The housing market in the U.S. has experienced its fair share of foreclosure nightmares, and while the American real estate market is slowly recovering, there are some markets that are still struggling.
According to Property Observer, an Australian publication, districts in cities such as Detroit, Houston, Phoenix and Seattle have seen a massive hit over the years, with house values declining by more than 70 percent. Three-bedroom houses located in good areas that would normally be priced in the $300,000 to $400,000 bracket are today seeing only a fraction of the asking price with many of them falling to the $100,000 range.
As a result, some homebuyers are turning their attention to the Australian continent to invest in real estate.
Why Invest in Australia?
When you think of Australia the notable image that pops into mind is the glorious weather on offer throughout the year. With its hot climate, Australia is the ideal spot for your daily dose of vitamin D. Not only that, but this spacious country is the perfect place to escape from the busy pace of city life. This is evident in the fact that you can easily drive for hours across the vast expanse of open land – where you’ll also have the chance to see a kangaroo.
Instead of falling into a sedentary lifestyle, you’ll find that Australia is known for its pursuit of outdoor activities. Combine this with the growth of Australia’s fresh produce – from capsicums to zucchini – and fresh meat from chicken, beef and lamb, and this lifestyle is a healthy one to explore.
The Cost of Buying Property in Australia
According to Money Buddy, an Australian finance website, property in Australia has proven to be a relatively secure investment over the past 10 years. Figures suggest that returns have been over 8 percent in some of the metropolitan markets.
It is, of course, important to have a budget in mind, which will cover all the necessary costs, plus any extra costs if you are considering a mortgage. Budgeting around 5 to 7 percent of the purchase price should be your ballpark figure. Some of the costs to consider include:
- Land Transfer Registration Fee: This can vary between areas.
- Legal Fees: This can range between 1 to 2 percent, but can vary between areas.
- Survey Fee: While not a compulsory measure, it is wise to carry out, particularly if you’re not in the country to see for yourself.
- Strata Inspection: If you are buying an apartment, this will apply as it ensures that there are no structural problems with your new place.
- Solicitor’s Fees: These are not based on a fixed price, so they can be negotiable.
One thing to bear in mind is that if you are planning on spending over six months a year living in Australia, then you are automatically liable for income tax.
Before deciding to travel overseas on the off chance that you will find the perfect place to live, you may want to consider searching for houses for sale in Australia first and then employ an independent representative in Australia to visit and review the houses you have picked out. This will of course incur additional costs, but will save you money in the long run.
The Benefits of Buying Property in Australia
Unlike stocks and bonds, the housing market is a fairly low-risk investment to consider.
- Positive Asset Base: If you decide to take out another loan or you want to invest in something else, your potential lender is more likely to favor you when they see that you haven’t defaulted and can maintain loan payments.
- Safety Net: When it comes to those who are untrained in investments, real estate is a low-risk one that is particularly popular. According to Home Loan Experts, an Australian specialist mortgage broker, properties in Australia have had consistent capital growth over the past century, with the price of property doubling every seven to 10 years.
- High Leverage Possibilities: Real-estate can typically be bought at 80 percent LVR (loan-to-valuation ratio), or up to 90 percent LVR combined with mortgage insurance. The LVR is first calculated by determining the amount of the loan and then dividing that by the property’s value. This leverage means the homeowner has a high return at a lower risk because less of their finances are tied up with the property.
- First-Time Buyer: As long as you are on a permanent visa or are a resident of Australia you can apply for a First Home Owner Grant (FHOG) of $7,000, which was introduced on July 1, 2000 in Australia. Depending on the state you move to there are a number of first-time buyer benefits that you can take advantage of, such as grants and stamp duty concessions.
Potential Problems When Buying Property in Australia
- Legal Issues: If you’re not a citizen of Australia or you don’t hold a permanent visa, you will need to seek permission from the Foreign Investment Review Board (FIRB) first before you can buy property. However, once you have applied you can expect to have an answer from FIRB within 40 days, but this can be extended up to 130 days depending on the circumstances. Before you have received any approval you are permitted to exchange contracts, but it is vital that the contract is only provisional until you have received confirmation of approval. Otherwise, you will be breaching your contract and could face financial consequences.
- Rising Interest Rates: If you take out an investment loan that has a variable interest rate, you run the risk of seeing those rates rise when there is a change in economic conditions. By budgeting properly, you can avoid this unwanted stress and prevent concerns of selling quickly.
- Get the Right Paperwork: Regardless of why you’re visiting Australia, you will need to obtain a visa to enter the country first. Depending on your intentions, the type of visa will vary based on four categories: residence, temporary residence, migration and visitor. The process of applying for a visa can be made simpler if you take on board the advice of a professional immigration consultant. One thing to bear in mind is that those on a temporary visa will find it harder and more expensive to purchase property compared to those who live there or those on permanent visas. This is because you will be excluded from grants or stamp duty exemptions as a first-time buyer.
- Fees and Taxes: Compared to many other countries, the fees for buying a home in Australia are considerably low. The maximum is typically around 9 percent, but this can be even lower if you are eligible for stamp duty discounts. According to Anglo Info, the global expat network in Perth, total fees are around 4 and 5 percent. The fees are generally calculated as a percentage of the property’s value, so if you are purchasing an expensive home, the fees will be higher.
- Mortgages: Even though you can secure a mortgage in Australia as a foreigner, you will only be able to obtain a loan that amounts to 80 percent of the property price, and rental income is not taken into consideration. As all mortgage applications are based on your income, you will be required to provide proof of your employment when applying. In order to make the process as smooth as possible, it’s a good idea to take a copy of your credit history and a letter from your bank manager when traveling to Australia.
Written by Magda Kanicka