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au
TOP TIPS FOR
AUSTRALIAN EXPATS
THINKING
OF BUYING
BACK
HOME THIS
SUMMER
20
2
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
GREAT BUYING OPPORTUNITIES FOR
CASHED-UP EXPATS
A
ustralian 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 fnancial
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, youll 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 youll 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 specifcally for
Australian citizens who are residents
of another country, including for tax
purposes, during extended overseas
assignments.
Veteran personal fnance and property
journalist Michael Laurence is the author.
JONATHAN CHANCELLOR,
EDITOR, PROPERTY OBSERVER
3
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
DONT BE A WOOD DUCK
D
avid 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 diffcult negotiation,
because some people think they can
afford to pay anything.
We often say to vendors, The reason
they have money is because they dont
pay silly money for things.
01
02
A
ustralian 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 frst 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 shouldnt 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.
DONT RELY TOO MUCH ON RELATIVES
SLOW DOWN, TAKE
A PANADOL, AND DO YOUR
DUE DILIGENCE ON THE
MARKET
4
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
UNDERSTAND IMPACT OF THE HIGH
AUSTRALIAN DOLLAR
R
ich 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, Harveys frm 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 infu-
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 doesnt
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.
Dont 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 frst to
go when companies scale back their over-
heads.
03
04
BALANCE THE HIGH DOLLAR AGAINST
DEPRESSED PRICES
R
ich 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 confdent 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
defnitely bottomed.
5
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
TAKE ADVANTAGE OF YOUR STRONG
BARGAINING POSITION
R
oss 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 fexibility to offer
vendors short or long-term settlements,
Savas adds.
Often expats dont 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.
05
06
CONSIDER HIRING A BUYERS AGENT
A
ngus 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 shouldnt just rely on their online
research, says Raine.
And expats shouldnt 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 SHOULDNT JUST
RELY ON THEIR ONLINE
RESEARCH
6
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
PREPARE A CHECKLIST OF
MUST-HAVE FEATURES
Y
ou 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 fve
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 offce 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 Lindfeld 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
7
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
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 doesnt 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 THATS
IMMEDIATELY RENTABLE
S
hayne 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
signifcantly down.
Harris says that an apartment over-
looking Sydneys 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 SYDNEYS
CIRCULAR QUAY, FOR
EXAMPLE, THAT WOULD
HAVE RENTED FOR $5,000 IN
THE PAST WOULD NOW GET
ABOUT $2,500 TO $3,000
8
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
TRACK DOWN SILENT SALES
E
xpat 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
frm are silent sales.
Agents call us to say that a property is
going on the internet in a months 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 MONTHS TIME
11
TREAT WEBSITE PHOTOS WITH CAUTION
B
uyers 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 whats 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
9
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
12
TRY TO CHECK WHETHER COMPETING
OFFERS ARE GENUINE
R
ich 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
agents offce and ask to see the offers,
says Harvey.
WE WILL VISIT AN
AGENTS OFFICE AND ASK
TO SEE THE OFFERS
13
UNDERSTAND POTENTIAL CAPITAL GAINS
TAX IMPACT
T
ake 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 familys home.
The capital gains tax (CGT) treatment
when the home is eventually sold will be
infuenced by the length of time when the
property was not the expats main Aus-
tralian residence. (Main residences are
exempt from Australian CGT).
What would be this expats 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 fnal two of
those years?
Joe Galea, property tax partner for
accountants Deloitte in Sydney, says a
ffth 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 EXPATS MAIN
AUSTRALIAN RESIDENCE.
10
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
PREPARE FOR REMOVAL OF CGT DISCOUNT
FOR NON-RESIDENT EXPATS
T
he 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 frst $80,000 of taxable income
(which includes taxable capital gains)
without the beneft 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.
14
15
CHECK ELIGIBILITY FOR CGT EXEMPTIONS
A
ustralian 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 qualifed as the taxpayers 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 expats main residence before
becoming a foreign resident can remain
exempt from CGT indefnitely 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.
11
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
www.propertyobserver.com.au
KNOW WHAT TAX IS PAYABLE ON
RENTAL INCOME
J
oe 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 frst $80,000 of
taxable income without the beneft 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.
16
17
TAKE ADVANTAGE OF NEGATIVE
GEARING
E
ven 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 fnal 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.
12
20 TIPS FOR EXPATS BUYING AUSTRALIAN PROPERTY
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WATCH IMPACT OF PROPOSED CHANGES
TO LIVING AWAY FROM HOME
ALLOWANCES
G
eoff Lloyd of Grant Thornton
explains that the governments
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 Australias FBT system on
benefts 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 expats 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.
18
19
A
ustralian 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.)
DONT OVERLOOK IMPACT OF LAND TAX
20
Y
ou 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 FIRBs web-
site.)
UNDERSTAND FIRB EXEMPTION