Purchasing Accommodation in Melbourne
The housing market in Melbourne is one of the strongest in Australia. On a steady rise for the last decade, inner suburban property values show no signs of dropping. Although a recent rise in interest rates (following recovery from the global financial crisis) has helped stabilize the market, homes in established inner suburbs close to the CBD remain relatively expensive, and will continue to grow in value.
|*as of April 2010|
When buying a home in Australia, additional costs associated with the sale should also be considered. These can include state government stamp duties (taxes), loan application and account keeping fees for the mortgage, or even legal fees (if using a conveyancer or solicitor for the often complicated paperwork), all of which can quite significantly effect the total price paid.
Banks will generally expect to lend 80-85% of the value of any property you purchase (up to 90% in some occasions, with additional mortgage insurance cover). You will need to provide the remainder yourself. This, unfortunately, only applies to citizens and permanent residents. Australia is a cautious country, even more so now that all lending institutions are in damage control mode rather than lending mode.
Having said that, if you provide a strong case, mortgages are relatively easy to obtain, but do be prepared for much more intensive scrutiny of your budget, income and all related documentation than you would expect in countries like the USA and UK.
BUYING CONDITIONS FOR FOREIGNERS
It is worth noting that foreign purchasers intending to acquire real estate in Australia must seek prior approval from the Government through the Foreign Investment Review Board (see website below) unless specifically exempted by the Foreign Acquisitions and Takeovers Regulations.
In this case, a ´foreigner´ is anyone who does not have Permanent Residency or Citizenship.
The point of this rule is to prevent overseas investors buying property for purely speculative purposes. However, if you are in Australia to live and work, and want a home for you or your family, there is a very good chance you will be approved. After all, Melbourne is populated by expats and the culture of home-ownership is strong.
Buying property is a complex (and often tedious) process in Australia. You must apply for a separate approval-to-buy for each individual property you have an interest in purchasing, and this process can take up to 30 days. The side effect of this is that your negotiating power is severely limited (you do not have the same flexibility to put in an offer or haggle when you are waiting for approval from a government department).
The exception to this laborious application requirement is if you are buying vacant land that is zoned for residential purposes, and intend on building your own home on it.
It is also worth noting that couples in same sex relationships may find the process of buying property slightly more difficult. Although the fiancé or spouse of an Australian citizen does not need to apply for property-ownership approval if they are buying in conjunction with their partner, this unfortunately does not apply to same-sex couples.
Many expats prefer to rent rather than buy property. If you are self-disciplined enough to put the difference into your stock portfolio or a high-interest yielding account, the financial benefits can in many cases far out-earn appreciation of property.
For more detailed information on purchasing restrictions for non-citizens / non-residents, visit: Foreign Investment Review Board http://www.firb.gov.au/
The Foreign Investment Review Board advises that prior approval must be obtained for properties intending to be purchased at auction. Whether you are successful or not, the outcome must be reported to the board. If you are successful with your purchase at auction then a copy of the signed contract will also need to be forwarded to the Foreign Investment Review Board (FIRB) after the auction.
Unless you are a Permanent Resident of good standing, or a citizen, you will find it more difficult to obtain a mortgage. However, it is not impossible. Rather than approach individual banks and lenders (unless you have a good relationship already established), try using an online mortgage broker. The following broker sites are free (they charge the lending institution a fee if you sign up) and can help you compare and arrange a mortgage from lenders outside of Australia.
For non-residents, the lenders will usually only lend you a maximum of 70 per cent of the purchase price. This goes up to around 80 or 90 percent for Permanent Residents and citizens.
If you do have permanent residence or citizenship, the major banks can organize pre-approval for you, so you know that financing is secure when you place your bid or put in an offer on a house.
When you organize your pre-approval for finance, remember that there are additional charges you should take into account when requesting a loan amount. These can include stamp duty, state or federal taxes and the cost of legal fees associated with the transaction (conveyancing). A good rule of thumb is to allow 10 per cent of the purchase price for these extras.
Required documentation will include your ID, visa details, income details (yours and anyone else you will be sharing the mortgage/home with), details of dependents, proof of employment (including length of employment), past mortgage histories, credit reports, details of guarantors (Australian citizens or employers who are willing to guarantee the payments of your loan if you default), current debt details and any number of other requirements depending on the lender.
When a property is listed (privately or with an agent), there will be a number of opportunities to inspect the property, called ‘Open for Inspections’. These are at set days and times and usually last for around half an hour. These are intended as an introductory look at a property. If you attend an open inspection and would like to take a more thorough look, you will need to make an appointment with the agent or owner.
Once the inspections are concluded (including an expert evaluation of the property’s structural soundness that is organised and paid for by you), you are free to put in an offer.
The agent takes the offer to the owner and if it is accepted, you will be obliged to sign a contract committing to the purchase. You do have 3 days to change your mind (see the section on ‘Risks’) but after that, you will need to supply a deposit (usually between 10-20 percent of the purchase price).
´Settlement´ takes between 30 days (rare) and 90 days (common) and allows you time to finalise financing with your lender, as well as giving the owner time to move out.
When you sign the initial contract, you can include a Subject to Finance clause. This means that if your lender does not approve the funds, you are allowed to withdraw from the contract. In most cases, your deposit will be non-refundable, so it is highly recommended you clarify the terms of the contract (which can be confusing) with your conveyancer before agreeing.
More than any other city in Australia, Melbourne’s housing market moves with property auctions. Although properties are occasionally sold before auction (if a vendor receives an offer they like), most homes are sold through this exciting (and frustrating) process.
Buying your home at auction can be stressful but satisfying, thanks to the instant gratification of owning your home on the same day. Going to home auctions as a spectator can be an interesting, exciting and educational experience. Make sure you have attended several before bidding on your own home. Remember, forewarned is forearmed.
The Auction Process:
- A property is put up for sale and an auction date nominated.
- Prior to the auction, an Open Inspection will be scheduled, or a time frame set in which you may arrange a private inspection by appointment with the real estate agent.
- If you like the property, it is important to have it thoroughly inspected. This will cost you a few hundred dollars but barring the usual laws governing transparency, the Melbourne Real Estate market operates on the principle of Caveat Emptor – let the buyer beware. If you buy a house with crumbling foundations or termites, you will have no option to go back on the purchase.
- On auction day there is time for one final look around the property (the site of the auction) before it starts. There are always more onlookers than serious bidders so don’t be worried by a large crowd.
- If no-one makes the first bid, the auctioneer will make the first bid on behalf of the vendor.
Auctions clearly illustrate the Real Estate maxim that a property is only worth what someone is willing to pay for it. Unfortunately for the buyer, in Melbourne there are usually plenty of ‘someones’, all willing to pay more than the next ‘someone’. Occasionally (and so far in 2010 incredibly rarely) an auction falls completely flat (or becomes ‘passed in’) with no acceptable bids being placed. More often than not the property is breathlessly over-valued as bidders get caught up in auction fever.
At every auction, the owner will set a reserve price. This reserve protects the owner from selling their home far below value. Until bidding reaches a certain figure, they are not obliged to sell. This number is known only to the agent, owner and auctioneer. When the auctioneer calls the magic words “On the market” it signals that the reserve price has been reached and the home will sell that day.
If the idea of buying a property at auction appeals to you, it is highly recommended you do the following before bidding:
- Choose your budget and stick to it. Make sure your upper limit is an odd number. Most bidders drop out when bidding reaches a round figure. If your budget exceeds their upper limit even by a small amount (say, $237) you are much more likely to win.
- Decide on a ‘bid signal’ and speak privately with the auctioneer before the bidding begins to inform them of this signal. There is no need for other bidders to know they are bidding against you, and keeping this information to yourself can be a psychological advantage (and way more fun). A ‘bid signal’ (such as putting your sunglasses on your head when you want to enter the bidding or taking them off altogether when you have reached your upper limit) will keep you in the race without the pressure of being watched or intimidated.
If an auction is ‘passed in’, it means the reserve price has not been met and there will either be another auction, a negotiation on the day between the agents and the highest bidder, or an opportunity to make an offer at a later time.
If the property has been passed in at a price quite near the reserve, there will be a flurry of covert and whispered discussions. The agents will run between the stressed and anxious buyers in the yard and the stressed and anxious sellers in the kitchen. The pressure for the buyer to increase their offer and/or the seller to decrease their reserve is usually very intense.
If you find yourself in this position, it is sometimes possible (although highly unusual) for you to meet directly with the seller and come to an arrangement without the agent’s mediation. Although the agents won’t like this, there is nothing illegal about this approach.
If you are the winning bidder, you will need to sign papers on the day. Don’t feel too concerned, though. Australian contract law allows you three days as a ‘Cooling Off’ period if you have a change of heart. Agents may not volunteer this information, but the fact remains that you have 72 hours after signing any contract to change your mind without penalty. It is also possible to sign the contract ‘Subject to Finance’, which means that if your funding falls through, you reserve the right to withdraw from the sale.
You do not need an agent to buy a house and indeed some of the best property transactions are completed privately (when an owner wants to handle the entire sale themselves). However, you will need a conveyancer. A conveyancer is a professional who is familiarconcerning pre-sale transparency and a host of other details. You can choose your own conveyancer or a managing agent can recommend one to you. As they are used in every sale, and Melbourne has an abundance of home sales each weekend, finding one in either the phone book or using Google should not be difficult. with which documents you will need, and what your entitlements are.
Australian contract law has a wonderful loophole called the ‘Cooling Off Period’. After signing any kind of contract, you have 72 hours to change your mind, with absolutely no penalty of any kind. The downside to this is that a property vendor has the same right and your sale may fall through until these three days have lapsed.
Although there are regulations governing transparency, the Real Estate industry in Melbourne (and nationwide) operates on the principle of Caveat Emptor (let the buyer beware). This makes a thorough inspection of a property’s structure vital before you commit to buying it. An expert inspection generally costs a few hundred dollars, but will ensure that you are fully aware of any problems, large or small, with the property before you commit to a purchase.