At a glance:
- The legal requirements to buy commercial property are FIRB approval, ownership structures, and country-specific rules.
- There are financial implications like higher deposits, strict mortgage terms, and currency risks.
- Consider taxes like CGT, ongoing property taxes, and double taxation agreements.
- You must comply with government reporting, AML laws, and tax filing.
- Investment strategies for non-residents include market research, expert guidance, and financial planning.
With a strong economy, good business environment, and high rental yields, Melbourne has become a favourite destination for foreign buyers.
Being an investor in the commercial property sector can be both thrilling and profitable. It is also one way that non-residents can capitalise on the effects of a booming real estate market in Australia.
However, it is of paramount importance to understand the legal, financial, and taxes first. Without doing this, you are likely to face hesitations or additional costs due to your lack of preparation for litigation matters.
At Axis Property, we focus on providing a service specifically crafted to meet the needs of both local and international investors and help them navigate the maze of Melbourne’s commercial property market.
Through this guide, you will be fully informed about the step-by-step process of buying a commercial property in Australia as a foreigner.
Legal Considerations: Can Non-Residents Buy Commercial Property in Australia?
Australia welcomes foreign investment, yet there are still particular laws that non-residents need to comply with when buying a commercial estate. The Foreign Investment Review Board (FIRB) is responsible for the approval of foreign purchases according to the principle of public interest. Here are the lists of legal considerations:
- FIRB Approval: Most foreign investors are required to get FIRB approval before purchasing the property. Yet, depending on the value and type of the property and the investor’s status of VISA and residency, some exemptions can be considered.
- Ownership Structure: It is important to understand the difference between leasehold and freehold ownership since it is the foundational part of ownership, the one that underpins the rest. Some commercial properties may have restrictions on foreign ownership, specifically in sensitive sectors.
- Country-Specific Restrictions: You may have different rules depending on your country of residence. For instance, if you are a prospective investor from a country with a Free Trade Agreement (FTA) with Australia, you could have different conditions compared to others.
Financial Implications: What Costs Do Non-Residents Face?
In the case of non-residents, buying commercial real estate includes several distinctive and some not-so-normal financial issues. The banks in Australia are stricter about the way they give loans to foreigners, and, of course, the interest rates are generally higher for them than for their domestic buyers. Some financial considerations are:
- Mortgage Restrictions: Not all banks serve foreign national clients and even those that do require a higher deposit (usually around 30-40% of the property’s value).
- Interest Rates & Loan Terms: In contrast to Australian residents, foreign investors are offered loans with the highest interest rates and the shortest terms.
- Currency Exchange Risks: The changes in exchange rates are important because their fluctuations can affect the payment and the final return at the end of the day. It is recommended that you consult a currency expert who will help you overcome the risks.
Tax Consequences: What Non-Residents Need to Know About Taxation
Taxation is an inseparable part of investing in commercial property in Australia. Non-residents should keep in mind several tax liabilities, namely:
- Capital Gains Tax (CGT): Residents are eligible for a CGT discount, but non-residents are already taxed on their property sales in Australia, which means they do not get the discount.
- Ongoing Property Taxes: While local council fees are applicable for all property owners, non-residents and foreign investors are liable to pay additional land tax and stamp duty surcharges on top of the standard charges in certain states like Victoria, New South Wales, and Queensland.
- Double Taxation Agreements (DTAs): It seems that you may be able to get some tax relief through the agreements that Australia has signed with your home country, but it depends on your location. It’s best to check if your country falls under the agreement.
Compliance and Reporting Obligations: Avoiding Costly Mistakes
Foreign realtors are obliged to comply with the rigorous financial and regulatory regime created by the Australian authorities and must ensure that they do not break the law if they want to continue holding property in Australia.
Not fulfilling these conditions can lead to the imposition of fines or the sale of the property without your consent. The main areas to comply with are:
- Government Reporting: Investors must observe FIRB permissions and notify the government when the property’s ownership rights are changed.
- AML and KYC Regulations: Australians have strict anti-laundering laws, which means that if anything wants to be financed, the funds must be clean and the result of an authentic identification process.
- Tax Filing and Reporting: Non-Australian tax residents are subject to yearly tax return filing, and they must also inform ATO (Australian Taxation Office) about their rental income.
Benefits and Risks: Weighing the Pros and Cons
As a type of investment, buying commercial property as a foreigner involves both positive and negative sides.
Benefits:
- It is worth reminding that Australia is known for its strong, stable economy and developed commercial property market.
- There is the potential for investors to have a high rate of return on investment.
- Quality properties that are highly sought after in the Australian market result in long-term capital gains from purchasing them.
Risks:
- Both market fluctuations and a demand decline could make the real estate market non-profitable.
- A crucial factor that highly influences the issue is the change in government policies in relation to the “non-resident” area of real estate. Policy changes will definitely change ownership rules.
- Securing finance for the property might be challenging, and the interest rate that lenders set might be higher than normal.
Strategies for a Successful Investment as a Non-Resident
Before purchasing a profitable commercial property in Melbourne, it’s best to brainstorm first and follow smart investment strategies. These are the key points you can initially consider:
- Engage Experienced Real Estate Professionals: The first rule of a successful property purchase is to associate with good real estate agents. Consult professionals like Axis Property to help you find the most suitable investment.
- Understand Market Trends: Studying popular commercial property spots in Melbourne, such as Abbotsford, Caulfield, Elwood, Prahran, and South Melbourne, would shed light on the best places to invest.
- Choose the Right Investment Type: The best type of investment to trust is the one offering returns in terms of increased residential acquisition and transportation growth.
- Consult Financial and Legal Advisors: Your interests will be taken care of if you opt for financial counsellors to sort out your taxing problems, compliance obligations, and loaning strategies.
Conclusion: Making an Informed Decision as a Non-Resident Investor
Commercial property investments offer many benefits for non-resident investors, but they are also complex subjects that require thorough research and professional guidance. Learning the laws, lenders, taxes, and investment implications one by one is a very good starting point for a successful purchase.
If you are a foreigner trying to invest in Melbourne commercial property, please have us assist you. Using our broad expertise, we will not only provide insights into the market, but we will also give you personalised service, hence a smooth and profitable investment experience.
Get in touch with us to find out more about the options. This is your start of owning a property in Australia.