Australia real estate investment : A guide to buying property in Australia

Australia has great opportunities for property investors but take the time to understand the economy and other drivers of the real estate market before jumping right in. Australians love to invest in their own real estate and you will find a well-developed infrastructure for the property investor in Australia: everything from mortgage brokers to helpful online property forums

Australia Overview
Australia is arguably the world’s smallest continent or its largest island, but at over 7.5 million square kilometers its also the 6th largest country. Which is my way of saying that Australia is not a single property market, but is a diverse and interesting one for both local and international property investors.

Uluru (Ayres Rock) Australia

Australia is a federally based parliamentary democracy with a Federal Government based in Canberra and each of the seven states and territories having their own state-level government.

In a country larger than the US the population has only recently exceeded 20 million people. Of those the vast majority live on the eastern and south-eastern seaboard. Australia is one of the most urbanised countries in the world The oft-quoted claim that the largest mobile telephone provider covers 98% of the population misses out the fact that coverage only extends over 5% of the Australia’s land area.

Although Australia is proud of his history of farming and agriculture and produces and exports a huge range of agriculture products Today, however, the biggest driver for the economy is it mineral resources, particular is huge supplies of coal, iron ore, precious metals, oil and gas.

Australia’s Two Speed Economy
Currently Australia’s economy is being driven by the Chinese ability to buy everything mineral that Australia can dig out of the ground and ship: particularly iron ore. This has led to a distinct two-speed economy with the mineral rich states: notably Queensland and Western Australia having booming economies only limited by the lack of skilled labour. The “winner” states are attracting people from both internal and external migration and property investors are wise to recognise the fundamentals that are driving the resource boom.

Australia’s Real Estate Market State by State

Sydney and New South Wales
Since the 2000 Olympics Sydney has really been Australia’s iconic, best recognized city. Its stunningly beautiful harbor-side location constrained the properties. Currently enjoying a 1.1% population increase of its 4 million population. The Sydney property market is driven by the scarcity value of both central and coastal land, however the outlying western suburbs have suffered years of flat or falling prices.

Most desirable properties: harbourside, beach, or inner city terraces with good transport links. That beautiful harbour causes major transport issues: commuting times are a big issue for Sydney-siders. Sydney some lovely heritage real estate, but the new homes are a long,long way out. The far west has had problems for years will low or negative house price growth which is not going to be helped by recent oil price hikes, although a number of waterfront developments in Sydney seem determined to change that trend.

Sydney’s economy has been in the doldrums since the 2000 Olympics. Second towns of NSW include Woolongong and Newcastle, both recovering from their industrial past but still essentially heavy industry cities and ports.

Canberra isn’t part of NSW – it has its own territory – Australian National Territory with its own state tax rules. A planned city the capital has only an artificial lake for water and suffers from a reputation for being as interesting as its main employer: the government.

Melbourne and Victoria
Melbourne 3.8 million people has always been a rival to Sydney. Currently growing at 1.6% Melbourne may even become Australia’s largest city within the next decade. Twice named the “World’s most Liveable City” and known as Australia’s style and shopping capital. The compact central city is based around the Yarra River but extends to the sea at Port Phillip Bay and sprawls for miles inland, not as constrained by geography as Sydney.

Melbourne, thanks to its very rich mining history has stunning historic building and beautiful late-Victorian inner-city suburbs which feature terraces and villas. The inner city near the river has been reclaimed in recent decades with huge residential towers such as the Docklands area, on what was once industrial land. Some of these developments have been notoriously poorly designed, but others are stunners – definitely buyer beware territory. Melbourne has probably Australia’s best developed city public transport system which integrates trains, trams, light rail and buses. Being within the tram zone has always created premium property prices.

Brisbane and Queensland
Brisbane is a city of 1.8 million people with a population increase of 2.3% making it Australia’s fastest growing city. Queensland does not have the stunning architecture and physical setting of Sydney and Melbourne but lives up to its state’s advertising jingle: “beautiful one day, perfect the next”. As well as the weather Queensland is known as having the lowest taxes of many state for everything from property sales tax to petrol. Sitting on the Brisbane River there is almost continuous urban development along the coast from the Gold Coast in the south to the Sunshine Coast in the north. Brisbane has outgrown its public transport system and the city has a ring-road with traffic jams to rival London’s.

A newer city than Melbourne and Sydney, Brisbane lacks the charming brick villas and terraces of those cities. Instead Brisbane is home to the Queenslander style of house. Queenslanders are built on stilts so that the single story home with deep verandas and louvered windows all around catchs the breeze. Traditionally people slept on the veranda on warm nights. Theres homes are now desirable property as they have been rediscovered to be very-cool in the humid and hot Queensland summers as being surprisingly energy efficient. With many older houses built of wood its important to know that Queensland has some interesting insects which love to eat houses: notably the white ants and termites. It is absolutely essential to have a pest report before buying any property in the tropics.

Perth and Western Australia
Like Queensland, Western Australia is riding the mining and resources boom. Perth is a city of 1.4 million people with a growth rate of 2.1% Situated on the Swan river – a few kilometers upstream from the port of Fremantle, although originally settled not long after the eastern states, its only in the last 40 years that Perth has grown into a significant city. It is therefore fortunate to boast a modern infrastructure including a growing suburban rail system in a well-planned, modern city.

Perth has urban sprawl which is as bad as LA’s – but fortunately without the pollution or traffic jams. The State government appears committed to an aggressive road and urban train expansion program.

As in Brisbane, a growing number of Perth’s residents work thousands of kilometers away – in fly-in fly-out mining camps in the remote areas of the state or even the Northern Territory. Early morning at Perth airport you will find day-glo work shirts and tool boxes out numbering the business suits and brief cases 10 to 1. The airport is at capacity but will be re-developed nearby – properties close to the airport are therefore very appealing to those who use it for their regular commute.

Adelaide and South Australia
This church-rich city of 1.1 million has only recently started recording a significant population increase of 1% in recent years. The city of Adelaide in the state’s south-east sits between the coast and the Adelaide Hills which are home of some of Australia’s and the world’s wine growing areas including the Coonawarra and Barossa valleys. Traditionally South Australia has always been the manufacturing state for the adjacent, more expensive and more heavily populated eastern states. Now it is also starting to have significant new mining projects develop with major production at Olympic Dam and other mines. Some commentators are predicting that Adelaide is at the beginning of a resource boom similar to that being experienced by Perth and Brisbane currently.

Photo Credit: Adam Wood

Hobart and Tasmania
Separated from the mainland by Bass Strait Tasmania prides itself of its clean, natural environment and national parks protected from the mainland’s introduced pests and diseases. Hobart’s population of 470,000 is increasing at a rate of 0.8% with a location and lifestyle which appeals to both retirees and alternative-lifestylers attracted to the uniquely temperate climate – for Australia. Unusually for Australia houses heating systems are probably more important than their air-conditioning.

Darwin and the Northern Territory
Stretching from iconic Ayers Rock to tropical Kakadu National Park the Territory has everything – except people. Darwin, the capital, has a population of 114,000 of the territory’s 220,000 population. Darwin is rapidly growing with an annual growth rate of 2.4% fueled by the mining boom and tourism. The town’s port and downtown was badly damaged during World War 2 bombing raids, and the whole town was flattened when Cyclone Tracey hit on Christmas Eve 1974 with 70% of its building destroyed. Darwin is therefore a modern city with a stringent building code, though in fact cyclones are extremely rare. The town is built on a peninsular with limited room to expand, the dormitory town of Palmerston will probably see most of the top-end’s population increase over the next decades.

Although close to Timor and Indonesia Darwin is considered incredibly isolated, even by Australian standards. Lack of competition keeps airfares high too. It is a 3 – 4 day drive to Perth, Brisbane or Adelaide. Obviously transport costs significantly increase the cost of everything from building materials to food in Darwin.

Australian Property Market
Australians, particularly those with children, have always preferred stand-alone homes with a yard. There is now a tendency to the larger houses on smaller blocks. Many new houses in Australia feature an integrated outdoor patio, often with built in barbeque and a roof for sun protection. Water features and swimming pools are popular but are expensive to run.

Traditionally Australians have wanted to own rather than rent their own homes and most who rented were younger, lower-income, or new arrivals to the country. There is now significant debate about “gen Y’s” inability to save money, compromise on lifestyle and desire to live in cheaper areas that they can afford. This may be fundamentally changing the Australian property market – but the ramifications are yet unclear.

Rental properties tend to concentrate in the following areas

• Inner city – often expensive, 1 or 2-bed properties withing walking distance to work and leisure activities
• Near universities and TAFES (technical colleges) – cheaper properties either purpose built units or older houses rented out on a room-by-room basis.
• Smaller family homes in cheaper areas but maybe with good access to transport or employment opportunities.

Residential property leases can either be periodic: for no fixed time but with a notice period on either side, of a fixed-term lease with a finish date. Fixed-term leases can often revert to a periodic lease or anther fixed-term. Its rare for leases to be for more than 12 months.

Buying Australian Residential Real Estate
First lets note that the rules are significantly different if you are not an Australian citizen or permanent resident or even if your spouse is not. For more details check Austalian Investing Rules for Non-Residents

Raising Capital
The Australian banking system and mortgage lending industry is similar to that which operates in the UK. Most Austrailans still have mortgages from the main banks (Commonwealth Bank, ANZ, WestPac, BankWest) though there are number of significant non-bank lenders. Many borrowers will deal direct with their normal bank but using a reputable mortgage broker can be helpful for people with unusual situations such as just arrived in the country or self-employed

Most borrowers prefer to borrow for property in the same currency as they are purchasing in to eliminate foreign exchange risk. It is however sometimes possible to borrow against existing property in your home country and use to buy property in Australia. Note though that the Australian dollar can be significantly volatile against other major world currencies so although the lower interest rate at home may be attractive this is not necessarily a low-risk option

Finding Property for Sale
Although the main Real Estate industry groups now all have websites a lot of property is still only advertised in the local newspapers and free real estate magazines available from local real estate offices. Real Estate listings are most common on Saturday papers. The key newspapers for each main city are:
The Age – Melbourne
Sydney Morning Herald – Sydney
The West – Perth
The Courier Mail – Brisbane

Major property websites – Australia-wide are:
domain.com.au
realestate.com.au
open2view.com.au

The first 2 of these also have extensive rental listings which is useful for researching the demand for a potential rental property. Note that rents are always quoted on a weekly basis, except for short-stay tourism accommodation which may have a nightly rate. Open2View has better than average videos and photos of properties. Anyone used to the extremely detailed listing common in the US or UK will be disappointed by the lack of detail which is common in Australian property descriptions.

The Property Buying Process

Most property is bought or sold via a licensed real estate agent . There is a however no obligation to use an agent an occasionally you will come across a “for sale by owner”. The purchase of property is a relatively straight-forward legal process. Once conditions and price are agreed the contract is said to be “unconditional” and is binding. Both sides are committed to completing the transaction and there is no “gazumping” possible. Both sides are obliged to complete the sale/purchase on the day agreed.

The process is also relatively quick. Once a sale is agreed the typical terms for the conditions to be met, typically proof of title, and finance and property condition reports, the time to settlement will often be around 30 days. I small point: settlement agents and lawyers as well as removal companies tend to be very busy on Fridays and any last-minute delay can cause a 3 day delay over the weekend – it is often easier and lower stress to agree to settle earlier in the week.

Property Fees and Taxes
There are both Federal and State taxes applicable to purchasing Australian property,
Goods and services tax (GST) (similar to VAT)

GST is charged at a flat rate of 10% and is charged on the supply of goods and services, including real estate. It is essentially a value added tax as it is the consumer or end user who ultimately bears the tax.

Stamp duty is levied on a wide range of transactions, including real estate. It varies depending on the type of property (existing or new) and by which state the property is locatetd in. Stamp duty is either a fixed rate or an increasing scale.

Land Tax. This is an annual state tax based on the ownership of land and, in some states, on the usage of land. Land tax is levied on the total unimproved value of the land at a specified date.

Capital Gains Tax (CGT)

CGT in Australia is payable upon realized capital gains and it is not treated separately in its own right, but forms part of the income tax system. However, for home owners this tax is not charged as the sale of personal residential property is normally exempt from capital gains tax. Gains realized during any period in which the property was not used for personal use (eg. rental) are, however taxable.

Inheritance/Wealth Tax
Australia property does not incur inheritance taxes, although some inherited assets may have Capital Gains Tax implications for the beneficiaries.

Tax on Rental Income
Any income you receive from rents is taxable as part of your normal Australian tax obligations. Genuine expenses incurred can be claimed and typically include: accountant’s fees, property management fee’s, advertising and other tenant costs, insurance (property and rental insurance and liability), some deprecaition costs – for newer properties. The Australian Tax Office (ATO) official Rental Deductions Guide

Property Investor’s Forums

The best property investment form for Australia is without doubt Somersoft Investment Forums – its been around for years and is full off unbiased advice.

Property Talk was originally a New Zealand forum but the have a useful Australian forum too.

Photo Credits unless otherwise stated: Paris Luxury Hotels