The United States is the most appealing location for overseas investment, but an expert warns to do your research before entering overseas markets
A COMPETITIVE property market is stripping many of their chance at buying a house, but some creative Aussies have found a way.
FACED with an extremely competitive property market, many Australians have given up on the dream of buying a house.
But some creative property seekers have found a surprising way to become homeowners by looking a little further when it comes to getting into property.
An increasing number of Australians, including Millennials, are investing abroad with the United States as the most popular destination.
There is no denying that the Australian property market is tough to crack. Despite Australian house prices falling 0.2 per cent in June on a national basis, overall prices are still 32.4 per cent higher compared to five years ago.
Figures from the recent Atlas Wealth Management Expat Insights Report — which surveyed 1774 Australian expats in 65 countries — revealed a 29 per cent increase in Australian residents purchasing properties abroad.
Brett Evans, managing director of Atlas Wealth Management — a company that offers financial advice to Australian expats — said this is because Aussies have been priced out of the Australian market and they are trying to get a foot into any property market.
“More recently the demographic of the Australian resident buying an overseas property has changed to a younger investor who either can’t afford a property in Australia and/or feels that they have missed the property boom in Australia and is looking for the next opportunity overseas,” Mr Evans said.
“We believe the increase in the younger demographic is occurring due to the high minimum price point in purchasing Australian property as opposed to the relatively low entry price point overseas.”
The report revealed the group investing the most is 38- 48-year-olds who accounted for 35 per cent of overseas property investment by Australians, followed by investment from Self Managed Super Funds at 20 per cent (down 28 per cent), 58- 68-year-olds at 16 per cent.
It was the younger demographics 28-38 year olds and 18-28 year olds that had the biggest increase, respectively up from six per cent to 10 per cent and from two per cent to four per cent.
According to the survey, the most attractive destination for Aussies is the United States at 48 per cent, followed by Asia (18 per cent), the United Kingdom (17 per cent) and the United Arab Emirates (10 per cent) — with the main appeal being lower entry prices, higher income yields, more diversity and choice of property.
The median house price in Sydney is just shy of $AU900,000, compared to the US where it is roughly $AU250,000.
“In countries like the US there are tax incentives to purchase the property that you live in and this can often be the deciding factor,” Mr Evans said.
The graph shows the median house price of major Australian cities compared to other countries. Source: Atlas Wealth Management Expat Insights Survey August.
The graph shows the median house price of major Australian cities compared to other countries. Source: Atlas Wealth Management Expat Insights Survey August.Source:Supplied
As for the UK, Mr Evans said Aussie investors have been enticed for two reasons.
“The fall in the pound after the Brexit vote and the second has been falling property prices in the UK due to the economic uncertainty that Brexit may bring to the UK.”
Mr Evans warned that even though the above factors can make an international property purchase appealing, changes in either the exchange rate and/or local tax legislation can have the opposite affect.
“These considerations should be at the forefront of any decision-making process when considering investing internationally,” he said.
“For most countries you don’t have to be a resident or citizen to purchase a property but the rules do vary quite wildly, so it’s always best to do your homework.
“You also want to find out whether the country has a Double Taxation Agreement (DTA) to avoid the potential scenario of double taxation on your rental income if you were to rent the property out.”
Respondents cited tax changes as a deterrent from buying property in Australia with 41 per cent saying that wouldn’t buy in Australia because of it. Source: Atlas Wealth Management Expat Insights Survey August.
Respondents cited tax changes as a deterrent from buying property in Australia with 41 per cent saying that wouldn’t buy in Australia because of it. Source: Atlas Wealth Management Expat Insights Survey August.Source:Supplied
When it comes to Aussie expats living abroad, the survey figures showed that 41 per cent who were considering buy property in Australia, have been deterred by recent tax changes.
“In May 2012 the Australian federal government removed the 50 per cent CGT discount on Australian investment properties that are held by nonresidents (including Australian citizens) resulting in them paying 100 per cent capital gains tax on the increase in the value of the property while they live overseas,” Mr Evans said.
Mr Evans said the biggest challenges faced when purchasing a property overseas (apart from finding the right property) is not only finding a suitable property manager to protect your interests, but also understanding and monitoring the market.
“The internet is a great asset, but nothing beats on the ground intelligence when it comes to what the market is doing,” he said.
Of the 58 per cent of Atlas clients who own property overseas, 70 per cent is in their Principle Place of Residence, 25 per cent is for investment purposes and five per cent is retirement planning.
There has been an increase in Aussies purchasing properties abroad.
There has been an increase in Aussies purchasing properties abroad.Source:AAP
WHY INVESTORS AREN’T CONSIDERING AUSTRALIA
Australia is no longer an attractive market for international property investors, whether they are an Australian expat or a foreign citizen, according to Mr Evans.
Last year’s state and federal government reforms enforced steeper charges on foreign purchases, less favourable tax treatment and a cap on new development sales were introduced — resulting in the recent boom foreign buyers to be over.
The state and federal proposed tax legislation — Main Residence Exemption (MRE) for both foreign citizens and Australian citizens moving overseas — is yet to be enacted.
“What this proposal means is that if you were an Australian citizen and purchased a house and lived in it for 15 years (as an example) as a Principal Place of Residence (PPoR) and were to move overseas — if you were to sell that property while living overseas (whether that be in your first week of living overseas or five years in) then you would potentially pay capital gains tax not from the time you moved overseas, but from the date of initial purchase,” Mr Evans said.
“This has resulted in a lot of Australian expats selling their Australian properties before moving overseas.”
Most Australian states have started taxing both Australian expats and foreign citizens who own properties back in Australia.
This proposed legislative changes to the Main Residence Exemption Rule (MRE) was passed in Canberra by the lower house in February and is currently before the senate to vote on when they resit in August.
“The most extreme has been Queensland which does not distinguish between a foreign or an Australian citizen,” Mr Evans said.
“They levy a Absentee tax which is an annual charge of 1.5 per cent of the property value greater than AUD$350,000.
“These state tax taxes are in force now. As an example, if you own property in Queensland then your residency status will be noted as at the 30th of June and the Absentee tax levy will be sent to you.”