Real Estate Guide For Migrants

Buying a Home In Australia As A Migrant

Once you have secured your permanent residency you are free to purchase any property you wish in Australia.  However, recently Australia have curtailed the purchase of property for investment purposes by non-residence.  The restriction on purchasing residential property also applies to temporary residence which can include:

  • Students
  • Sponsored Skilled Workers
  • Contributory Parents
  • Retirement Visas

It does not affect those who are on a temporary partner visa.  Here we explore the restictions you may face in the early days of being in Australia. 

Residential real estate – temporary residents

Temporary residents generally need to apply for and receive foreign investment approval before purchasing any residential real estate in Australia.

Who is a temporary resident?

A temporary resident is an individual who:

  • holds a temporary visa that permits them to remain in Australia for a continuous period of more than 12 months (regardless of how long remains on the visa); or
  • is residing in Australia, has submitted an application for a permanent visa and holds a bridging visa which permits them to stay in Australia until that application has been finalised.

Factors considered by property type

Established dwellings

An established dwelling is a dwelling on residential land that is not a new dwelling.

Commercial residential premises such as hotels, motels and caravan parks are not included in the definition of an established dwelling.

Temporary residents will normally be allowed to purchase only one established dwelling to live in as their residence (home) in Australia, subject to the conditions that they:

  • use the property as their principal place of residence in Australia;
  • do not rent any part of the property, including ensuring that it is vacant at settlement; and
  • sell the property within three months from when it ceases to be their principal place of residence.

Temporary residents are not permitted to purchase established dwellings as investment properties, to rent out, or as holiday homes.

Temporary residents need to apply and receive approval before purchasing an established dwelling for redevelopment.

 

Established Dwelling Exemption Certificate (Auctions)

Properties sold at auction generally require all bids to be unconditional. As temporary residents require approval to take an interest in an established dwelling, under the framework temporary residents would be required to seek individual approval to bid at each auction they attend.

To streamline the process and allow temporary residents to comply with the foreign investment rules and bid at more than one auction while only acquiring one established dwelling, temporary residents can apply for an established dwelling exemption certificate. This certificate will allow a temporary resident to purchase one unspecified established dwelling up to a specified value, and only pay one fee on application for the certificate. Such exemption certificates will normally be subject to the conditions that apply to established dwelling approvals, and that the temporary resident must report on any purchase made.

 

New dwellings

Temporary residents will normally be allowed to purchase new dwellings in Australia without being subject to any conditions. Temporary residents may purchase new dwellings in addition to one established dwelling (that is used as their primary residence). There is no limit on the number of new dwellings a temporary resident may purchase, but approval is generally required prior to each acquisition.

A new dwelling is a dwelling that will be, is being, or has been built on residential land, has not been previously sold as a dwelling, and has either:

  • not been previously occupied; or
  • if the dwelling is part of a development (50 or more dwellings) and was sold by the developer of that development, has not been previously occupied for more than 12 months.

New dwellings do not include established residential real estate that has been refurbished or renovated.

A single dwelling that has been built to replace one or more demolished established dwellings would generally not be treated as a new dwelling for the purposes of Australia’s foreign investment framework.

Exemption to purchase a new dwelling in a development

Developers may hold a new dwelling exemption certificate that allows them to sell new dwellings in the development specified in the certificate to foreign persons. Where a developer has this certificate, the temporary resident may not require a separate approval. The temporary resident should ask the developer for a copy of the exemption certificate for the development in which they are intending to purchase. If the exemption certificate covers their intended purchase, they do not need to seek separate foreign investment approval.

Vacant land

Temporary residents will normally be allowed to purchase vacant land for residential dwelling development, subject to conditions that:

  • the development is completed within four years from the date of approval; and
  • evidence of completion of the dwellings is submitted within 30 days of being received. This could include a final occupancy or builder’s completion certificate.

In exceptional circumstances where the development cannot be completed within the specified four years, the temporary resident could apply for a variation to the condition (the application for the variation must be made at least two months prior to the end of the period). A fee will apply for this. Variations will be considered on a case-by-case basis.

Vacant land that previously had an established dwelling on the land would generally not be treated as vacant for the purposes of Australia’s foreign investment framework. As such, foreign persons would generally not be eligible to purchase vacant land that previously had a dwelling built on it (unless they are proposing to construct multiple dwellings on the land which will increase the housing stock).

Established dwellings for redevelopment

Temporary residents will normally be allowed to purchase an established dwelling for redevelopment in Australia, provided the redevelopment genuinely increases the housing stock. Such proposals are normally approved subject to conditions that:

  • the existing dwelling cannot be rented out prior to demolition and redevelopment;
  • the existing dwelling is demolished and construction of the new dwellings are completed within four years of the date of approval; and
  • evidence of completion of the dwellings is submitted within 30 days of being received by the applicant. This could include a final occupancy or builder’s completion certificate.

Temporary residents will generally not be approved to purchase an established dwelling to redevelop into a single new dwelling.

Penalties

Strict penalties (including civil and criminal penalties and disposal orders) may apply for breaches of Australia’s foreign investment rules.

Cases of non-compliance with Australia’s foreign investment framework may also be brought to the attention of law enforcement agencies and other Commonwealth departments such as the Department of Immigration and Border Protection.

How to apply

If you would like to apply for foreign investment approval for:

  • A new dwelling
  • Vacant residential land
  • A second hand or established dwelling
  • An exemption certificate for established dwellings – an auction certificate

Please use the Australian Taxation Office’s foreign investment application form.

Foreign persons should take care to ensure they supply the correct details and all required information as part of their application as changes to details, such as name or property address, after an approval has been granted may require foreign persons to seek a new approval and be subject to further fees.

 

The Latest House Price Data As House Price Rises Accelerating In Australia

Australia annual house prices

Australia’s housing market continues to rise, amidst modest economic growth. House prices rose by 11.4% in Australia´s eight major cities during the year to end-Q3 2015 (9.72% inflation-adjusted), up from an annual rise of 9.23% in a year earlier and the highest y-o-y increase since Q2 2010, based on figures from the Australian Bureau of Statistics (ABS). House prices increased 2.17% (1.71% inflation-adjusted) quarter-on-quarter in Q3 2015.

Sydney saw the biggest increase, with residential property prices surging by 19.9% (18.1% inflation-adjusted) during the year to Q3 2015, followed by Melbourne (9.9%), Canberra (4%), Brisbane (3.8%), Adelaide (3.5%), and Hobart (1.7%). On the other hand, residential property prices dropped in Perth (-3.3%) and Darwin (-2%) over the same period.

The mean price of residential dwellings in Australia was AU$612,200 (US$429,734) in September 2015, up 10.2% from the same period last year, according to the ABS.

New South Wales, especially Sydney, has the most expensive housing in the country, with the mean house price at AU$780,900 (US$548,152) in Q3 2015, about 30% above the national mean house price. In contrast, Tasmania has the cheapest housing in Australia, at a mean price of AU$321,100 (US$225,396) over the same period.

Some critics believe that Australia´s housing market remains severely overvalued.

  • The Economist estimated that Australian house prices are overvalued by more than 30% as of Q3 2015.
  • According to the Global Real Estate Bubble Index published by investment bank UBS, Sydney house prices are significantly overvalued and at risk of falling in the future. Based on the report, Sydney house prices had increased by about 30% since 2012 while income and rents had stagnated over the same period.
  • According to the International Monetary Fund (IMF), housing market risks in Australia remain heightened, especially in Sydney, mainly due to investor credit and interest only loans. House prices are estimated to be moderately overvalued by about 10%. 

Yet demand remains strong. In October 2015, seasonally-adjusted purchases of established dwellings rose by 8.4% to 46,868 units from the same period last year, according to ABS. In fact, the value of established dwelling purchases soared by 23.7% to almost AU$18.11 billion (US$12.71 billion) over the same period. Likewise, seasonally-adjusted purchases of new dwellings increased 8.9% y-o-y to 2,953 units while the value of new dwelling purchases soared by 32.4% to almost AU$1.25 billion (US$0.88 billion) over the same period.

The continued strength of the housing market is somewhat surprising, since Australia´s economy is estimated to have grown by a modest 2.4% in 2015, after GDP growth of 2.7% in 2014, 2.1% in 2013, 3.6% in 2012, 2.7% in 2011, 2.3% in 2010 and 1.6% in 2009, according to the IMF. However two factors may partially explain it.  The Reserve Bank of Australia (RBA) has kept its cash rate at a record low of 2%, after cutting it by 25 basis points each in February and in May 2015. The other factor is increased purchases of residential real estate by foreign nationals, especially Chinese, who continue to find Australian property very attractive. Proposed foreign investment in the country’s residential real estate market surged to AU$34.7 billion (US$24.36 billion) in 2013-14, up from AU$17 billion (US$11.93 billion) in the previous year, according to the Foreign Investment Review Board (FIRB). China topped the list of real estate approvals, with AU$12.4 billion (US$8.7 billion), twice that of the United States.

Acquisition of residential real estate by foreign nationals and corporations is subject to FIRB approval. Foreigners are not allowed to buy an established (previously occupied) house. They may buy an unoccupied new dwelling, but only if the FIRB feels that the purchase will not add to the shortage of properties available to native Australians.

Australia’s housing boom; crash avoided

Australia price index

The strength of Australia’s housing market through the recession surprised observers, who had predicted that Australia would suffer one of the worst housing market crashes, because of house price overvaluation.

One reason a crash was avoided was that lending standards have been stricter than in the US.  In addition, the government helped first-time homebuyers, introducing a AU$10.4 billion (US$7.24 billion) stimulus package in October 14, 2008 - worth around 1% of GDP - which included the First Home Owner Boost Scheme (FHOB), which raised the First Home Owner Grant (FHOG) from AU$7,000 (US$6,419) to AU$14,000 (US$12,838) for existing dwellings, and to AU$21,000 (AU$19,257) for newly built homes (however, the FHOG reverted back to $7,000 in December 2009 in NSW, and reduced it in other states).

There are also housing shortages due to a rapidly growing population, and in a context of shrinking Australian household sizes.  There was also strong immigration from 2004 to 2007.

Housing affordability continues to deteriorate

Australia building approval

Australia, specially its five major metropolitan areas, remains “severely unaffordable” in 2015. Among the nine developed nations covered by the 12th Annual Demographia International Housing Affordability Survey, Australia was ranked third most unaffordable major housing market in 2015.

The survey uses the Median Multiple to assess housing affordability in 367 metropolitan markets in Australia, Canada, China (Hong Kong), Ireland, Japan, Singapore, New Zealand, the United Kingdom, and the United States. The Median Multiple follows this formula: Median Multiple = median house prices / median household income.

Aside from Sydney, Australia’s least affordable housing markets in 2015 included Melbourne with a Median Multiple of 9.7, followed by Perth (6.6), Adelaide (6.4), and Brisbane (6.1).

Of the 51 Australian markets surveyed in 2015, 33 were rated “severely unaffordable” (Median Multiple of 5.1 and above), 12 were “seriously unaffordable” (Median Multiple between 4.1 and 5.0), 4 was rated moderately affordable (3.1-4.0), and 2 markets evaluated as affordable (3.0 & under).

Among the 367 major markets, Sydney was ranked second most unaffordable. In fact, housing affordability in Sydney deteriorated by about 24% in 2015 from the previous year, the largest change ever recorded in the historu of the Demographia Survey. Outside the major markets, the Tweed Heads (Queensland), is the most severely unaffordable market, with a Median Multiple of 9.3.

This was supported by the UBS Global Real Estate Bubble Index, ranking Sydney as the third most vulnerable market in th world to real estate bubble risk.

The severe housing unaffordability in the country, especially in Sydney, was mainly due to the urban consolidation in Australia during the period, which severely limit or even prohibit new housing construction on or beyond the urban fringe.

Rental yields down, rents rising slightly

Australia exchange rate

Rental yields in Australia have hit historic lows, amidst strong house price increases. Sydney saw the biggest decline in rental yields, falling to 3.3% in September 2015 from 3.8% in the same period last year, according to CoreLogic RP Data Rentral Report. Likewise, yields in Melbourne dropped to 3% from 3.4% over the same period. On the other hand, Canberra yields remained steady at 4.1% in September 2015 while Darwin had a robust rental yield of 5.9%.

Our own yields research for Australia is now rather old (Global Property Guide Research of August 2014). During the period, the gross rental yield for apartments in Sydney, i.e., the gross return on investment in an apartment if fully rented out, ranged widely, from 2.8% to 5.0%. Small apartments earn significantly higher rental returns than big apartments.

"Gross rental yields at record lows and affordability constraints are acting as a further disincentive, particularly in Sydney where the median unit price is equal to, or higher, than the median house price in every other capital city," said Tim Lawless of CoreLogic RP Data.

During the third quarter of 2015, the average rent in Australia’s major cities rose by a meagre 0.5%, according to CoreLogic. Darwin suffered the largest annual decline in rental rates of 11.4% in Q3 2015, which was followed by Perth (-5.8%). On the other hand, Melbourne and Sydney saw the biggest annual rental growth in Q3 2015, at 2.1% and 1.9% respectively. Minimal annual rent increases were also seen in Hobart (1.5%), Canberrra (1%), Brisbane (0.5%), and Adelaide (0.1%).

“A lot of investors are looking at capital growth potential, rather than rental returns,” said Cameron Kusher of CoreLogic. “That can be successful when properties are climbing, but over the long term, you need some sort of rental return. A lot of properties in Sydney and Melbourne especially don’t currently have that potential.”

Key interest rate on hold

Australia interest rates

The Reserve Bank of Australia (RBA) kept the official cash rate unchanged at a record low of 2% in December 2015, after cutting it in February and May 2015, in an effort to support borrowing and spending amidst a slowdown in the mining sector.

“Monetary policy needs to be accommodative,” said the RBA. “Low interest rates are acting to support borrowing and spending. While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative.”

As a result, interest rates for housing loans were also at their historic lows:

  • The average standard variable interest rate for housing loans was 5.65% in December 2015, unchanged from the previous month but down from 5.95% in a year earlier.
  • The average discounted variable interest rate for housing loans stood at 4.85% in December 2015, unchanged from the previous month but down from 5.1% in a year ago.
  • The three-year fixed interest rate for housing loans stood at 4.45% over the same period, unchanged from the previous month but down from 5.1% in a year ago.

“Growth in lending to investors in the housing market has eased. Supervisory measures are helping to contain risks that may arise from the housing market,” said the central bank.

Mortgage market continues to grow

The Australian mortgage market has grown from around 15% of GDP in the 1970s, to 58% of GDP in 2002 and finally to around 95% last year, thanks to low interest rates.

Australia mortgage loans

In the third quarter of 2015, the total residential housing loans outstanding in the country rose by around 8% y-o-y to more than AU$1.55 trillion (US$1.09 trillion), based on figures from the Reserve Bank of Australia.

Housing loans for both investors and owner-occupiers increased. During the third quarter of 2015, housing loans for owner-occupiers stood at AU$911.75 billion (US$640 billion), up by 10% from the same period last year. Likewise, housing loans for investors also increased by 4% to AU$526.08 billion (US$369.28 billion) over the same period.

Residential construction declining

Residential construction activity is falling. In October 2015, construction of dwellings in the country also fell both in number and in value, by 12.4% and 7.9%, respectively.

In September 2015, the total number of dwelling starts fell by 3.11% to 52,340 units from a year earlier, according to the Housing Industry Association (HIA). Western Australia registered the biggest drop in housing starts of 20.6% y-o-y in September 2015, followed by Northern Territory (-17.2%), Victoria (-5.5%), Queensland (-4.4%), and South Australia (-2.3%). In contrast, the Australian Capital Territory’s construction sector saw the biggest annual increase in dwelling starts of 15.2% in September 2015, followed by New South Wales (9.8%) and Tasmania (9.8%).

Australia housing starts

Moreover, housing starts in Australia is expected to fall by 12% to 186,080 units in 2016 from the previous year, according to the HIA.

The decline in housing construction is expected to exacerbate the shortage of affordable housing in the country, which could drive those at the bottom of the market to become renters instead of buying, and struggle with high rents.

Australia’s affordability problem is partly attributed to insufficient construction of new houses. Australia has been under-building new residential dwellings in the past years, for several reasons.

  • Stringent urban planning policies and land use restrictions (called ‘smart growth’, ‘urban containment’, etc.). “An increase in state government zoning regulations is a significant factor driving up the cost of housing”, said Reserve Bank of Australia Governor Glenn Stevens.
  • Tax burdens on builders and developers. In New South Wales, government taxes and other charges are estimated to account for about 30% of the price of new houses.
  • Due to the extended impact of the global credit crunch, some developers continue to struggle to secure finance.

The value of dwelling stock owned by households in the country rose by 12.2% y-o-y to AU$5.56 trillion (US$3.94 trillion) in September 2015, according to the ABS. New South Wales accounted for the biggest share of the total dwelling stock at about 40%, followed by Victoria (26.5%), Queensland (15.4%), and Western Australia (9.9%).

Over the same period, the number of residential dwellings in Australia stood at around 9.57 million, up by 1.7% from a year earlier.

Economic growth remains modest, exports improving

Australia gdp inflation

In the third quarter of 2015, Australia’s economic growth accelerated to 2.5% from a year earlier, up from annual growth rates of 1.9% in Q2 2015, 2.1% in Q1 2015, and 2.2% in Q4 2014, fuelled by the biggest increase in exports since 2000 and supported by the central bank’s decision to keep its key rates steady, based on figures from the Reserve Bank of Australia (RBA).

Economic growth was estimated at around 2.4% last year, from an average annual growth of 3% from 2000 to 2014, according to the International Monetary Fund (IMF).

The RBA kept the target cash rate at 2% in December 2015, after a cutting it by 25 basis points in May 2015, in an effort to buoy the domestic economy amidst an economic slowdown in China, Australia’s largest trading partner.

The Australian dollar (AUD) depreciated by about 11% from AUD1 = USD0.8202 in December 2014 to AUD1 = USD0.7306 in December 2015.

Australia’s export industry is now improving. In Q3 2015, the country’s current account deficit narrowed to about AU$18,104 million (US$12,826 million), down from a deficit of AU$20,506 million (US$14,528 million) in the previous quarter, according to the ABS. Despite this, demand from China remains unstable.

In December 2015, the nationwide unemployment rate dropped to 5.8%, unchanged from the previous month and down from 6.1% in the same period last year, according to the ABS. There were about 727,500 unemployed persons in Australia in December 2015, down by 3.6% from a year earlier.

Consumer prices rose by 1.7% in Q4 2015 from a year earlier, slightly up from 1.5% in the previous quarter, but unchanged from a year ago, amidst falling petrol prices. Australia’s nationwide inflation rate averaged 3.1% during 2008-2011 before declining to 2.2% during 2012-2014.

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