Real Estate in Australia as a Hedge against Inflation

Real estate is one of the best investment options in Australia. Australia is the world’s smallest continent yet it is the sixth largest country in terms of land area. Offshore real estate investors are welcome in Australia but they are subjected to the Federal Investment Review Board (FIRB) that is not very difficult to obtain. FIRB will ensure that foreign real estate ownership will benefit the community and is in keeping with the community needs.

Toy Houses on Business Section of newspaper
Real Estate Financing

How foreign real estate investors can gain approval from FIRB

The Australian government requires that all applications of foreign citizens and companies who are proposing to buy real estate in Australia no matter the value of the property to be reviewed by FIRB. The applicant will usually wait for 30 days to obtain approval. FIRB approval can only be granted on a specifically nominated property. If FIRB feels that the residential real estate property is being purchased for the purpose of renting it out or if the investor is only speculating on the property’s future value, permission to purchase may be denied. On the other hand, approval is usually granted to foreign applicants on the following conditions:

  • If the applicant is a resident of Australia on a temporary entry visa (with more than 12 months validity) and desires to own a property. Approval will be granted on condition that the property will be sold if the individual no longer lives in Australia.
  • Students who are over 18 years old and studying at a tertiary institution for more than year can invest in real property for accommodation with a limit of $300,000 AUD to the value of the property.
  • Long stay retirees and people in Australia whose work requires accommodation provided the property will be sold if the individual is no longer living in Australia
  • A foreign company that wants to provide housing for its executives who are assigned in Australia for more than 12 months. Property must also be sold if the employee no longer resides in Australia.
  • Foreign investors who want to invest in new dwellings or who want to buy a vacant land to build a new building.

Reasons why many investors are considering Australian real estate

Real estate is a hedge against inflation. Among various investment tools, property provides the highest returns. Australian property is enjoying growth and if this continues the value of the property can double within the next few years. This means a phenomenal return on investment. Australia is one of the developed countries in the world and considered as the 12th largest growing economy. Australia also ranks high in health, education, economic freedom, quality of life and the protection of political rights and civil liberties. An increasing population will generate high demand for properties, meaning it can push the prices up. However, it is important for an investor to choose the location of a property because many tenants prefer close proximity to major population areas or beaches. Rental vacancies are down to 1% and this further reflects on the growing demand for rental properties.

Real Estate in Australia as a Hedge against Inflation

Real Estate Financing – A Straightforward Process in Singapore

Banks remain to be the most popular option for real estate financing but there are alternative sources in the likes of financing companies, credit unions and other lenders. In most cases, these financing institutions are not really using their own funds to fund loans but they are acquiring the money from other sources. This is the reason why most lending institutions have very strict regulations when it comes to real estate financing. On the other hand, there are lenders that have the ability to lend their own funds and they are able to offer more flexible terms and qualifying standards.


The straightforward process of real estate financing in Singapore

  • The borrower would usually go a bank or a financing institution to negotiate on the terms of real estate financing that includes loan amount and interest rates. The amount of loan is usually subjected to loan-to-value (LTV) limits that are imposed by Singapore’s Central Bank which is the monetary authority in Singapore. For an individual borrower, the LTV limit for the first housing loan is 80% however, if the loan tenure exceeds 30 years or past the age of 65 years, the LTV is 60%.
  • Interest rates for real estate financing can be fixed rate of floating rate basis. Floating rate basis is usually pegged according to the bank’s lending rate or Singapore Interbank Offered Rate (SIBOR).
  • The loan facility including all moneys and liabilities that are owed by the borrower from the bank are usually secured by a first legal mortgage but in some cases, the banks may require an assignment of tenancy agreements and rental proceeds if the property is tenanted.
  • Once the real estate loan terms are agreed upon by both parties, the bank will offer a facility letter that the borrower signs and returns to the bank. The facility letter usually includes the amount of loan that is based on the current market value of the property and subjected to the LTV limits. For real estate financing, the outstanding principal including the amount of interest will be repaid in monthly installments. Full repayment or partial repayment of the loan is also allowed during the tenure of the loan.
  • The borrower and the bank will appoint their own lawyers to act in the loan transaction. The same lawyer is also possible for both parties.
  • The bank lawyer will undertake a title search on the borrower’s property that is offered for security.
  • The bank’s lawyer will prepare the mortgage and forward it to the borrower’s lawyer for checking whether it is in order. The borrower’s lawyer will also arrange for the borrower to sign on the mortgage
  • After the mortgage has been signed, the borrower’s lawyer will return it to the bank so that a caveat can be prepared and registered with Singapore Land Authority (SLA). After registration, SLA returns the mortgage and original title deeds back to the bank’s lawyer for safekeeping. Copies are also provided to the borrower or his lawyer for retention.

The process of fairly simple because the borrower’s appointed lawyer will usually take care of all documents pertaining to the financing.

Real Estate Financing – A Straightforward Process in Singapore