You’ve decided on an Australia property investment but have no idea what the purchase process entails. This article will guide you through some of the stages in the investment process.
It starts with choosing a property that fits your budget and investment goals, and appointing an agency that can take you through the purchase process — unless you prefer the hassle of flying to and from Australia and dealing with the developer/seller directly! It is important that your agent works closely with the developers, facilitating communication from the developer to you, and vice versa.
1. Property Reservation
At CSI Prop, we recommend investments based on your goals and budget. Once you have decided on the property for investment, you will need to sign Reservation Forms and a Solicitor Appointment Letter.
There are several payments required at this stage:
- Reservation Deposit*: MYR5000 (forms part of the purchase price and is non-refundable)
- Legal Fees*: approx A$2000
*Payment can vary depending on project/developer/solicitor
CSI Prop works closely with a panel of solicitors and mortgage brokers who are recognised in Australia. We’re happy to recommend our panel, but you also may use solicitors or mortgage brokers of your own choosing.
2. Exchange of Contracts & 1st Payment
Subsequently, you will sign the Contract of Sale for the property, and make your first payment to the developer. For apartments, this is 10% of the property price. For a land and house package, the first payment will be 10% of the land price and 5% of the building price.
You will also need to make an application with the Foreign Investment Review Board (FIRB). This process is required of non-resident foreigners before purchasing any residential property in Australia. The cost for this (as of 2018-19) is A$5,600 for dwellings valued at A$1 million or less.
Application for financing can be done 3 to 6 months before settlement, and the banks will assess your financing position and eligibility.
Documents typically required by the bank include:
- 3 to 6 months salary slips
- 3 to 6 months bank statements
- Income Tax Return Form
There are typically no application and processing fees to finance your property. However, the bank legal fees can incur up to 1.5% of the value of your property. There are several banks in Malaysia and internationally that offer financing, please get in touch with us to find out more.
4. Final Settlement & Stamp Duties
Once your property achieves completion, the developer will send a Completion Notice to your solicitors. You will need to make full payment for the property at this stage, which is also known as the final settlement.
At this point, you will also need to pay stamp duty, also known as land transfer duty, to the State Government. Stamp duties differ in amount across the different states of Australia, and the following rates covered here are applicable to residential property only. Different rates may apply to commercial property.
The following stamp duty rates apply in the state of Victoria for property that is not the buyer’s principal place of residence:
Foreign property buyers pay an additional 8% duty on top of these normal rates (stamp duty surcharge), unless exemptions apply. There are exemptions for Australian-based corporations or trusts which add to the supply of housing stock in Victoria.
In Victoria, Australian citizens, permanent residents or New Zealand citizens with a special category visa have the following exemptions:
- First-time buyers pay no stamp duty on a property that costs below A$600,000, or a reduced rate if the property has a value of between A$600,000 and A$750,000.
- Pensioners don’t have to pay stamp duty on a property that costs below A$330,000. They also get a partial concession on properties valued up to a maximum of A$750,000.
Western Australia (Perth)
These are the stamp duty rates for property in Western Australia:
Foreign property buyers pay an additional stamp duty surcharge of 7% in Western Australia.
Australian Capital Territory (Canberra)
These are the stamp duty rates in Australian Capital Territory:
Foreign property buyers pay an additional stamp duty surcharge of 0.75% in the ACT.
New South Wales (Sydney)
These are the stamp duty rates for property in New South Wales:
Foreign property buyers pay an additional stamp duty surcharge of 8% in New South Wales.
These are the stamp duty rates for property in Queensland:
Foreign property buyers pay an additional stamp duty surcharge of 7% in Queensland.
5. Property Management
When you exchanged contracts with the developer you may have signed an agreement to hire a letting agent. You may also have chosen to manage the property yourself.
The letting agent will ensure your property is well-maintained, taking care of all expenses involved, and collecting the rental on your behalf.
6. Rental Income
When you receive your rental income, you will need to pay income tax to the Australian Government. Different income tax rates apply for Australian residents and non-residents.
You may also be taxed again on your Australia income by the country where you’re resident in.
Malaysians do not need to pay taxes on rental income from Australia, to the Malaysian Government due to the double taxation agreement that both countries have. If you live in another country, you will need to find out if there is such an agreement between your country and Australia.
Income Tax for Non-residents in Australia
Taxes need to be filed yearly. You can file your taxes yourself, or hire a tax agency to do it for you. CSI Prop can recommend a qualified professional in Australia to manage your taxes.
Note that if you own a residential property in Victoria that remains unoccupied, you may be liable for Vacant Residential Property Tax (VRPT). The tax was introduced as a measure to increase available rental properties, and is at a rate of 1% of the Capital Improved Value (CIV).
7. Property Resale/ Exit
Should you choose to sell off your property, we can recommend a property agent and solicitor to assist you.
The agent’s commission rates, your advertising budget, and exclusivity will be decided by you and the agent. The agent will provide an appraisal of the property indicating how much they expect to sell the property for, and tell you how they plan to market your property. Agents fees vary according to state.
Legal fees generally range between A$700 and A$1300.
Take note that, unlike stocks, property is not a liquid asset, and you should always expect that it will take some time for the property to be sold.
Capital Gains Tax (CGT)
In Australia, capital gains are treated the same as income from other sources. Any net capital gain from the sale of a property is included as part of the seller’s income and taxed together with their other income. Capital losses can be offset against capital gains. Residents qualify for a 50% Capital Gains Tax discount, as long as they have held the asset for at least 12 months before disposal.
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If you are interested to explore investing in Australian property for high returns, or if you need us to refer you to a good tax firm in Australia, don’t hesitate to give us a call at (65) 3163 8343 (Singapore), 03-2162 2260 (Malaysia), or email us at email@example.com!
Disclaimer: This guide is an outline of CSI Prop’s purchase process, which may differ from other consultancies. CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review. You should also seek advice based on your particular circumstances from independent advisors and planners.
By Ian Choong Edited by Vivienne Pal