Australian real estate is one of the most attractive investment propositions around for overseas investors. There are two reasons. First, we have a strong economy that gained major international attention during and after the GFC, so we're now very well known in global investment circles. Second, we have an exceptional track record for capital growth and rental returns over the long term.
Today, we see a lot of demand from overseas buyers, particularly Chinese families whose children are coming to Australia to study. Under Foreign Investment Review Board (FIRB) rules, their child is allowed to buy and live in one established property while they're here. So mum and dad are funding the purchase both as an investment and to put a roof over their child's head. Families who can afford larger homes are seeing opportunity in today's softer prestige market too.
This is likely to be a growing trend given our impressive education system. We're actually the third largest provider of international education behind the US and UK, with one in five of our university students coming from overseas (about 20 per cent from China), according to the Bureau of Statistics.
Rules around foreign property ownership can be tricky to understand and there have been some major changes over the past few years. Let me re-cap what's been going on.
Generally speaking, the FIRB prohibits foreign ownership of established real estate for investment but allows it for brand new or off-the-plan properties because this promotes the expansion of housing stock, which we desperately need.
In December 2008, the Government decided to relax the foreign ownership rules. For a period of about 18 months, until the rules changed again, overseas students could buy any type of property to live in without seeking FIRB approval. They could also hold the property for investment as long as they liked, even if they left the country.
The Government also removed the restriction preventing students from buying property worth more than $300,000 while living here. This meant rich overseas families could purchase a multi-million dollar home for their child to live in and keep it for investment as long as they liked. The same rules applied to businesspeople working in Australia on temporary visas – and there's plenty of them too!
Concerns soon arose about the number of overseas buyers purchasing local property, as well as the number of properties they were purchasing, and what this extra demand was doing to prices. Another concern was reports that foreign owners were holding properties and not renting them out, thereby reducing available rental stock for Australians during a significant ongoing shortage.
So in 2010, the Government tightened the rules again. They re-imposed the requirement of notification and approval before a temporary resident could buy property and introduced a new rule that they must commit to selling as soon as they leave the country or face strong new penalties.
These rules appear not to have dampened the enthusiasm of overseas buyers. If you have a child coming here to study a six-year or more medical degree, that's plenty of time to make a healthy gain on your investment before selling – that is, if your child decides not to stay in Australia after graduation.
You see, many students and professionals who come here on temporary visas decide to stay (why wouldn't they? Australia is the best country in the world to live in!), and once they're on a permanent resident visa, they can buy as many homes as they like – using their own money or that of their overseas families.
Here's an update on the most important FIRB rules. If you want to read more, go to http://www.firb.gov.au/content/real_estate/real_estate.asp
Foreign non-residents are not allowed to buy established dwellings for investment.They can, however, purchase new properties (either newly-built or off-the-plan) or vacant land to build on as this promotes the expansion of housing stock (some conditions apply).Temporary residents can purchase one established dwelling to use as their residence but they must apply for FIRB permission and they must sell it as soon as they leave the country.Foreign companies can buy established homes for Australian-based staff as long as they agree to sell or rent out the property if they expect it to be vacant for six months or more.Foreigners living in Australia on a permanent resident visa do not need approval to buy for owner-occupation or investment.
In addition to education and a strong property market, Australia also has enormous appeal with international buyers due to our enviable lifestyle, safety, our strong economy and currency and the astounding natural beauty of our landscape.