Because foreigns can buy property in Australia, Australia’s thriving property market has been capturing the attention of international investors worldwide. And fortunately, the process of buying property in Australia as a foreigner isn’t that complicated. But before you dive into the world of Australian real estate, there is a crucial step to consider: obtaining FIRB approval for a residential property.
In this comprehensive guide, we will walk you through the intricacies of FIRB approval and arm you with the knowledge to confidently navigate the process of purchasing property in Australia as a foreign investor.
Understanding the Foreign Investment Review Board (FIRB)
The Foreign Investment Review Board (FIRB) is an Australian government advisory board that plays a vital role in the country’s real estate market. Tasked with reviewing foreign investment in Australian real estate, the FIRB aims to protect the economy and prevent speculation by ensuring that foreign investments are in the best interest of the nation.
This oversight ensures that the Australian property market remains stable and accessible to both domestic and foreign buyers.
Purpose of FIRB
The primary purpose of the FIRB is to regulate and approve foreign investment in Australia. By focusing on supporting existing jobs, creating new jobs, encouraging innovation, and providing access to markets, the FIRB helps maintain a healthy balance in the Australian economy.
It also plays a crucial role in moderating stock within the property market, preventing excessive speculation and ensuring that property remains accessible to Australian citizens and permanent residents.
Additionally, if you’re buying property in Australia from overseas, you will be required to complete four residency tests.
FIRB’s impact on property market
FIRB’s impact on the property market is evident in its restrictions on foreign investors. By restricting foreign investors to investing in new properties, the FIRB aims to prevent speculation that could lead to skyrocketing housing prices.
This ensures that the Australian property market remains accessible and affordable for both domestic and foreign buyers, promoting a stable and prosperous economy.
Who Needs FIRB Approval?
Foreign investors must obtain FIRB approval before purchasing residential property in Australia. This requirement applies to temporary visa holders (like 491 visa holder which are allowed to own property), foreign investors, and corporations. However, there are some exemptions and exceptions to this rule, such as Australian citizens, New Zealand citizens, and certain temporary visa holders.
In this section, we will delve into the specifics of who needs FIRB approval, and the various FIRB exemptions available.
Temporary visa holders
Temporary visa holders like bridging visa holders can buy property in Australia. However, they are subject to FIRB approval when purchasing residential property in Australia. Eligible individuals include those who hold temporary visas and are authorized to stay in Australia for a continuous period of more than 12 months or have applied for permanent residency and have a bridging visa while the application is being completed.
However, the property applications that a temporary resident is eligible for will depend on the specific visa they hold.
Foreign investors and corporations
Foreign investors and corporations must also obtain FIRB approval before purchasing residential property in Australia. There are some exemptions to this requirement, such as if the foreign person is buying the property with an Australian citizen as joint tenants and they are in a spousal relationship. In such cases, FIRB approval is not required.
Additionally, foreign investors have the option to purchase residential property in Australia as joint tenants, tenants in common, or through other co-investment structures.
Exemptions and exceptions
Exemptions and exceptions from FIRB approval are available for specific individuals or entities who are not obligated to obtain FIRB approval when purchasing property in Australia. These include Australian citizens, New Zealand citizens, and holders of certain temporary visas.
Knowing these exemptions and exceptions can help foreign buyers navigate the process more efficiently and avoid unnecessary complications.
Types of Residential Properties for Foreign Buyers
Foreign buyers have a range of residential property options in Australia, including new properties, vacant land, and established residential properties. Each type of property comes with its own set of rules and requirements, making it essential for foreign investors to familiarize themselves with the various options before making a purchase.
It is important to understand the different types of properties available, as well as the associated costs and regulations. This will help foreign buyers make an informed decision when it comes to purchasing a property in Australia.
New properties
Foreign buyers can purchase new dwellings, off-the-plan properties that are under construction, or vacant land with the intention of constructing a new property in Australia. The process of acquiring a new property is similar to that of any other property acquisition in the country.
Foreign buyers must obtain FIRB approval, and the associated fees will depend on the value of the property.
Vacant land
Foreign buyers can also purchase vacant land in Australia, with the intention of constructing a new property. The process is similar to that of acquiring any other property in the country, with the added requirement of developing the land according to FIRB guidelines.
This typically involves the construction of a residential dwelling within a specified timeframe.
Established residential properties
Generally, foreign buyers are not permitted to purchase established residential properties in Australia. However, there are some exceptions, such as purchasing a property with an Australian citizen as joint tenants in a spousal relationship. In these cases, FIRB approval is not required.
It is crucial for foreign buyers to be aware of these restrictions and exceptions to avoid complications in the purchasing process.
FIRB Approval Process and Timeline
Obtaining FIRB approval is a critical step for foreign buyers looking to purchase residential property in Australia. The application process involves submitting an online form and paying a fee based on the property value.
The decision timeline for FIRB approval typically takes up to 30 days but can vary depending on individual circumstances. In this section, we will discuss the application process and timeline in more detail.
Application process
The application process for FIRB approval involves submitting an online form, providing the necessary information, and paying the associated fee. This fee is based on the property value and is used to fund the FIRB’s operations.
It is essential to provide accurate and complete information in the application to avoid delays in the approval process. Furthermore, foreign buyers should only apply for FIRB approval once they have identified a specific property to purchase.
Decision timeline
The decision timeline for FIRB approval can vary depending on the complexity of the application and other individual circumstances. Generally, the Foreign Investment Review Board (FIRB) needs around 30 days to grant approval. This is considered a fairly quick process.
However, it is crucial for foreign buyers to be aware of this timeframe and plan their property purchase accordingly to avoid potential complications.
Costs Associated with FIRB Approval
In addition to the purchase price of the property, foreign buyers must also consider the costs associated with obtaining FIRB approval. These costs include application fees and additional taxes and duties, which can vary depending on the property value and the buyer’s circumstances.
In this section, we will explore these costs in more detail.
Application fees
Application fees for FIRB approval are based on the property value and are used to fund the FIRB’s operations. Fees start at $6,350 for acquisitions of $1 million or less and incrementally increase for each additional $1 million of consideration, up to a maximum of $503,000 for acquisitions of more than $80 million.
It is essential for foreign buyers to be aware of these fees and factor them into their overall property purchase budget.
Additional taxes and duties
Foreign buyers should also consider additional taxes and duties associated with purchasing property in Australia. These may include legal fees, loan establishment fees, stamp duty, additional foreign stamp duty, and other taxes and duties applicable to the property purchase.
Being aware of these costs can help foreign buyers make informed decisions about their property purchase and avoid any unexpected expenses.
Financing Options for Foreign Property Purchases
Financing a property purchase in Australia can be challenging for foreign buyers, but several options are available to help fund the investment. These include foreign income home loans and Australian home loans for temporary residents.
In this section, we will explore these financing options and provide insights into how foreign buyers can secure funding for their property purchases.
Foreign currency loans
Foreign currency loans are a financing option for foreign buyers looking to purchase property in Australia. This type of loan is taken out in a currency other than the borrower’s domestic currency, typically in the currency of the nation in which the asset is situated.
Foreign currency loans and foreign income home loans can offer several benefits, such as potentially lower interest rates and the ability to hedge against currency fluctuations. However, they also come with risks, such as exchange rate fluctuations and potential difficulties in repaying the loan.
Australian mortgages
Another financing option for foreign property purchases in Australia is obtaining an Australian mortgage. These loans are taken out in Australian dollars, typically from an Australian lender. Foreign buyers may be eligible for various mortgage products and interest rates, depending on their financial circumstances and the property they are looking to purchase.
It is essential for foreign buyers to research and compare different mortgage products to find the best financing option for their needs.
Tax Implications for Foreign Property Owners
Owning property in Australia can have tax implications for foreign buyers. These may include deductions, capital gains tax, and non-resident tax changes. Understanding these tax implications is crucial for foreign property owners to ensure they remain compliant with Australian tax laws and can take advantage of potential tax benefits.
In this section, we will cover the various tax implications that foreign property owners should be aware of.
Deductions
Foreign property owners in Australia are generally eligible to claim deductions for expenses associated with the upkeep of their property, including the interest on finance. These deductions can help offset the cost of property ownership and reduce the overall tax liability for foreign property owners.
It is essential for foreign property owners to keep records of their property-related expenses to claim these deductions accurately.
Capital gains tax
Capital gains tax (CGT) is a tax imposed on the profit attained from the sale of an asset, such as a property. Foreign property owners in Australia are subject to CGT when they dispose of their property.
It is important to note that non-residents are no longer eligible for the CGT discount on any capital gain earned after 8 May 2012. Understanding the implications of CGT can help foreign property owners plan for their future tax liabilities.
Non-resident tax changes
Recent changes to the tax laws in Australia have impacted non-resident property owners. One such change is the removal of the CGT discount for non-residents on any capital gain earned after 8 May 2012.
This change may increase the tax liability for non-resident property owners and should be factored into their overall property investment strategy.
Remember that for processes like these, you will need your foreign tax identifying number (FTIN) amongst other documents and identification.
Legal Considerations and Contractual Clauses
When purchasing property in Australia as a foreign buyer, it is essential to consider the various legal considerations and contractual clauses that may apply. These include the FIRB approval clause and other protective clauses that can help safeguard the buyer’s interests.
Remember that buying property doesn’t automatically make you a PR. However, it can help boost your application.
In this section, we will discuss these legal considerations and contractual clauses in more detail.
FIRB approval clause
The FIRB approval clause is an essential contractual clause that foreign buyers should include in their contract of sale when purchasing property in Australia. This clause stipulates that the sale is subject to the approval of the Foreign Investment Review Board (FIRB).
Including this clause in the contract can help protect the buyer’s interests in the event that FIRB approval is not granted.
Other protective clauses
In addition to the FIRB approval clause, foreign buyers should also consider including other protective clauses in their contract of sale. These clauses may relate to the buyer’s right to rescind the contract if FIRB approval is not obtained or the seller’s right to dissolve the contract should the buyer fail to secure FIRB approval.
Including these protective clauses in the contract can help safeguard the buyer’s interests and ensure a smooth property purchase process.
Joint Ownership and Co-investment Structures
Foreign buyers may choose to purchase property in Australia through joint ownership or co-investment structures. These structures can provide additional flexibility and investment options for foreign buyers, but they also come with their own set of rules and requirements.
In this section, we will explore the various joint ownership and co-investment structures available to foreign property buyers in Australia.
Joint tenants
Joint tenancy is a form of joint ownership where two or more individuals own a property in equal shares. This structure is common among spouses or family members who wish to purchase property together.
In a joint tenancy, all owners have equal rights to the property, and the property is automatically transferred to the surviving owner(s) upon the death of one of the joint tenants.
Tenants in common
Tenants in common is another form of joint ownership in which two or more individuals own a property together, but each person owns a specific share of the property. This structure provides greater flexibility for foreign buyers, as it allows them to determine their respective ownership interests in the property.
Upon the death of a tenant in common, their share of the property can be transferred to a nominated beneficiary, rather than automatically passing to the other property owner(s).
Other co-investment structures
In addition to joint tenants and tenants in common, foreign buyers may also consider other co-investment structures when purchasing property in Australia. These structures include trusts, companies, and superannuation funds.
Each co-investment structure comes with its own set of rules and requirements, so it is essential for foreign buyers to research and understand these options before making a decision.
Summary
Purchasing property in Australia as a foreign investor can be a lucrative and rewarding experience. However, navigating the complexities of FIRB approval, financing options, tax implications, and legal considerations can be challenging.
By understanding the intricacies of the Australian property market and the various rules and regulations that apply to foreign buyers, you can confidently embark on your property investment journey down under.
So gather your documents, do your research, and prepare to embark on an exciting adventure in the world of Australian real estate.
Frequently Asked Questions
What requires FIRB approval?
Foreign investment review board (FIRB) approval is required for foreign persons who wish to purchase any asset in Australia, including residential property, agricultural land or a business.
FIRB approval is also necessary if the investment exceeds certain monetary thresholds.
Who doesn’t need FIRB approval?
For those in a spousal relationship, no FIRB approval is required when purchasing property as joint tenants. This exemption does not apply to other non-spousal relationships such as business partners, family members, friends or relatives.
Therefore, it is important to be aware of your circumstances before making any purchases.
How much does FIRB charge for residential land?
The Foreign Investment Review Board (FIRB) charges a fee of $1 million for residential land acquisitions. Agricultural land has a fee of $2 million, while commercial land has a fee of $50 million.
It is important to ensure that all fees are paid in order to proceed with a successful purchase of residential property.
When should I apply for FIRB approval?
It is recommended that you apply for FIRB approval as soon as possible before purchasing a land interest in Australia. It is important to do so to ensure you are able to acquire the land within the required timeline and avoid any delays or complications.
What requires FIRB approval?
Foreign investment in Australia is subject to FIRB approval, and any foreign person who wishes to purchase interests in securities or assets, or acquire a substantial interest in an Australian entity, must receive approval before proceeding.
This approval process is designed to ensure that foreign investment is in the best interests of the Australian economy and community. It is important to understand the requirements and implications of the approval process before making any investment decisions.
