> Got to BEST PLACES TO BUY INVESTMENT PROPERTY

All acquisitions of residential real estate in Australia by foreign interests require prior foreign investment approval.

All contracts of sale to acquire residential real estate by foreign interests must be made
conditional on foreign investment approval and must allow at least 30 days for a decision to be
granted.

For a full outline of Australia's foreign investment policy, including an application form for straightforward residential real estate proposals, as well as other related information, visit the Foreign Investment Review Board website at: www.firb.gov.au.

A Brief Outline of the Regulations

What is residential real estate?  
Residential real estate means Australian real property (including vacant land), other than (i) developed commercial properties (i.e. offices, factories, warehouses, restaurants, shops, recreation facilities, but not accommodation facilities such as hotels) and (ii) land which is integral to a commercial farming business. Acquisitions of hobby farms and rural residential blocks by foreign interests are included in the residential real estate category.

Who should apply?  
All proposed acquisitions of residential real estate should be submitted for examination regardless of value unless the purchaser is an Australian citizen, permanent resident or a foreign national entitled to "special category visa" (such as a New Zealand citizen) and purchasing in their own name. Other persons wishing to purchase residential real estate (including temporary residents, or companies with foreign shareholders or trusts with foreign management and/or beneficiaries) must apply in advance to the Government through the Foreign Investment Review Board for approval.

Australian citizens and foreign spouses
Acquisitions by Australian citizens and their foreign spouses to purchase residential property as joint tenants do not require foreign investment approval.

Developed residential real estate
Developed residential real estate means houses, flats or units that have been occupied. Acquisitions of developed residential real estate by foreign interests are not normally approved except for:

(i) foreign nationals temporarily resident in Australia for more than 12 months purchasing a residence for use as their principal place of residence while in Australia (and not for rental purposes), subject to the sale of the property when they cease to reside in Australia, their visa expires or they no longer reside in the property. This category includes long-stay retirees, and students 18 years of age and over studying courses of more than twelve months duration at recognised tertiary institutions. Normally a $300,000 limit applies to acquisitions by students; and

(ii) foreign companies with an established substantial presence in Australia buying for their named senior executives resident in Australia for periods longer than 12 months.

Residential real estate for development

(i) Vacant land

Acquisitions of vacant land are normally approved subject to a specific condition requiring ongoing construction to commence within 12 months of foreign investment approval and provided that the equivalent of at least 50 per cent of the acquisition price of the land is expended on development.

(ii) Redevelopments

Applications to acquire existing residences for redevelopment may be approved provided that the proposal provides for substantial redevelopment expenditure in relation to the acquisition cost of the property and an increase in the housing stock. Additionally, the existing house must remain unoccupied pending redevelopment.

For both the above categories, once the development condition has been fulfilled, there is no restriction on the subsequent use of the property by the foreign investor, i.e. it may be rented out, sold or retained for the foreign investor's own use.

Off-the-plan purchases

Foreign interests may apply to acquire home units, town houses, house/land packages etc either off the plan, during the construction phase or when the dwelling is newly completed, provided that it has never been occupied or sold and provided no more than 50 per cent of the dwellings in any one development are sold to foreign interests.

However, when the property is to be onsold, it is treated as developed residential real estate
and its sale is subject to the restrictions applying to that category of residential real estate.

Developers of more than 10 unit/townhouse projects may apply in advance to sell up to 50 per cent of the residences to foreign investors. Where such approval has been granted, it is not necessary for individual foreign interests to apply for approval.

Applications

The Board is unable to give in principle approval to persons wishing to acquire property, so an application for foreign investment approval must specify the particular property to be acquired.

Electronic lodgement of straightforward residential real estate applications is available through the government website.

To make an application for approval to purchase residential real estate, write to:

The Executive Member
Foreign Investment Review Board
Department of the Treasury
Langton Street
Canberra ACT 2600
Australia


Facsimile: +61 2 6263 2940
Telephone inquiries: +61 2 6263 3795
Website at: www.firb.gov.au 
Email: firb@treasury.gov.au 

TAXATION - Non Resident with Australian Investments

If a non resident has a rental property in Australia they are still subject to Australian tax at non resident rates on it. If the property makes a loss these losses can be carried forward and offset against future Australian income. In order to carry these losses forward an Australian income tax return must be lodged for each year. The carried forward losses described above are reduced by any exempt income received (section 36-10) but section 36-20 states that this does not include income made exempt by Section 128B - refer next paragraph. If a non resident has interest, dividend or royalty income with an Australian source it will only be subject to Australian withholding tax and as a result will be excluded from an Australian income tax return. Note dividend withholding tax rates are 30% for residents of countries with no double tax agreement and 15% for
countries with a double tax agreement but if the dividend is franked the withholding tax rate is effectively zero.

Section 128B. Note if you are a non resident there is no point in negatively gearing any interest, dividends or royalties (other than considerations unique to your country of residence) as the withholding tax is calculated on your income before deductions and these deductions would not be claimable in your Australian tax returns as the corresponding income is excluded under 128B so there would be no link of cost of earning income under section 8(1) of the 1997 Act.
 

A non-resident may also be liable for tax on a capital gain arising from a CGT event that occurs in relation to an asset that is connected with Australia, even if the gain does not have an Australian source.

Best Places To Buy Investment Property

In the February 2007 issue of Australian Property Investor, Michael Matusik of Matusik Property Insights advised:

"I believe when it comes to residential investment property, you must hold for the long term (over ten years). Another key factor is capital gain, which contributes over the long term to around 70 per cent of a residential property's total return. The other 30 per cent comes from net rent. What drives capital growth is infrastructure and being in a logical location in relation to work and how a city/region is evolving."

"The Ipswich corridor west of Brisbane offers, in my mind, great potential for capital gain and rental returns." The area is growing, infrastructure is actually being delivered across Brisbane's west such as the Orion shopping centre, improvements to the Centenary Highway and in due course a new railway line to Springfield."

"Finally more families, and especially at the lower end of the market, will be forced to rent and many will live west of Brisbane City."

In the same article, Michael McNamara from Australian Property Monitors advised:

"If I was going to buy for long-term capital growth, then in Queensland, I don't think you can go past the growth corridors - between Brisbane and the Gold Coast and between Brisbane and Ipswich."
 

Australian Property Investor Feb 2007

In the February 2007 issue of Money, an article by Terry Ryder about the growing split between those seeking affordable buys and those with money to burn had this to say about hot spots in Queensland:

"Affordable areas with strong economic drivers will be targeted by first-home buyers and bargain-hunting investors in 2007. The Beenleigh precinct, halfway between Brisbane city and the Gold Coast, stands to benefit from strong road links, rail line upgrades, big retail development and expansion of industrial estates."

"The Ipswich corridor, attracting massive infrastructure spending and private development money, is shaking off its poor-cousin image to become the growth hot spot of South East Queensland."... "The Capricorn Coast is an undervalued area boosted by government spending on infrastructure and its proximity to Rockhampton."
Money Feb 2007