Purchasing Guide Sydney
The value of Sydney property, particularly within close proximity to the CBD, is expensive by Australian standards. Capital values are high and rents are also high. However, from an investment perspective, if you will be here for some time – or are prepared to hold the property for some time – it can be an attractive city in which to invest for the long term.
Purchasing Property as a Foreigner
It is possible as a foreigner to buy property in Sydney, provided you meet certain buying conditions. In fact, foreign property investment is common and can be a good mid to long-term investment. All types of residential properties can be purchased by foreigners.
Foreigners intending to acquire real estate in Australia must seek prior approval from the Government through the Foreign Investment Review Board unless specifically exempted by the Foreign Acquisitions and Takeovers Regulations (FATR). Applications take up to 30 days to be processed. You need to get FATR approval before you purchase a property.
If you have a permanent residency visa you do not require approval.
Foreigners are eligible for loans as long as they meet the lending criteria. In Sydney, loans are available through banks and credit unions and one of the best ways to find comparison rates is via a mortgage broker.
The four major banks in Australia are:
- ANZ http://www.anz.com.au
- NAB http://www.nab.com.au
- Westpac http://www.westpac.com.au
- Commonwealth Bank of Australia http://www.cba.com.au
- Aussie Home Loans http://www.aussie.com.au
- Choice Home Loans http://www.choicehomeloans.com.au
- Mortgage Choice http://www.mortgagechoice.com.au
You can obtain pre-approval for a loan. This is usually an “in principle” approval based on a high-level income and credit check and these can be valid for up to 6 months as you search for properties. The final loan offer will only be valid after you submit the exact property for sale.
The home loan rates vary depending on whether you have variable or fixed rates, and the current average is between 4.5% and 6%.
A useful site for viewing some quick comparisons is http://www.infochoice.com.au/banking/.
The Purchasing Process
Essential criteria to buy property are proven income and assets. The lending institution requires solid evidence such as employment contracts, salary slips for a minimum of 3 months, asset listings and any supporting evidence such as statements from accountants.
Banks will generally expect to lend 80-85% of the value of any property you purchase and up to 90% in some occasions. The larger your deposit, the less likely your loan will incur Lenders Mortgage Insurance.
In almost all cases you will be purchasing via a real estate agent, and other assistance you will require will be a property inspector and a lawyer.
The step by step process includes:
Pre-Approval: Obtaining pre-approval prior to making an offer on a property is strongly recommended. It is best to get a pre-approval in writing rather than by word of mouth. This can sometimes mean a small pre-approval fee but the process will be more thorough ensuring no problems at the time of loan application.
Find a property: Use property websites and newspapers to find properties. Mostly you will deal with the agent and not the owner direct.
Make an offer: In Australia, you will either experience an offer process, or you may have bid on the property at auction. Once you have negotiated the price, often you normally pay a nominal deposit as goodwill. It is advisable to get the paperwork to your lawyer as soon as possible, as the owner could still sell to another interested buyer at this stage.
Paperwork: Your lawyer will negotiate with the agent and will explain all parts of the contract to you. The most important items are the “subject to valuation” clauses as the value needs to meet the same value that the bank places on the property. At the time when all is agreed, you will sign and exchange contracts and normally a 10% deposit is due at this point. The owner can no longer sell to another buyer once this 10% is paid.
Cooling off period: in Sydney, there is a cooling-off period of 5 days that gives you time to pull out of the deal without any financial penalties. If you haven’t already done so, then obtaining property inspections and pest inspections are advisable.
Finalizing finance: Once signed, the lending institution is contacted so that the buyer may formally apply for the loan. The lender will conduct a valuation of the property.
Conveyancing: The actual exchange of ownership from one entity to the other will include various fees and charges and the most notable of these is the stamp duty. In NSW this fee is as follows:
- < $14,000 1.25% of dutiable value
- $14,001 – $30,000 $175 + 1.5% of dutiable value
- $30,001 – $80,000 $415 + 1.75% of dutiable value
- $80,001 – $300,000 $1,290 + 3.5% of dutiable value
- $300,001 – $1 million $8,990 + 4.5% of dutiable value
- > $1 million $40,490 + 5.5% of dutiable value
You are entitled to a pre-settlement inspection where you can confirm that the property is in the condition you initially agreed to. Finally, settlement is concluded and the property is yours. The process can take up to 6 weeks and more.
Property value in Sydney over the long term is generally profitable and low risk. Any risks there are can be easily avoided. If you need financing, don’t over-borrow. Secondly, don’t overcapitalize on the property you buy. So, borrow only what you know you can afford to pay back, not the maximum the bank will lend you (if this is higher than you expected). And don’t over-renovate your property if it’s in a modestly-priced suburb. It is unlikely you will get a return on the money you invested in upgrading it.
The two most common residential property websites are:
Home loan guides
Useful government information on real estate purchase:
Foreign Investment Review Board