Why Invest in Property in Australia | Odin Mortgage (2024)

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Overseas investors and expats don’t always realise the rewards of investing in Australian property. Similarly, foreign nationals with temporary or permanent visas often aren’t even aware that they qualify for a home loan in Australia. However, foreign investors need FIRB approval to purchase established properties in Australia, while new builds are allowed without pre-approval.

In 2022, foreign investment in Australia totalled $4.5 trillion, with leading investors from the UK or US. The Australian property market offers stability, consistent growth, and ease. Whether you’re an expat or a foreign national, read on to discover how you can take advantage of the Australian real estate market and reap the rewards.

There are many reasons why property investors love the Australian property market. You don’t even have to be living in the country to benefit from your real estate investment. As a foreign national, the purchase process is slightly different to residents or Australian citizens living abroad.

However, with FIRB approval (more on that later), there’s no reason you cannot start earning money on your investment property.

Australia is a diverse country with a growing population. Over half of all Australians live within the capital cities, driving demand and house price growth. With such a stable and robust market, investing in Australia’s real estate market is an excellent way to diversify your property portfolio.

The Australian property market is stable. Even with the current rising house prices, the market remains strong.

Firstly, as of 2023, 70% of households were owner-occupied; therefore, there is relatively little speculation. With fewer investors in the market, house prices are less volatile. This stability ensures that Australia is an attractive prospect for property investors.

Secondly, as we mentioned, the majority of all Australians live in five capital cities. Accordingly, there is a consistent demand for housing in these areas, ensuring a steady price rise. With such a need for properties in capital cities, the Australian government offers incentives for overseas property investors to increase the housing supply. This is especially true of investors in new housing.

Thirdly, Australia boasts responsible lending legislation and economic management through the Australian Prudential Regulation Authority (APRA). For example, in 2023, they maintained lending restrictions, reducing the risk of the current housing boom turning into an asset price bubble.

While experts had feared that the housing bubble would burst, the APRA has ensured otherwise. Therefore, Australia offers safe investment opportunities.

Finally, Australia has never seen a price drop of more than 20% in one year. With prices set to grow, Australian investment properties are good options for overseas investors.

Compared to other markets across the globe, the Australian market remains stable. Its continued strength despite economic uncertainty is a testament to the resilience of the real estate market.

Not only are Australian investment properties stable, but they also offer impressive capital growth. House prices grew more than 10% from 2022 to 2023 in the five capital cities. While the property prices increase is slowing, they are still rising at a steady rate.

One of the reasons for such reliable capital growth is that Australia’s capital cities are severely undersupplied. The population grows at a far faster rate than we can build housing.

Therefore, while you can expect solid returns over the long term, there are no guarantees that any specific property will make a profit. All investments carry some degree of risk.

Furthermore, you can make your money back on rental income. Turning your investment into a rental property will help you in the short term. The average rental yield in Australia was around 4% during the first quarter of 2023.

It’s a common misconception that foreign nationals cannot buy property in Australia unless they are permanent residents. Many other countries have very restrictive legislation surrounding foreign investment. However, it’s actually straightforward to buy an investment property in Australia, provided it is a new build. Foreign investors still need Foreign Investment Review Board (FIRB) approval to purchase established properties.

If you’re not an Australian citizen, you will need to apply for approval from the FIRB. You don’t need to set up a company in Australia or buy jointly with a citizen. The only requirement for foreign investors is that the property must be new or vacant land to build property.

Temporary citizens can buy an established dwelling to live in. However, investment properties must be new buildings or vacant land. The approval process is straightforward. Although, you may need to pay an application fee and additional taxes.

Australia’s legal system is based on the UK system, similar to Hong Kong and Singapore. Therefore, it’s easy for foreigners to get to grips with. However, buying property from Hong Kong or Singapore may come with its own challenges if you don’t have a strong team at your back. Make sure you get yourself an expert real estate agent, buyer’s agent, solicitor, and accountant.

Most importantly, find a specialist mortgage broker to help you apply for your foreign investment loan. The rules surrounding overseas lending change frequently and have tightened in recent years. To ensure you get the best possible home loan deal, seek professional advice.

It’s a common misconception that foreign nationals cannot buy property in Australia unless they are permanent residents. Many other countries have very restrictive legislation surrounding foreign investment. However, it’s actually straightforward to buy an investment property in Australia, provided it is a new build. Foreign investors still need Foreign Investment Review Board (FIRB) approval to purchase established properties.

If you’re not an Australian citizen, you will need to apply for approval from the FIRB. You don’t need to set up a company in Australia or buy jointly with a citizen. The only requirement for foreign investors is that the property must be new or vacant land to build property.

Temporary residents can buy an established dwelling to live in. However, investment properties must be new buildings or vacant land. The approval process is straightforward. Although, you may need to pay an application fee and additional taxes.

Australia’s legal system is based on the UK system, similar to Hong Kong and Singapore. Therefore, it’s easy for foreigners to get to grips with. However, buying property from Hong Kong or Singapore may come with its own challenges if you don’t have a strong team at your back. Make sure you get yourself an expert real estate agent, buyer’s agent, solicitor, and accountant.

Most importantly, find a specialist mortgage broker to help you apply for your foreign investment loan. The rules surrounding overseas lending change frequently and have tightened in recent years. To ensure you get the best possible home loan deal, seek professional advice.

Finally, Australia is an excellent place to live. If you want to buy a property here to live in, you won’t regret it. As a foreign national moving to Australia, you’ve made a great choice. Here’s why.

• Renting is cheap. Because of our negative gearing policy, landlords keep rental prices low. Therefore, you’ll have time to check out the area you want to live in before committing without draining your budget.
• The standard of living in Australia is high. If you want to live somewhere with environmental quality, good health status, an abundance of jobs, excellent education, social connections and personal security, Australia is for you.
• If there is one thing everyone associates with Australia, it’s the sun. We have a beautiful climate – most cities have more than 200 days of the year with sun. As such, our sporting and social events last all year round.
• We have excellent healthcare service, both public and private. Foreigners with a permanent residency can access both while living in Australia.

The best places in Australia to live are:

• Melbourne: Still frequently ranked as one of the world’s most livable cities, known for culture, food, and sports.
• Adelaide: Often noted as an affordable all-rounder with a great lifestyle.
• Brisbane: Rising as a top choice for affordability, climate, and opportunities.
• Tasmania: Hobart and other Tasmanian locations lauded for natural beauty and slower pace of life.
• Canberra: Commonly listed for employment, education, infrastructure and overall quality of life.
• Sydney: Remains a top global city despite high costs, with vibrant culture and jobs.
• Perth: Often favoured by expats for its sunny climate and laidback lifestyle.
• Regional areas like Byron Bay, Gold Coast, and Blue Mountains: Valued for proximity to nature and escape from bustle of cities.

Investing in property can be a lower-risk way to build wealth than other investments, such as the stock market. However, it still carries some degree of risk. This is especially true if you’re an Australian citizen living abroad. Buying and renting out a property investment in Australia while you’re elsewhere might seem like a big commitment.

You should carefully consider the risks and rewards to find the right property. Consult our specialist mortgage brokers about your investment goals and seek practical advice.

Firstly, you need to ask yourself why you want to invest in Australian property. Is it the lifestyle that attracts you? Do you want to build more money while you live elsewhere? Property investment in Australia isn’t cheap. Therefore, you should evaluate your investment goals ahead of purchasing your investment property.

Here are the reasons you should invest in Australia:

• If you’re a foreign national who wants to live in Australia (you’ll have to buy a new build or a plot of land to build on)
• If you’re a foreign national who wants to diversify their investment portfolio (again, you’ll be restricted to new builds and land)
• If you’re an Australian citizen living overseas and want to earn rental income back in Australia
• If you’re an Australian citizen who wants to diversify their investment portfolio

While Australian property prices are pretty high compared to other countries, they are also far lower risks. The market value of investment properties in Australia has increased over the last twenty years. Therefore, if you’re looking for long-term, low-risk property investment, Australia might be the best choice for you.

That said, no property investment is risk-free. While Australian properties have strong, proven capital growth, it’s no guarantee you’ll receive the returns you want.

The most significant risk of investment property is its lack of liquidity. If you run into cash flow problems a few years down the line, then your property investment will be of no use to you. Can you handle tying all your funds up in real estate?

If your situation suddenly changes and you need to sell your house, you might risk losing money. Life throws challenges at us, and we can’t always time when we sell our investments. Similarly, while the market is relatively stable, your chosen area may not see a rise in prices. Can you take the risk of potentially selling your investment property at a loss?

Furthermore, while Australian interest rates are at a record low currently, they may rise. Your mortgage repayments will similarly increase if interest rates rise unless you opt for a fixed-rate loan. Can you budget for potential higher monthly repayments?

On the other hand, consider the tax deductions, asset security, and potential price growth you’ll earn with an investment property.

Now, if you’re an Australian expat, you need to consider the practicality of buying an Australian property investment. The best way to ensure you get the right property and home loan are to hire a team of experts to stand at your side.

You’ll need:

• A buyer’s agent to help you find a high capital growth property investment with an excellent rental yield: Buyer’s agents will visit the local properties for you and offer independent advice to help you avoid buying the wrong property. Fees are usually 1-2% of the property price or a flat fee of between $5,000 to $15,000.
• Mortgage brokers are there to ensure you find the right home loan: Mortgages are a substantial financial investment. Typically lasting between 25-30 years, you want to ensure that you don’t saddle yourself with an unsuitable loan. Your mortgage broker will help you negotiate lower rates and save money.
• A solicitor will hash out all the fine details: Once you make an offer on the house, your solicitor will draw up a contract of sale, handle the exchange, and generally ensure your investment journey runs smoothly. Legal fees usually cost somewhere between $1,000 to $2,000.
• Professional property manager: if you’re living abroad, you’ll need someone else to manage the property for your tenants. Property management fees usually cost a percentage of the weekly rental income. On top of this, you should also factor in the maintenance costs involved in rental properties.

Of course, you can go it alone without the help of the above. However, it might be a more challenging process.

What is your investment strategy? Investors swear by buying and renting, renovating and adding value, and fast capital growth. You’ll find different properties to suit your investment plan.

Do your research to ensure you find the best property investment for you. If you want a high rental yield property, research the best suburbs for renters. If you’re going to renovate, search for affordable and neglected areas.

If you want to make a quick profit, look for a property with substantial capital gains potential. Take a look at other properties in the local area to get a good idea of market value.

Remember, the asking price isn’t necessarily the amount you should pay. The best way to work out the actual value of a property is to assess other local properties selling prices. This is how much they actually went for. Try to keep your comparisons within the last six months to account for market fluctuation.

Compare by property type, land size, and amenities. For example, don’t compare a two-bedroom unit with a five-bedroom house with a swimming pool.

Now you have your ideal investment property. It’s time to sort out your mortgage. As we mentioned, going through a mortgage broker is an excellent way to ensure you find the right loan.

The same home loans are available for expats and foreign nationals as permanent Australian citizens. You can access a variable rate loan, fixed-rate loan, any loan term, or a range of extra facilities. Plus, interest rates shouldn’t be any higher for an expat or foreigner.

However, lenders calculate foreign income differently. If your primary source of income is in a foreign currency, the lender may discount it to account for exchange rate fluctuations, which could reduce your borrowing power.

So, what’s the difference between investment property as an expat and as a permanent resident? Well, by and large, you’re eligible for the same home loans as anyone living in Oz (although, remember what we said about foreign currency income). They also apply Australian tax rates, which are some of the highest in the world.

Like permanent residents, you can borrow up to 80% of the property value without paying lenders mortgage insurance (LMI).

However, it’s worth bearing in mind that some lenders do not offer home loans to anyone living abroad. Therefore, it’s a good idea to seek the help of a specialist mortgage broker.

Also, as an Australian citizen, there’s nothing to inhibit you from buying any property of your choice. As long as you have Australian or New Zealand citizenship, you don’t need FIRB approval. This makes the entire process a lot easier than for foreign nationals.

Investing in a property as a foreigner is slightly different. It’s not impossible. However, you will need to work your way around FIRB. Now, it all depends on whether you’re in Australia with a temporary or permanent residency. Those with permanent residence won’t need to apply for approval, nor will those buying jointly with an Australian citizen.

On the other hand, if you’re a temporary resident, you’ll face some restrictions. The most significant rule is that you cannot buy an established dwelling to rent (unless under exceptional circ*mstances, e.g. you inherit it or receive it in a divorce settlement). As a foreign investor, you can only purchase new build properties in Australia.

• It’s a stable investment. Property prices tend to increase in most of Australia’s capital cities.
• Generate positive cash flow. How much income you receive in rent depends on the suburb and level of demand.
• If your rental income doesn’t equal your expenses, you can benefit from tax deductions from negative gearing.
• When you sell your property, you hope to make a long term capital gain. Moreover, real estate is a safe and long term bet against inflation.
• Australia is a great place to live and, compared to other countries around the world, very amenable to foreign investors.

• Stamp duty surcharge for foreign buyers can cost upwards of tens of thousands of dollars.
• Lack of liquidity in real estate investments. Additionally, changes in interest rates or tenant vacancies can put a strain on your cash flow.
• Investment properties are subject to capital gains tax.
• Hidden costs such as pest and building inspections, loan application fees, and land taxes might put you off.
• Australian properties are some of the most expensive on the globe. While this guarantees a substantial investment, it can be hard to raise funds to enter the market.
• In addition to existing cons, potential risks include interest rate rises, periods of tenant vacancy, and possibility of capital loss if forced to sell in a down market.

We’ve already established that a buyer’s agent and legal fees could cost you somewhere between $5,000 and $20,000 total. Stamp duty might cost tens of thousands for a foreign buyer. Mortgage brokers are generally free – the lender pays them a commission.

The cost of your mortgage depends on the property type and the size of your deposit. For example, let’s say you borrow $480,000 for a $500,000 investment property. You won’t need to pay LMI with this 20% deposit. You take out a 30-year loan with 3% interest. Your total interest repayments would equal $248,532. The total amount to repay would be $728,532.

Let’s take a look at the other costs involved.

• Mortgage registration fees: $147.70
• Transfer fees: $147.70
• Pest and building inspection: it depends on the property type and location. Estimated between $200 – $500
• Local council and water rates: depends on the location – could perhaps cost a couple of hundred per quarter
• Property management fees: property managers usually charge between 8 – 15% of the weekly rental income
• Advertising costs: around $100 – $200

Remember that investment property expenses are all tax-deductible on your Australian income.

The most significant expense of investing as a foreigner is stamp duty. The amount you pay in stamp duty depends on the property type, location, and purpose. Yet, non-Australian residents are subject to a stamp duty surcharge. The surcharge varies from state to state. For example, in New South Wales or Victoria, it’s 8%.

Let’s see how this plays out. As a foreign investor, Charlotte is paying $500,000 for a new build in New South Wales. She will have to pay $17,707 in stamp duty and an additional $40,000 surcharge as a foreign buyer.

The only way to get around paying the foreign buyer surcharge is to purchase property in the Northern Territory – the only state that doesn’t have a foreign buyer’s stamp duty surcharge.

So, you know where you want to buy your investment property, and you’re on your way to seeking conditional approval on your home loan. As a savvy investor, you’ll want to know how to minimise the risks. Here are a few steps you can take.

• Cash flow: whether you’re negatively or positively gearing your property, ensuring you have a cash buffer is an excellent way to guarantee you can cover any future unforeseen expenses.
• Loan type: a fixed rate home loan will help you budget in the first few years of your mortgage repayments. It might be easier to know exactly what your monthly payments are and protect yourself against rising interest rates.
• Diversify your portfolio: an excellent way to minimise risk is to invest in different regions and property types. It’s also sensible to vary your investment strategy. Accordingly, if one investment does poorly, the others should mitigate this.
• Insurance: taking out landlord and mortgage protection insurance will help reduce long-term risk. The former covers your investment property against damage and protects your rental income should your tenants default. The latter will help you make your mortgage repayments should you find yourself unable to earn an income through illness, unemployment, or injury.

Investing in property is a risky decision wherever you are on the planet. In Australia, you can make a safe bet that you’ll see consistent growth. With such a high demand for housing, you’ll likely never find yourself without tenants. And, if you do, you can take advantage of Australia’s negative gearing policies to offset your loss against your net income tax.

Make sure you’re aware of the costs of investing – the stamp duty surcharge for one – and the restrictions for foreign buyers. However, with the help of a mortgage broker, expert solicitor, and buyer’s agent, your investment journey should be smooth sailing.

Get in touch with our specialist expat mortgage brokers who can help assess your unique situation in order to improve your chances of applying for a mortgage.