Are they really the cause of rental stress?
How many times have you heard someone say that the reason why our kids can’t afford property is because of the international investors?
I believe that before pointing fingers at who’s fault it is we should look at what and how a non-resident can buy in Australia.
Did you know that non permanent residents are only allowed to buy brand new/ off the plan/ house and land packages for investment purposes?
The reasoning behind this is because the government knows that they can’t provide housing to everyone so they need others to fund this venture.
The process starts with the Foreign Investor (FI) applying for a permission with Foreign Investment Review Board (FIRB) that starts with a fee of A$13,200.
For every property they are interested in they must apply and pay. If they are denied they lose their fee.
Beyond applying for permission, there are strict rules regarding the type of residential real estate and investment property you can buy.
This is because the Foreign Investment Review Board (FIRB) is responsible for ensuring that most foreign property investment is targeted at new dwellings instead of established dwellings.
This way, the government can gain revenue through stamp duty taxes while ensuring that Australian residents aren’t deprived of property they can purchase and live in.
EXCEPTIONS
Although foreign investors are generally not allowed to purchase established properties, there are three exceptions to this rule.
Foreign investors can buy an established dwelling provided that they plan to redevelop the property and increase the housing stock.
In other words, they’re going to knock the existing property down, replace it and add an additional dwelling or more onto the land.
So, redevelopment is subject to the condition that more than one additional property has to be built.
There are also time constraints on the redevelopment. The demolition, redevelopment, and construction of the new property must be completed within four years of FIRB approval, and proof must be sent to them within 30 days of the construction being completed.
The second exception applies to a temporary resident buying Australian property.
Temporary residents can apply to purchase residential property to reside in, provided that they sell the home once they leave the country.
However, if the temporary resident becomes a citizen or permanent resident, they will not have to sell the dwelling.
And lastly, the established dwelling rule doesn’t apply to commercial property. The FIRB typically approves commercial investments with less hassle than residential. However, the requirement for approval still applies.
Now that they know what they are buying it’s time to pay stamp duty.
Stamp duty for non-permanent residents is much higher than for locals. For example in NSW stamp duty is around 4% the value of the property. For a FI they have to pay an additional 8% bringing the total cost to 12%.
Banks won’t lend to them either and they don’t get any tax benefits unless they are paying taxes in Australia.
This is why you will see a lot of Asian investors buying off-the-plan apartments, because it is the only thing they are allowed to buy and they pay a lot of money for it.
So next time you hear someone say that the reason for lack of dwellings to buy or rent is due to excessive overseas investment, you can ask yourself:
How many locals are lining up to buy brand new property?
It’s easy to complain once they have taken the biggest risk and bought something that didn’t exist and now it’s there, built.
So before pointing fingers we should always look inside our local market and see what’s missing.
At PB Property we love helping people get into the market, educate them and find them the best opportunities. Get in touch and Book a call now.
