Hot tips for non-residents when buying Australian property off the plan
Handing over your hard-earned cash to buy something that doesn’t yet exist, in a distant land sounds crazy, right? Yet thousands of Chinese investors successfully buy Australian property ‘off the plan’ every year.
With just a minimum 20% deposit required for a brand new, well-appointed property, it is easy to spot the upside.
Brighten Home Loans specialises in providing home loans to non-resident borrowers. Avoid a nasty surprise by following Brighten Home Loans’ top tips when buying off the plan.
Researching the market is essential
It will pay off to conduct thorough research before taking the plunge into property investment. Consider comparable sales, rental yields, vacancy rates and any proposed government infrastructure projects which could impact your property purchase. Properties close to the central business districts (CBDs) of cities hold their value better than properties in the suburbs. Developments close to amenities such as schools, train stations, parks and beaches also tend to return above average rental yield.
Research how much development is going on in any given area. When a lot of high-density residential building occurs in a suburb there is a risk of oversupply, reduced rental yield and price deflation.
And, of course, as a non-resident, and foreigner buying property in Australia, make sure you know, and comply with, the Australian Foreign Investment Review Board (FIRB) guidance, which requires non-resident foreign persons to apply for and receive foreign investment approval before purchasing property in Australia.
Juwai.com is the #1 Chinese international property portal, offering exclusive access to an audience of Chinese people looking to buy property overseas. It lists premium Australian real estate. Within Australia, the leading property portal, realestate.com, is available in Chinese.
Conduct checks on the developer
Off-the-plan property doesn’t yet exist, meaning you are making a serious financial decision based off a piece of paper and maybe a few pretty photos. Check. Check. And then check again.
Check the property developer is reputable and has received development approval (DA). Opting for an established developer with a proven track record significantly reduces the risk of a serious issue arising, such as the developer becoming insolvent during construction. It is possible to do a credit check on developers and builders via Equifax Australia to see if they’re in a good financial position. It is also a good idea to research resales in those developments to see if there has been an uptick in price. Inspect the contract and ignore the marketing material.
Check the fixtures, finishes and fittings like blinds, curtains, tiles and carpets. The property is likely ‘styled’ and may look very different in its bare state. Ask lots of questions to get a clear idea of what you’re buying.
Check the layout and specifications. Does it incorporate the right feng shui elements to promise good energy? You can also have it assessed by an accredited feng shui consultant in Australia.
And double-check inclusions such as items like air conditioning, window blinds and parking spaces. Sometimes, they are not included in the price.
Most importantly, before signing on the dotted line have the contract independently reviewed by a solicitor or conveyancer. Here is a list of Cantonese and Mandarin-speaking property lawyers in Australia, compiled by the Asian Australian Lawyers’ Association. In addition to Cantonese and Mandarin, lawyers in the association speak around 20 other Asian languages. Off-the-plan contracts are usually more complex than for homes that have already been built.
It is crucial that a ‘sunset clause’ is included in the contract to help ensure that the developer completes the project by a particular date or within a specified timeframe. This clause allows the buyer to legally walk away from the contract with their deposit if the vendor doesn’t deliver on time. Without it, the successful refund of the deposit can be difficult to achieve. Always check the fine print.
Pick the right time to buy
Imagine making an agreement today to buy a punnet of blueberries in two weeks’ time for $6 and then the price crashes to $3 – that’s a $3 loss. The risk is the same as buying property off the plan.
You effectively commit to buying a property at today’s prices. In a rising market there is no problem – the property is likely to rise in value by the time the development is finished, providing you with a tidy capital gain. On the downside, if values weaken, you end up paying more for a property than it is worth which is one big headache when it comes to resale.
Be prepared for delays in construction
Before buying, check whether the developer has achieved the pre-sales target and when construction will begin. A large building takes longer to erect than a small building. Delays are often inevitable. Be prepared.
Securing funding
You’ve ticked off all the points above and now you’re ready to buy. Between $2,000 and $5,000 is generally requested as a holding fee when you choose your apartment. This is refundable at the exchange of contracts, when you will usually be required to provide a 10 per cent, non-refundable deposit. The balance is due on settlement, when the building is finished.
Usually with an off the plan purchase, settlement is 24 to 36 months away. A lot can happen in three years and your credit profile could significantly change.
Use the time wisely to build up your finances and credit history. Well in advance of settlement date consult a reputable mortgage broker in order to seal the best deal. In order to calculate how much you might borrow, check out our Brighten Home Loans Repayment Calculator.
Remember to have someone on the ground in Australia to make a thorough inspection of your apartment before paying the balance. You’ll have more leverage to have problems fixed if the developer is still waiting on your money, although you need to remain within the boundaries of the contract.
Other costs of investing in property in Australia
Beware the pitfall of focusing solely on the property amount and forgetting about the other hidden costs. In addition, you need to account for the other costs when buying a home in Australia including legal fees, borrowing costs and, on settlement, stamp duty. To calculate how much stamp duty you will have to pay, click on Brighten Home Loans Stamp Duty Calculator.
There are also moving and furbishing costs. If it is an investment property you are buying, you may need to pay a property manager in Australia. Click here to compare property managers in your chosen area in Australia, including their fees.
Enjoy your good fortune
Lastly, you’ve put a lot of thought and effort into buying your off the plan property in Australia. Once the deal goes through, enjoy your good fortune and celebrate with family and friends.
Brighten Home Loans is a leading provider of Australian home loans to non-residents buying property in Australia.
To learn more about getting the best non-resident home loan interest rate in Australia, get in touch with Brighten Home Loans today or get a Free Scenario Assessment.