CLient Portal
Read Time: 
8 min
Posted by 
Ashley works with clients to bring strategy, structure, clarity and confidence to their global financial lives and keep it that way. ​In 2013, Ashley founded Arete Wealth Strategists, a fee-only financial planning and investment management firm for Australian/American expatriates.
May 29, 2023

What to Know About Investing in Australian Real Estate from the U.S.

With solid returns, a wonderful climate and political stability, Australian real estate has long been an appealing target for American investors and Australian expats. However, due to a lack of understanding of the fundamental differences and similarities that exist between purchasing a property from abroad or from within Australia, many expats are unaware of the excellent opportunity that may await them back in their homeland.

It's estimated that, at any given time, there are around one million Australians living and working overseas, with about 90,000 choosing the U.S. as their temporary home. Recently, with falling housing prices due to rising interest rates, rising rents due to inflation, an expanding housing inventory, and a depreciating AUD (dollar), a growing number of Aussie expats have a goal of buying a home either as a future residence or an investment back in their native Australia. 

While this can be an exciting investment opportunity, there are several important considerations to keep in mind. In this post, we'll cover the key points you need to know when owning or investing in Australian real estate while living in the U.S. Dr. Andrew Unterweger, an Australian expat and founder of expat finance and property advice company Wise Guru, walks us through the ins and outs of investing in Australian real estate as a non-resident. 

Understanding the Australian Property Market

One of the first considerations for people looking at Aussie property is the long-term market outlook. However, Dr. Unterweger points out that there is no Aussie property market because it's such an enormous continent. 

Instead, you have several independent markets with varying supply and demand and economic factors. What's happening in Darwin, Perth, or Hobart may be different than what you'll find in Melbourne, Sydney, or Brisbane. Contributing to those differences is the migration factor. Overall, overseas migration is improving for Australia, leading to more growth, with some areas benefiting more than others. 

A second key issue is the recent movement of populations between various states and territories. This interstate migration trend has been occurring for a while but has accelerated following the pandemic. People are migrating away from expensive markets such as Sydney to less expensive markets such as Brisbane. Many are choosing to move further away to regions such as the Gold Coast or Sunshine Coast for lifestyle reasons. 

The net effect of these variances among states, regions, and cities is a disparity in the growth and decline of property values. While national home values have declined somewhat—throughout 2022, in the face of rapidly rising interest rates, we saw combined national average house prices decline by 7.2%, with a steeper decline of 8.7% in the capital cities. For example, Sydney is down nearly 11% this year, while Brisbane and Melbourne are down around 8%. While that may be a good opportunity for new buyers, it also creates a supply problem because many owners may choose to hold on to their properties until prices rebound.

Keeping a Long-Term Investment Orientation

According to Dr. Unterweger, the bottom line is that some areas benefit more than others from critical factors such as population, infrastructure, and employment growth. Choosing a quality residential property in areas with those attributes increases your chances of doing very well with your investment if you have a long-term orientation. 

According to Corelogic research, the median dwelling value in Australia has delivered an annual growth rate of 6.8% over the past 30 years ending March 2022. That equates to a total growth rate of 382% during the 30-year period.

Unterweger also pointed out the benefits of using leverage intelligently when investing in property. By using leverage wisely and focusing on long-term growth, expats can potentially build a sizable property portfolio without causing themselves undue financial stress.

Combined house and unit values in Australian capitals for 30 years ending July 2022

Source: Corelogic

Buying real estate as an Australian resident vs. a non-resident

When buying Australian real estate, the most critical factor to consider is whether you are an Australian resident or a non-resident for tax purposes. The Australian government has imposed certain limitations on the type of property non-residents can buy and different tax treatments on the sale of a property. 

The Australian government has regulations in place to monitor and control foreign investments, including real estate. Non-residents purchasing residential property in Australia using foreign income must first obtain approval from the Foreign Investment Review Board (FIRB). The FIRB regulates the sale of Australian property to overseas persons and entities. 

In addition, non-resident buyers are limited to investing in new dwellings, off-the-plan properties under construction, or vacant land to be developed within a certain time frame. 

As far as tax treatment is concerned, non-residents are taxed differently than residents on investment income and property sales. It's essential for non-resident buyers to understand the tax implications of differing tax rates for capital gains and ordinary income when purchasing property in Australia. 

Essentially, non-resident Australians are taxed at a much higher capital gains tax rate, as they aren't eligible for the 50% CGT discount that Australian tax residents enjoy on long-term capital gains.

If you own an income-producing property, it's important to take into account depreciation and other allowable deductions, such as mortgage interest, management costs for repairs, and maintenance, when determining your ultimate tax liability. Division 40 Depreciation and Division 43 Depreciation are two of the most important types of depreciation. Division 40 Depreciation covers assets like appliances, A/C systems, and certain furniture items, while Division 40 Depreciation covers the actual structure of your property. In Australia, depreciation deductions are used to offset ordinary income earned in-country. If you don't have in-country personal income, those depreciation deductions can be saved up until you do, providing you with significant tax credits when you repatriate. 

It's essential to seek professional tax advice to understand your specific obligations and options as a non-resident property owner. A tax professional can help you navigate the complex tax laws and regulations and ensure that you are maximizing your tax savings.

Obtaining a mortgage as an Australian expat

Obtaining a mortgage as an Australian expat living in the U.S. can be challenging, but it's not impossible. As Dr. Unterweger points out, mortgages for foreign-income borrowers are far more specialized, and many mortgage brokers have little or no experience with them. He emphasizes that "a lot of lenders are fairly savage on Australian expats earning foreign income. So, you really have to know the nuances of each lender and how they process so you can package the loan the right way. 

For example, expats living in the U.S. have to grapple with how lenders offset the risks of foreign currency fluctuation. Many lenders will adjust a buyer's earnings down 20% to arrive at a net figure for determining how much property you can afford. There are also different down payment requirements for different types of properties, and buyers have to be mindful of additional costs such as stamp duties and legal expenses. 

That's why working with a mortgage broker with experience in dealing with expat clients is essential to help you navigate the complex process of obtaining a mortgage from abroad. A better option may be to work with a property advocate service that knows its way around the mortgage landscape and has a track record of working with lenders on behalf of expats. 

Seeking the advice of a property advocate

In addition to helping expats obtain a mortgage with favorable terms, a property advocate can help you navigate the buying process and ensure that you make a sound investment.

Property advocates are experts in the real estate market and can provide valuable insights into the current market conditions and trends. They can also help you identify properties that meet your specific needs and budget, negotiate the best possible price, and handle all the paperwork involved in the buying process.

There are benefits to working with a personalized property advocacy service, as opposed to using a platform like Realestate.com.au or Domain.com.au. These platforms are marketplaces for property listings, but they do not provide the personalized assistance and expertise needed to navigate the unique challenges expats investing in Australian real estate face. Expats can make the most of their Australian property investments by seeking expert guidance and choosing suitable properties. 

Managing property from abroad

While owning an investment property can be a smart financial move, managing a property from abroad can be challenging. That's why it's crucial to have a reliable property manager who can assist with day-to-day issues, such as tenant screening, rent collection, repairs, and maintenance, as well as compliance with local regulations. 

A property manager can help you ensure that your property is well-maintained and that any issues are promptly addressed. They can also help you navigate the complex legal and regulatory requirements of managing a property in Australia.

Finding a trustworthy property management company is one of the most important things you can do as a real estate investor anywhere, especially when you need to manage a property from overseas. It's essential to do your due diligence and thoroughly research property management companies to learn precisely which services they offer and if their current and past clients are happy with the company. Asking for references is common and will save you time, money, and headaches in the long run.

Important points to keep in mind

Owning or investing in Australian real estate while living in the U.S. can be a complex process. Still, with the right advice and guidance, it can also be a rewarding investment opportunity. Understanding the tax and residency implications, seeking professional advice, and working with trusted partners to ensure a successful investment journey are essential.

While there are challenges and complexities that expats face when investing in Australian property, such as obtaining a mortgage from abroad and navigating the country's tax system, the potential benefits of property investment for expats, such as building wealth, hedging against inflation, and providing a future home for themselves or their children, often far outweigh the challenges.

Key things to remember:

  • There is no single "Australian property market" as different states and cities have unique economies and supply and demand factors.
  • Net overseas migration to Australia is rebounding, contributing to population growth and housing demand.
  • Interstate migration is impacting the property market, with people moving from cities like Sydney and Melbourne to Brisbane, Perth, and other areas.
  • National home values in Australia have declined throughout 2022, with varying impacts on different cities.
  • Property investment should consider population, infrastructure, and employment growth in the area.
  • Non-resident/non-citizen buyers usually can only invest in new dwellings, off-the-plan properties under construction, or vacant land with a view to development within a time frame.
  • Capital gains tax treatment for non-residents can be managed by holding onto property and using tax credits to offset gains when selling.
  • Australian expats can obtain mortgages for property purchases but may face different underwriting guidelines and interest rates compared to residents.

It's also important to remember that regulations and policies regarding foreign ownership of real estate change over time. It's critical to stay informed on the latest rules and requirements set by the Australian government as well as local regulations, laws, and compliance requirements. It would be essential to consult with professionals to ensure a smooth and compliant real estate purchase

If you have any questions or would like further guidance on owning or investing in Australian real estate, please don't hesitate to reach out—we're here to help. At Areté Wealth Strategists, we have years of experience assisting Australian expats to navigate the tricky waters of real estate investments. Visit our website to learn more about how we can help you. When you're ready to reach out, get started with your free consultation.

Join our Newsletter for Financial News and insights
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Investment advisory services offered through Arete Wealth Strategists, a Securities and Exchange Registered Investment Advisor. Telephone number 888.544.3250. Arete Wealth Australia may offer investment advisory services in the State of Minnesota, California and in other jurisdictions where registered or exempted.
Click here to read our Form Client Relationship Summary