The ABC of buying Australian property as an expat or non-resident
When you’re not living in the country (expat) or you’re being paid in a currency other than Australian dollars, it can prove slightly more challenging to buy property in Australia.
Living abroad or being a temporary resident when purchasing property in Australia has a whole host of challenges, none of which are insurmountable. The trick is to know of them in advance to help you with your planning and to ensure that you have the right people on your team to make it happen.
Follow our guidance to make sure you secure your loan.
Top tips for expats buying property in Australia
a. Get your paperwork in order
This tip isn’t only for expats or non-residents; it’s for anyone who intends to apply for a loan. Most lenders want to see at least three months’ worth of savings, payslips and credit card statements. However, to give yourself the best chance of securing your loan, start saving, and organising your paperwork, at least 12 months before you apply. The more evidence you have to show your lender, the faster the approval process, especially when you’re after a fully verified pre-approval so you can shop with confidence, knowing your budget.
b. Engage a buyer’s agent
A common question is how to physically purchase a property when living abroad. Most expats arrange a pre-approval first and then fly back home for a house-buying holiday. Sometimes they use their family and friends to find a property for them. Although family and friends will have a good idea of what you like or don’t like, they have their own lives and often don’t want to spend their free time searching for property. You need a buyer’s agent.
If you haven’t heard of buyers’ agents, they’re like real estate agents but they work for you, the buyer, to get you the best deal on a property (unlike real estate agents whose loyalty must be with their clients, the sellers).
For expats or non-residents living overseas, a buyer’s agent is your eyes and ears on the ground, keeping a lookout for property on your behalf. Once you explain to your buyer’s agent what you want, and where, they will connect with all their local and interstate contacts. They can also handle all the negotiations on your behalf, so you save time and money by not having to make a trip back home.
Buyers’ agents generally have large databases of properties for sale. This means they often get access to a property that is coming up for sale before the property is advertised to the general public as they have relationships with real estate agents who go first to a buyer’s agent for a quick sale. Often a qualified valuer, a buyer’s agent knows what a property is worth and therefore knows a good deal when they see one.
Generally, they charge between 2% and 3% of the purchase price. This might seem like a lot but often a buyer’s agent can find you great deals 10-15% below market value to which you would otherwise not have access.
c. Engage a mortgage broker
While you might get away with do-it-yourself loan application if you’re trying for a standard loan, when you’re an expat or living overseas, there are many factors to consider.
A specialist mortgage broker can help you avoid common issues that will cost you more money in the long term. Dealing with foreign currency, documentation in a language other than English, regulatory requirements and taxation issues can be a complex web.
Key factors are:
- Type of property
Buying an established property isn’t the only way to invest. We can guide you to other options, including:
- House-and land packages
A good option for expats, a house-and-land package has a number of benefits, including tax benefits and lower maintenance costs for the first few years.
- Off-the-plan purchase
Buying off the plan, as long as you buy from a reputable developer, can be a good option for expats. Plus, as it’s a brand-new property, it comes with similar benefits as for a house-and-land package.
- House-and land packages
- Deposit requirements
There is a bit of an expat myth that you need at least a 20% deposit (loan-to-value or LVR of 80%). However, some lenders will accept an LVR of 95% as long as you take out Lender’s Mortgage Insurance.
- Lender’s Mortgage Insurance (LMI)
Once the lender has the valuation report and any other supporting documentation they have requested, they will seek approval from their Lender’s Mortgage Insurer (LMI) if the loan-to-value ratio (LVR) is higher than 80% (that is, if you, the buyer, have less than a 20% deposit). The Lender’s Mortgage Insurance protects the lender should you default on your mortgage repayments.
- Fully verified pre-approval
Because you’re dealing with your purchase at arm’s length, non-resident borrowers should obtain a fully verified pre-approval from a reputable lender before committing to any purchase.
Pre-approval is the bank’s or lender’s way of confirming you meet their lending criteria and will receive the agreed-to amount if the property you choose passes their valuation inspection and meets their mortgage insurance requirements. A fully verified pre-approval goes one step further. To achieve this, the lender will need to review your submission, payslips, bank statements and any other financials.
The following list identifies some policies that will result in some lenders declining while others will approve:
- Employment history.
- Clean credit history.
- Type of residency visa you are on or the country in which you reside.
- Currency in which you are paid.
- Foreign Investment Review Board approval
In many cases, foreign citizens living in Australia or overseas as well as temporary residents will require FIRB approval before they commit to buy residential property. You will not need FIRB approval if one of the following exemptions applies:
- Your spouse (married or de facto) is an Australian citizen and the property is being purchased in joint names.
- You are a New Zealand citizen.
- The property being purchased is from a developer that holds approval from the FIRB to sell to foreign citizens.
Maddie* is an Australian citizen married to Klaus*, a German citizen with a Permanent Residency visa. The couple were looking to buy two investment units in Sydney. Some of the challenges they were up against included:
- They were expats earning Euros.
- Maddie was a foreign citizen living overseas, which means, in NSW, that they are subject to a higher stamp duty burden. In their case, this was an additional $27,000.
- Their income documentation was in German.
- Maddie receives a bonus as part of her income package.
- We went with a lender that would allow us to purchase the home in Maddie’s name only as she is an Australian citizen, but both names were on the mortgages. This avoided the higher stamp duty payment, saving the client $27,000. The lender allowed for the use of translations via a National Accreditation Authority for Translators and Interpreters (NAATI). The lender did not count the bonus income; however, we managed to use some overtime payments to allow us to have sufficient income to meet repayments.
Maddie and Klaus now have an investment portfolio of two Sydney units and the longest part of their lending process was receiving the fully verified pre-approval. I recommend everyone should obtain pre-approval upfront as it takes away most of the uncertainty about whether or not you will successfully be able to obtain a loan.
As a general rule, expats and non-residents will not pay higher interest rates when buying property, but there will be a limited number of lenders to choose from.
We will provide a quick overview of some of the major considerations for expats, but you can gain a much more comprehensive insight with MAP Home Loans’ Buying Property in Australia: The Temporary and Non-Resident Guide to Buying Australian Property. To get your copy, visit www.maphomeloans.com.au.
d. Find an accountant who understands non-resident tax
If you are an Australian expat and planning to buy a property for investment purposes, it is important that you submit a tax return every year to preserve and take advantage of any negative gearing benefits. It is helpful to use an accountant who is experienced in non-resident tax returns.
Need help buying property?
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