20 tips for expat buyers of australian property

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TOP TIPS FOR AUSTRALIAN EXPATS THINKING OF BUYING BACK HOME THIS SUMMER

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20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY


GREAT BUYING OPPORTUNITIES FOR CASHED-UP EXPATS

Australian expatriates often buy

properties back in Australia. Per-

haps not necessarily when the

Australian dollar is as high as present, but

they do have in their minds their eventual

return to what will be their family home

when their overseas assignments end.

This raises many personal and financial

issues regarding the selection of the prop-

erty, the potential capital gains tax (CGT)

treatment, negative-gearing tax breaks,

and the possible tax consequences if

rental income exceeds deductible costs.

Some Australian expats rely heavily on

their Australian-based relatives to inspect,

at least initially, possible purchases.

And many expats hire buyers’ agents to

search and negotiate for properties that

match their criteria.

Despite the high Australian dollar, real

estate agents and buyers’ agents say

there are great buying opportunities for

cashed-up expats given the depressed

state of the Australian market – particu-

larly at the upper end.

In this eBook, you’ll read buying tips

and warnings from real estate agents

Ross Savas of Kay & Burton Real

Estate, Shayne Harris of Savills

Australia and Angus Raine of

Raine & Horne.

Buyers’ agents David Morrell

of Morrell and Koren, Rich Har-

vey of propertybuyer and Peter

Kelaher of PK Property Search

and Negotiators provide valuable

insider strategies.

And you’ll read smart tax tips from

accountant Joe Galea from Deloitte,

tax lawyer Robert Richards of Robert

Richards & Associates and accountant

Geoff Lloyd of Grant Thornton.

These tax specialists point to excellent

tax breaks including from negative gear-

ing and concessional CGT treatment in

certain circumstances.

Crucially, we cover the latest tax

developments including the announced

cutbacks in discount CGT for Australian

expats and examine the possible impact

of proposed changes to the living away

from home allowances.

This eBook is written specifically for

Australian citizens who are residents

of another country, including for tax

purposes, during extended overseas

assignments.

Veteran personal finance and property

journalist Michael Laurence is the author.

JONATHAN CHANCELLOR, EDITOR, PROPERTY OBSERVER

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DON’T BE A ‘WOOD DUCK’

David Morrell, a director of Mel-

bourne buyers’ agent Morrell and

Koren, warns that some vendors

regard Australian expatriate buyers as

“wood ducks”, or easy targets.

Morrell says some unfortunate expat

buyers unwittingly send a clear message

to vendors that they have plenty of money,

are poorly informed about the local prop-

erty market and have little time to inspect

properties.

His advice is straightforward: “Slow

down, take a Panadol, and do your due

diligence on the market”.

Shayne Harris, head of residential for

international agency Savills Australia,

says he tries not to disclose to vendors

that a would-be buyer is an expatriate.

Harris says vendors may jump to the

conclusion that the expatriates have

plenty of money.

“It makes a very difficult negotiation,

because some people think they can

afford to pay anything.

“We often say to vendors, ‘The reason

they have money is because they don’t

pay silly money for things’.”

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02Australian expats often rely heavily

on their Australian-based relatives

– from second cousins to mothers-

in-law – to help select properties to buy. In

many cases, expats first identify potential

buys on the internet and then ask their

relatives to inspect the properties.

The general, but hardly unanimous,

view among property specialists is that

there is nothing wrong with asking rela-

tives to inspect properties, however

expats shouldn’t overly rely on their opin-

ions when deciding whether to buy.

Shayne Harris of Savills Australia has

found that parents, for instance, tend to

really enjoy inspecting properties and rep-

resenting their expat children. “They are

obviously proud of their kids and pleased

to be on the ground looking after them.”

But Harris says that some expats “rely

on relatives having some sort of intuitive

sense about what they like”, and this can

lead to disappointment.

Rich Harvey, managing director of Syd-

ney buyers’ agent propertybuyer, warns

that the task of inspecting properties and

making recommendations can place rela-

tives under stress. “You are putting a lot of

pressure on them to do a professional job

that they may not be skilled at,” says.

DON’T RELY TOO MUCH ON RELATIVES

SLOW DOWN, TAKE A PANADOL, AND DO YOUR DUE DILIGENCE ON THE MARKET

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UNDERSTAND IMPACT OF THE HIGH AUSTRALIAN DOLLAR

Rich Harvey of propertybuyer says

the high dollar is having a “very

dampening effect” on the willing-

ness of Australian expats to buy property.

In the past, Harvey’s firm had relied on

expats for 20-30% of its business.

David Morrell of Morrell and Koren

emphasises the impact that a swing of,

say, 10% in the value of the Australian

dollar against other currencies can have

on the value of a $5 million to $8 million

house. And Morrell too has experienced

a cut in demand among expat buyers

because of the high dollar.

However, Morrell and several other

property specialists stress that many

expats are motivated to buy property in

Australia for reasons that are not influ-

enced by the state of the dollar. Morrell

says expats usually make a decision to

buy in Australia when their children are

reaching secondary-school age. “They

normally come back for the schools.”

Ross Savas, a director of Kay & Burton

Real Estate in Melbourne, says “it doesn’t

matter where the dollar is” if expats have

to come home to educate their children or

have been made redundant as countless

employers cut costs.

“Don’t worry about the dollar,” adds

Savas, who specialises in properties cost-

ing $3 million-plus. “If you are coming

home, you are coming home. And you will

need somewhere to live.

“Expats are the most expensive employ-

ees,” says Savas. “And they are the first to

go when companies scale back their over-

heads.”

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04 BALANCE THE HIGH DOLLAR AGAINST DEPRESSED PRICES

Rich Harvey of propertybuyer

argues that despite the high dollar,

the depressed prices in the upper

end of the property market make this a

“brilliant” buying opportunity for expats

with a bit of cash to spend.

“If someone is cashed up and wants to

buy, they can do very well at the top end

of the market right now.”

Harvey recently looked at a house

with a $15 million asking price in the

pricey eastern suburbs of Sydney that he

estimates he could have picked up for $10

million.

And Harvey is confident that he could

negotiate about $500,000 or so off houses

in the $10 million range.

Angus Raine, chief executive of Raine &

Horne, agrees.

“This is a fantastic buying opportunity,”

Raine says.

“There are great, great deals to be had.

And it should remain like this for next one

or two years.”

Raine believes that expats should not

let the high dollar dictate whether they buy

a house at this time. “The upper end of the

market is very soft. There is a perception

out there that this end of the market has

definitely bottomed.”

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TAKE ADVANTAGE OF YOUR STRONG BARGAINING POSITION

Ross Savas of Kay & Burton Real

Estate says Australian expat buy-

ers are in a powerful negotiating

position.

“They are cashed-up and ready to buy,”

he emphasises.

“And they have the flexibility to offer

vendors short or long-term settlements,”

Savas adds.

“Often expats don’t need the house

immediately and can rent it back to the

vendor.”

The bottom line is that cashed-up

expats are well placed to really make the

most of this depressed market for high-

cost properties.

“If you have cash at the moment, you

are in a pretty good position,” says Shayne

Harris of Savills Australia.

“There are not many people in the upper

end of the market with 80% to 90% of the

purchase price.”

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06 CONSIDER HIRING A BUYERS’ AGENT

Angus Raine of Raine & Horne

is convinced that expats typi-

cally spending $3 million plus for

a future home in Australia “really need a

buyers’ agent” to identify good buys and

to negotiate top deals.

“Because of the tyranny of distance and

the amount of money they are spending,

expats shouldn’t just rely on their online

research,” says Raine.

And expats shouldn’t rely too heavily on

the help of their relatives, he suggests, as

discussed earlier. “They need experts to

really work on their behalf.”

THEY ARE CASHED-UP AND READY TO BUY. AND THEY HAVE THE FLEXIBILITY TO OFFER VENDORS SHORT OR LONG-TERM SETTLEMENTS

BECAUSE OF THE TYRANNY OF DISTANCE AND THE AMOUNT OF MONEY THEY ARE SPENDING, EXPATS SHOULDN’T JUST RELY ON THEIR ONLINE RESEARCH

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PREPARE A CHECKLIST OF ‘MUST-HAVE’ FEATURES

You can use this checklist when

identifying possible buys on the

internet and for use by real estate

agents, buyers’ agents and any relatives

who may be inspecting properties on your

behalf.

Before preparing the checklist, it is

worth considering what types of properties

and locations appeal to other Australian

expats.

Shayne Harris of Savills Australia says

expats typically want homes within five

kilometres of the CBD near good schools,

beaches, restaurants and cafes.

“They are going to be working long

hours when they return to Australia and

want to be in and out of the office in a rea-

sonable time.”

And Harris says expats usually want

north-facing backyards and quiet streets.

He tells buyers that they can change

almost anything with a house except the

shape and the aspect of its block.

Peter Kelaher, managing director of

Sydney buyers’ agent PK Property Search

and Negotiators, says that expat buyers

tend to want homes with “postcard” views.

“In Sydney, they really want water views,

ideally including the iconic views of the

Harbour Bridge and the Opera House.

“A lot of expats – particularly those

posted in Hong Kong and Singapore –

live in apartments,” Kelaher adds. This

means many want Australian houses on

big bocks of land.

Property specialists interviewed say

expats returning to live in Sydney favour

such suburbs as Mosman, Neutral Bay,

Roseville and Lindfield on the lower north

shore as well as such suburbs as Point

Piper, Bellevue Hill and Potts Point in the

eastern suburbs. And many expats like

the eastern beach suburbs.

Rich Harvey of propertybuyer points

to the “golden triangle” of top streets on

Balmoral Slopes as a Sydney favourite

among expats.

In Melbourne, Ross Savas of Kay &

Burton Real Estate names Toorak, South

Yarra, Hawthorne, Canterbury, Brighton

and Albert Park among the preferred sub-

urbs of cashed-up expats.

“They want quality homes in quality sub-

urbs.”

It should be emphasised, however, that

there are two sides to the expat property

market. While expats in senior positions

are looking for properties typically cost-

ing upwards of $3 million, younger expats

with less-senior jobs may be hunting for

properties selling for $1 million plus.

07 THEY ARE GOING

TO BE WORKING LONG HOURS WHEN THEY RETURN TO AUSTRALIA AND WANT TO BE IN AND OUT OF THE OFFICE IN A REASONABLE TIME

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UNDERSTAND IMPORTANCE OF SCHOOLS

A location near a good private

school heads the wish-list of most

expats.

“Schools are very, very important to

expat buyers,” says Ross Savas of Kay &

Burton Real Estate.

As Shayne Harris of Savills Australia

emphasises, the need for their children to

attend secondary school is often the trig-

ger for expats to return to Australia.

And Angus Raine of Raine & Horne

says that as children reach secondary-

school age, expats face a decision. They

often have to “bite the bullet” and decide

whether they will return to Australia or

remain living overseas for the next 20 or

30 years.

David Morrell of Morrell and Koren

points out that just because an expat

has, say, $10 million to spend on a home,

it doesn’t mean that a property can be

bought near the school they want and that

their children can get into that school.

08 SCHOOLS ARE

VERY, VERY IMPORTANT TO EXPAT BUYERS

09 LOOK FOR A PROPERTY THAT’S IMMEDIATELY RENTABLE

Shayne Harris of Savills Australia

advises expats to look for houses

in good condition that can be

rented immediately after settlement. (As

discussed later, an expat can claim excel-

lent negative-gearing tax breaks.)

The tax breaks should help ease the

reality that rents for top-end properties are

significantly down.

Harris says that an apartment over-

looking Sydney’s Circular Quay, for

example, that would have rented for

$5,000 in the past would now get about

$2,500 to $3,000, depending on the par-

ticular property.

AN APARTMENT OVERLOOKING SYDNEY’S CIRCULAR QUAY, FOR EXAMPLE, THAT WOULD HAVE RENTED FOR $5,000 IN THE PAST WOULD NOW GET ABOUT $2,500 TO $3,000

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TRACK DOWN ‘SILENT SALES’

Expat buyers should be aware that

many of the homes available for

sale are not yet listed on the inter-

net or advertised elsewhere. These are

properties that agents or buyers’ agents

know that the owners are willing to sell for

an acceptable price.

Peter Kelaher of PK Property Search

and Negotiators says that a large propor-

tion of the transactions negotiated by his

firm are silent sales.

“Agents call us to say that a property is

going on the internet in a month’s time,”

says Kelaher. “And owners will call us

about properties they want to sell pri-

vately.”

10 AGENTS CALL US

TO SAY THE PROPERTY IS GOING ON THE INTERNET IN A MONTH’S TIME

11 TREAT WEBSITE PHOTOS WITH CAUTION

Buyers’ agents name over-reliance

on website photos as one of the

biggest traps for expat property

buyers.

“Wide-angle lenses make a property

look as if it has more space than it does,”

warns Rich Harvey of propertybuyer.

“There is no substitute for an on-the-

ground inspection [by buyers or their

representatives].

“You have to visit the home to see what

the noise is like and what’s on the adja-

cent land,” Harvey emphasises.

And an inspection would show how the

aspect of the land affects different rooms

in a home.

WIDE-ANGLE LENSES MAKE A PROPERTY LOOK AS IF IT HAS MORE SPACE THAN IT DOES

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12 TRY TO CHECK WHETHER COMPETING ‘OFFERS’ ARE GENUINE

Rich Harvey of propertybuyer

says agents often like to give the

impression that there is much

interest in a particular property.

However, he suggests that the impres-

sion that buyers are competing for a

property should be tested.

“An agent might say that 16 contracts

are out on a property, but how does the

poor expat know home many genuine

offers have been made? We will visit an

agent’s office and ask to see the offers,”

says Harvey.

WE WILL VISIT AN AGENT’S OFFICE AND ASK TO SEE THE OFFERS

13 UNDERSTAND POTENTIAL CAPITAL GAINS TAX IMPACT

Take the common example of an

Australian expatriate who buys

a home back in Australia while

still resident of another country, includ-

ing for tax purposes. In this case study,

the house will be rented until the expat

eventually returns to Australia, when it will

become the family’s home.

The capital gains tax (CGT) treatment

when the home is eventually sold will be

influenced by the length of time when the

property was not the expat’s main Aus-

tralian residence. (Main residences are

exempt from Australian CGT).

What would be this expat’s CGT posi-

tion if he or she were to own the property

for, say, 10 years and it was his or her

Australian home for only the final two of

those years?

Joe Galea, property tax partner for

accountants Deloitte in Sydney, says a

fifth of any net capital gain should be tax-

able.

The capital gain or loss is calculated by

offsetting the so-called “cost base” against

its sale price. (Very broadly, the cost base

comprises the cost of buying and selling

the property after allowing for any capital

depreciation.)

THE CAPITAL GAINS TAX (CGT) TREATMENT WHEN THE HOME IS EVENTUALLY SOLD WILL BE INFLUENCED BY THE LENGTH OF TIME WHEN THE PROPERTY WAS NOT THE EXPAT’S MAIN AUSTRALIAN RESIDENCE.

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PREPARE FOR REMOVAL OF CGT DISCOUNT FOR NON-RESIDENT EXPATS

The government plans to remove

the 50% CGT discount for non-

residents on property capital gains

accrued from budget night on May 8,

2012.

This measure will affect many Austral-

ian expats.

As Joe Galea, property tax partner for

accountants Deloitte in Sydney, explains,

capital gains accrued by a non-resident

until budget night should remain eligible

for the discount provided the property is

owned for at least 12 months.

Galea urges expatriate property owners

who are not Australian residents to obtain

valuations of their Australian properties as

at May 8, 2012 (budget night) to ensure

that gains up to that date are available for

discount. Without the discount, properties

will be subject to CGT at full rates apply-

ing to non-residents.

For 2012-13, non-residents will pay

$26,000 in tax (or 32.5¢ for each dollar)

on the first $80,000 of taxable income

(which includes taxable capital gains) –

without the benefit of the $18,200 tax-free

threshold – and then standard marginal

rates apply.

EXPATS CAN RENT OUT THEIR FORMER HOMES FOR A MAXIMUM OF SIX YEARS YET STILL RETAIN THE FULL CGT EXEMPTION FOR MAIN RESIDENCES.

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15 CHECK ELIGIBILITY FOR CGT EXEMPTIONS

Australian expatriates often keep

their Australian homes when

transferred overseas and rent the

properties until their eventual return.

Joe Galea of Deloitte says such expats

can rent out their former homes for a max-

imum of six years yet still retain the full

CGT exemption for main residences.

Provided this condition is met, the prop-

erties can eventually be sold without any

CGT being payable.

To be eligible for this CGT exemption,

Galea emphasises that the property must

have qualified as the taxpayer’s main

Australian residence before becoming a

tax resident of another country during an

overseas posting.

Kirk Wilson, a senior tax writer with

Thomson Reuters, says a property that

was an expat’s main residence before

becoming a foreign resident can remain

exempt from CGT indefinitely provided it

is not rented.

Wilson, an assistant writer of the land-

mark publication Cooper & Evans on

CGT, adds that expats need to apply for

this “absence concession”.

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KNOW WHAT TAX IS PAYABLE ON RENTAL INCOME

Joe Galea of Deloitte explains

that even if you are a resident of

another country during your over-

seas assignment, the net rental income

from your Australian property is taxable

in Australia at the rates applying to non-

residents.

(Of course, many houses owned by

expats would be negatively geared – see

next tip.)

As outlined earlier, non-residents will

pay $26,000 in tax (or 32.5¢ for each

dollar) in 2012-13 on the first $80,000 of

taxable income – without the benefit of

the $18,200 tax-free threshold – and then

standard marginal rates apply.

“The tax rates are quite punitive for non-

residents,” says Galea.

Tax lawyer Robert Richards, principal of

Robert Richards & Associates, warns that

positive income from an Australian-based

property may also have tax implications in

the country where the expat is based.

Geoff Lloyd, national head of expatri-

ate tax for accountants Grant Thornton,

says that positive rental income from an

Australian property will, in most cases, be

either:

• Tax-free in a foreign country that collects

tax on a remittance basis – unless the

money is remitted to that country. Such

countries include Singapore.

• Taxable in a foreign country that collects

tax on a worldwide basis but with credit for

tax already paid in Australia. Such coun-

tries include the US.

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17 TAKE ADVANTAGE OF NEGATIVE GEARING

Even as non-residents of Australia,

Australian expatriates can make

the most of negative-gearing tax

breaks for their Australian rental proper-

ties.

This is a key consideration for expats

who intend to rent their future homes until

returning to Australia.

Galea says that expat property own-

ers can offset the shortfall between rental

income and the deductible expenses for

the property against certain other Austral-

ian income.

You cannot offset the shortfall against

Australian dividend and interest income.

(Interest and unfranked dividends are gen-

erally subject to final withholding tax for

non-residents). Further, franked dividends

received by non-residents are not subject

to further tax in Australia and therefore not

offset against rental losses.

However, non-residents can offset

the shortfall between rental income and

deductible costs against rental income

from other Australian investment property.

Alternatively, they can carry negative-

gearing losses forward to offset against

future Australian income (including from

salaries and capital gains) once they

return home and start earning an income

in Australia.

As Galea says, you can accumulate, or

“park”, your negative-gearing losses until

you return to Australia.

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WATCH IMPACT OF PROPOSED CHANGES TO LIVING AWAY FROM HOME ALLOWANCES

Geoff Lloyd of Grant Thornton

explains that the government’s

tightening of the living away from

home allowances from October 1, 2012,

does not directly affect an Australian expat

who is resident of another country during

an overseas assignment. This is because

a non-resident expat is generally outside

the scope of Australia’s FBT system on

benefits provided while overseas.

However, Lloyd says the tightening of

the LAFHA may adversely affect the abil-

ity of some tenants to pay as much rent as

in the past for an Australian expat’s Aus-

tralian property.

The changes require that executives

posted from overseas to Australia and oth-

ers who may rent your home must maintain

another Australian home without renting it

out to be eligible for the living away from

home allowances. And a 12-month limit is

placed on the allowances.

Under the old rules, there was no need

to maintain a second Australian home and

the allowances were payable for typically

two to four years.

As Lloyd explains, executives posted

from overseas to Australia have become

ineligible for a tax-free allowance (unless

they have another Australian home, which

is unusual), and so will have less to spend

on renting an Australian property from,

say an Australian expat. Further, Austral-

ian residents posted from elsewhere in

Australia are now ineligible for the tax-free

LAFHA if earning rent from their homes.

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19Australian expats should generally

expect to pay land tax on property

bought while overseas and rented

until their return. This is, in part, because

the property was never their principal

place of residence before their absence.

As land tax is a state and territory-based

impost, it is necessary to check the exact

position in your state or territory. (See

NSW and Victoria, for example.)

DON’T OVERLOOK IMPACT OF LAND TAX

20You do not need to apply to the

Foreign Investment Review Board

(FIRB) for approval to acquire real

estate in Australia if you are an Australian

citizen yet are a resident of a foreign coun-

try during an overseas assignment.

(See exemptions on the FIRB’s web-

site.)

UNDERSTAND FIRB EXEMPTION

http://www.osr.nsw.gov.au/taxes/land/exemptions/absence/

http://www.sro.vic.gov.au/SRO/sronav.nsf/LinkView/13202BA8A98E4A7ACA2575D6001DA9A3357FEFE8147EF37DCA2575D6001D1E1B

http://www.firb.gov.au/content/exemptions/exemptions.asp

http://www.firb.gov.au/content/exemptions/exemptions.asp

20 tips for expat buyers of australian property

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