It is always hard to know when it is a good time to be investing in Australian property. It seems that you just need to open the newspaper and there will be two conflicting articles on whether the timing is right for a property purchase. The reality is that in some areas of Australia property might be at a cyclical peak while in other areas property prices could be at a cyclical low. You just need to look at Sydney and Perth. Sydney house prices have increased over 40% since 2010, while Perth house prices are moving backwards, and haven’t seen any significant increase since 2008.
So while I believe Australian property is a good long term investment, it does not mean any property will be a good long term investment. Assuming you choose your investment wisely, here are the reasons you should consider investing in Australian property as an Australian Expat:
Keeping a Foot on the Property Market Ladder
No matter how long you plan to live overseas, investing in Australian property (in an area where you plan to live in the future) ensures you remain exposed to potential increases in property prices. If property prices rise dramatically while you are away (and history shows that prices can move very quickly at times), it may be very difficult for a non-property owner to get back in the market. Historically in Australia, well located residential property in the major capital cities has delivered good long term capital growth.
Depending on how large your deposit is, and the type and location of the property you purchase, rental income can make a substantial contribution to the cost of holding the property. In limited circumstances it may be possible for your rent to exceed your expenses.
Tax Benefits (Australian Resident for Tax Purposes)
Tax benefits should not drive your investment decisions, but be seen as an added benefit to an investment – the icing on the cake so to speak. The Australian tax system provides great benefits to those people investing in Australian property (whether you are an Australian resident for tax purposes or not). If you remain an Australian resident for tax purposes, then you can deduct from your taxable income all of your financing costs and all the costs involved in maintaining and managing the property. In Australia you are also able to depreciate the value of the building and improvements of your property. Your depreciation benefit is dependent on a range of factors including the value of the building (excluding the value of the land) and the age of the property. A reasonably new building that cost say $200,000 (excluding land value), could reasonably be expected to have a depreciation benefit each year in the order of $5000 to $10,000 per annum. If your income is in the top income tax bracket then depreciation benefits might reduce your tax liability by up to $2500 to $5000 per year. Also, if you hold your investment property for more than 12 months you are exempt from paying capital gains tax on 50% of the capital gain.
For more information on maximising your tax benefits of your rental property through depreciation, then click here for my article on the benefits of rental property depreciation. In this article I also include a special offer negotiated for readers of The Australian Expat Investor to obtain a depreciation report on their property.
Tax Benefits (Non-Resident of Australia for Tax Purposes)
If you are not an Australian resident for tax purposes, then you may still claim all the deductions mentioned previously (i.e maintenance, property management costs, and depreciation) against your Australian sourced income. If in the event your deductions are greater than your Australian sourced income, then you can carry forward any tax losses to future income years. As a non-resident for tax purposes, you won’t receive the 50% exemption from capital gains tax for any capital gains attributed to the period you are a non-resident for tax purposes. To understand more about the tax implications of moving abroad, download my special report – Tax Implications For Australians Working Abroad.
Investing in Australian Property Provides a Stable Investment
Property prices do move in a cyclical manner (and it is possible to lose money on a property investment), however the volatility in prices is much less than say shares, gold or foreign currencies. This characteristic of property is the reason why banks are happy to lend up to 95% (but not always to expats) of the value of the property at very low interest rates.
Ability to Leverage
Due to property being a stable investment, and assuming you meet the lending criteria of the bank, banks will readily lend money against property. Relative to other loans (eg. personal loans, credit cards, business loans, and car loans), borrowing to buy a property is very cheap, and you can borrow a large percentage of the value of the property (in some cases up to 95% of the value of the property). Leverage provides you with the opportunity to have greater investment exposure to an asset with minimal contribution from your own funds. Obtaining finance as an Australian Expat is still possible, but it is getting harder. As a result you are best talking to a mortgage broker that specialises in loans for expats. For more information read my article Why Australian Expats Should Use a Mortgage Broker, or How Australian Expats Can Finance Property in Australia.
All good investment strategies should include a diversified portfolio of investments. If all of your investments are held in direct share investments, managed funds, or through your superannuation, you are unlikely to have any exposure to Australian residential property in your investment portfolio. Investing in Australian Property (particularly residential property) is a good hedge against the volatility in the share and currency markets, as well as being a hedge against significant increases in rent if you don’t already own your own home.
Ability to Add Value
One of the reasons I personally like investing in Australian property is that you are in control of adding value to your investment. With the right property selection, an owner can add value to their investment by doing a cosmetic makeover, a major renovation to the house, sub-dividing the land, or landscaping the garden. There are many ways an owner can add value to a property, that they cannot do with their share or managed fund investments.
Get Started On Your Property Search…
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Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way. We may receive referral commissions from companies mentioned in this article.