it will contribute to the existing housing stock and will be compliant with the foreign investment framework.

Alongside these factors, the type of visa you hold determines what property applications you can apply for. Under guidance by the FIRB,

  • If you hold a bridging-visa and have applied for a permanent resident visa, you can apply for one established dwelling to be used as your main residence.

  • If you hold a bridging-visa and have not applied for a permanent resident visa, you cannot apply for an established dwelling, unless you intend to redevelop the property (e.g., you are bridging to a temporary visa). If you hold a bridging visa and have applied for a temporary visa you will not be eligible.

  • If you hold a permanent resident visa, you may be exempt from applying for approval.

When considering the type of property to purchase, it’s important to factor in elements beyond the type of property. Consider how different seasons will affect the property, proximity to necessary amenities and the value of projects projected for the area. If you’re investing, determining where to buy will also be influenced by the current trends in the rental market. Find a buyer’s agent with first-hand knowledge of the local property market, connections and established relationships in order to help you make an informed purchase.

Are there fees associated with purchasing a residential property?

The application for approval to purchase a residential property entails fees which depend on the price of the property. For residential land with a price of below $1 million, the fee payable is $13,200. More information on this fee, as well as the complete FIRB fee schedule can be found here. To pay this fee, you need a payment reference number (PRN). You will receive your PRN after you submit your application form.

It's important to quote the correct PRN when paying your application fee. If you don't quote the correct PRN, your application decision may be delayed. The PRN is a unique 18-digit number (with no alpha or special characters).

It's important to consider other potential fees such as the annual vacancy fee. This fee is imposed when the property is not occupied for residential purposes for more than six months in a year. If the property remains unoccupied for at least six months, you'll be charged the same amount as your foreign investment application. However, for residential vacant land, an annual return is not required until a dwelling is built.

Further, an Additional Foreign Acquirer Duty (AFAD) was introduced in 2016, with foreign investors required to pay a 7% duty surcharge. AFAD is in addition to the transfer duty already payable on the purchase of residential land in Queensland.

To make payment for these fees, there are different options available including direct credit, transferring from an overseas bank account, Australian Government EasyPay, and BPay. It’s important to note that when paying for these fees, ensure the currency is in Australian Dollars (AUD) otherwise you will likely be charged a foreign currency conversion fee.

How can a foreigner apply for approval?

Take note - approval must come before a property purchase. The Australian Taxation Office (ATO) provides access to a foreign investment application form to begin the application process. A separate application form must be completed for each property you intend to purchase.

From 26 June 2023, the ATO will launch a new online services for foreign investors platform, allowing foreign investment obligations to be managed online, including:

  • applying for residential approval.

  • registering your assets.

  • updating your details.

  • lodging your vacancy fee return.

Generally within 30 days you will receive correspondence to state whether your application has been approved or denied.

What are the penalties in place for non-compliant foreign investors?

Foreign investment laws have teeth, and those who fail to meet the guidelines laid out by the Federal Government face penalties and possible jail time. Just to give you an idea: a foreigner who purchases a property without seeking approval from FIRB can be fined upwards of $5 million, or face 10-year imprisonment. In the worst case, the buyer can be subject to both. Any property agents involved will also face strict penalties.

What are some lending restrictions in place for foreign investors?

The process of financing an overseas property can be quite difficult depending on the country. Essentially as a foreigner you have two choices, those being to organise finance with an Australian lender or arrange finance with a bank in the country you’re looking to purchase property in.

Many of the larger Australian banks have partners and branches overseas, which can be helpful in completing property transactions and arranging paperwork. It’s important to note though that if you’re arranging a loan with an Australian lender, some will require you to already own property in Australia. In fact a host of banks including all of Australia’s largest banks - Commonwealth Bank, ANZ, NAB and Westpac - will not lend to foreigners directly.

When arranging finance you have to take into account the exchange rate on currency transfers. Exchange rate fluctuations may result in gains and losses in the vicinity of around 10%. To get around this, seek out a a foreign exchange company which can lock in an exchange rate for a small fee.

Do the same rules apply to temporary residents?

Temporary residents are allowed to buy established dwellings provided they are only using it for their own use (i.e. not as an investment property). For new dwellings, temporary residents are not required to meet any conditions to be approved.

However, just like foreign investors, temporary residents are not given the freedom to purchase an established dwelling as an investment.

What are the rules for Australian residents living abroad?

The foreign investment rules do not apply to Australians living in other countries as they are exempt from applying for FIRB approval. However, you have to check if you will be able to apply for a local home loan. Other things to look into are legal and tax concerns regarding your use of foreign income on your property investment. To ensure that you will not be in violation of any regulations, be sure to seek help from property industry and accounting professionals.

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Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .