When buying property in Australia, not budgeting adequately can lead to tight cash flow later on, which is far from ideal. If you're not well-prepared, you'll likely encounter significant challenges during the property buying process. So, what are the procedures and costs associated with buying property in Australia? Beyond the property price and stamp duty, what other expenses should you be aware of?
In this article, we'll provide a condensed version to guide you through the buying process and required costs from scratch. Due to time constraints and the varying nature of each transaction, the following content is for reference only. For a detailed analysis tailored to your specific situation, it is essential to consult your independent lawyer.
Step 1: Choose an Agent and Property
The first step in buying a property is selecting a real estate agent and the property itself. After choosing, you’ll need to pay a deposit and sign a contract. This deposit is a small part of the total deposit for the property, often referred to as a "holding deposit" or "expression of interest." It shows the seller that you're serious about the property and helps initiate the negotiation and contract process. This deposit is part of the total purchase cost, not an additional fee.
Step 2: Lawyer Reviews the Contract
The next step is to have an independent lawyer review the contract. If it's a single contract, legal fees are generally lower. However, if you're purchasing land and building a house (a "House and Package" deal), there will be two contracts, which means higher legal fees. The lawyer will explain your legal rights and obligations and inform you of the next steps and associated costs.
Costs 1. Deposit
The deposit amount is negotiated between the buyer and seller, typically 10% of the property’s price, minus any previous holding deposit. For instance, if the property costs AUD 600,000, the deposit would be 10% of that amount. If you’ve previously paid a holding deposit of AUD 5,000, the amount you need to pay after the lawyer reviews the contract would be AUD 60,000 (10% of AUD 600,000) minus the AUD 5,000 already paid, totaling AUD 55,000.
Costs 2. FIRB Fees
After paying the deposit, if you are an overseas buyer, you need to pay FIRB (Foreign Investment Review Board) fees. This is a one-time application fee imposed by the federal government for reviewing overseas property purchases. The fee is tiered based on the property's value. For properties worth AUD 75,000 or less, the FIRB fee is AUD 4,300. For properties valued at AUD 1,000,000 or less, the fee is AUD 14,700. For properties over AUD 1,000,000, refer to our table for the incremental fees. Note that overseas buyers purchasing second-hand properties for personal use in Australia must pay triple the FIRB fee. For example, if the property is valued at AUD 1,000,000 or less, the FIRB fee would be AUD 44,100 (AUD 14,700 * 3).
Costs 3. Legal Fees
The third major cost is legal fees. Law firms usually require an upfront payment. Legal fees can vary, starting from around AUD 1,000 to AUD 2,000 or more. The cost depends on the property's price and the complexity of the transaction. If complex legal advice, contract amendments, or additional due diligence is required, lawyers may charge extra.
Costs 4. Bank and International Transfer Fees
The fourth cost involves bank fees and international transfer fees. Not everyone will encounter these fees. For example, if transferring funds to an Australian lawyer's trust account from an Australian bank, there may be no transaction fees. However, transferring from a Hong Kong account to an Australian account may incur exchange and banking fees. These fees generally range from 0.1% to 1% of the transfer amount or a one-time fee of around AUD 150. It’s advisable to compare different banks and platforms to find the most suitable exchange rate and transfer method.
Step 3: Exchange of Contracts
Once both parties sign the contract, it becomes officially effective, a process known as the exchange of contracts. Be sure to keep a copy of this electronic contract and the receipt, as it is required when applying for a mortgage in Australia. From the exchange of contracts until the actual settlement day, there is generally no other action needed, apart from preparing the costs mentioned below. However, in some states, like New South Wales, stamp duty must be paid within 90 days of signing the contract, unless special conditions apply, such as for first-time homebuyers.
Step 4: Mortgage Loan Processing
Some banks in Hong Kong offer loans for Australian properties, and if you are a high-net-worth individual, your investment bank might also provide financing. For example, I have a client who is the chairman of a listed company and obtained a loan from an investment bank. Ideally, you should start arranging the loan 3-6 months before the expected settlement date. If possible, consult a mortgage broker 3-6 months in advance. Different banks have various mortgage application fees, so finding a reliable mortgage broker to help you select the best mortgage option is advisable.
When borrowing in Australia, you will need to pay mortgage application fees and other associated costs, which vary depending on the lender and broker. For precise details, consult your mortgage broker.
Costs 5.Title Insurance
Before settlement, one option is to purchase title insurance, which typically costs a few hundred to several thousand AUD, depending on the region, property type, and purchase value.
Costs 6. Building Inspection Fee
In addition to title insurance, if you are buying an existing or newly constructed property, it is advisable to spend a few hundred AUD on a building inspector to check the property before signing the contract. For newly built properties, the developer will handle any maintenance. However, if you are buying a completed new property or an existing property, under traditional Common Law principles, the buyer is responsible for the property's condition (Caveat Emptor). This means that if you buy an already built or second-hand property, its condition at the time of signing the contract and settlement should be the same, with the developer not required to perform repairs beyond normal wear and tear.
Step 5: Settlement
Cost 7: Lenders Mortgage Insurance (LMI)
On the settlement day, you will need to pay the remaining amount for the property. If you have already paid the initial 10% deposit, the remaining amount will be 90%. This 90% may be partially or fully financed by the bank. If you are borrowing more than 80% of the property's value, you will need to pay Lenders Mortgage Insurance (LMI). This cost varies depending on the lender.
Cost 8: Stamp Duty
On settlement day, you also need to pay the stamp duty, which varies by state and is calculated using a tiered system. For example, in New South Wales (NSW), if the property price is between AUD 364,000 and AUD 1,212,000, the stamp duty rate is 4.5%. If you purchase a property for AUD 1,000,000, the stamp duty will be calculated based on this tiered rate. Each state has different calculations, so it's best to consult your lawyer to understand the specific stamp duty calculator for your state. Note that these calculators are for reference only, and for precise figures, you should consult your independent lawyer.
Cost 9: Additional Stamp Duty for Overseas Buyers
Overseas buyers are required to pay additional stamp duty, ranging from 7% to 8% of the property value, depending on the state. In Canberra and Northern Territory, there is currently no additional stamp duty for overseas buyers.
Cost 10: Other Miscellaneous Fees
On settlement day, apart from the property price and stamp duty, you will also need to cover miscellaneous fees such as land registration fees, electronic conveyancing platform fees, and legal office costs (e.g., stamp duty fees, land searches, conveyancing due diligence fees, and property registration fees). These miscellaneous costs can range from AUD 5,000 to AUD 8,000. Additionally, you may need to pay some of the seller's expenses, such as municipal rates, water and sewerage charges, property management fees, and land tax. These fees are usually paid quarterly, so if the seller has already covered a part of the current quarter, you will need to adjust based on the settlement date to the end of the year.
Conclusion
Buying a property or land is a major financial decision that requires a thorough evaluation of costs, risks, and investment returns. Before investing in the Australian property market, it's crucial to analyse property price trends. Understanding the dynamics and trends of the Australian property market will help investors assess risks and potential returns more accurately. Therefore, it is essential to conduct comprehensive market research and risk assessment to make informed investment decisions, reduce investment risks, and improve the chances of investment success.
Additionally, the Alison Wong channel provides weekly updates and resources on property prices to help investors stay informed about market trends. Whether through professional property reports, online resources, or expert opinions, these resources offer comprehensive and accurate information to guide investors in developing effective investment strategies and enhancing their investment success and returns.
Alison’s Story
Born in Hong Kong an moved to Australia, I have been associated with real estate all my life. As the plane slowly landed on the runway of Melbourne Airport, my life and career also changed to another runway. I changed from a Hong Kong real estate agent to an Australian real estate agent, and successfully obtained the Australian lawyer qualification.
When I was working in a law firm, I was surrounded by highly educated professionals. Even though their wages are very well, and they are absolutely the elites in society, but their lives are full of hard labor, and it’s hard for them to get rich through buying properties.
So I spend all my time and effort on learning financial and real estate investment knowledge, hoping to achieve financial freedom as soon as possible, and let my parents who have worked hard for many years live a good life.
Now I will share with you the knowledge and experience of investing in Australian real estate, and embark on the road to financial freedom together.
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The original intention of Miss Alison to establish investwithalison.com is to provide neutral Australian real estate information through this platform and help investors establish the most suitable investment strategy.
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