Real Estate : Australian Buying Costs
Below is a summary of the costs usually attaching to the purchase of real estate in Australia. It is not intended to be exhaustive, and you should consult with appropriate specialists in each locality, because both the type and level of fees can differ by State and Territory. Additionally, some charges may be higher for non-residents than resident Australians.
This is the largest added cost – all State Governments and Territories charge stamp duty both on the purchase price of the house and the value of the mortgage taken out on the house. In the two largest markets, Sydney and Melbourne it can add between 3% and 5% to the cost of an "average" home, with more expensive homes bearing an even higher burden.
To illustrate, in the Table below we show the impact of stamp duty in the five mainland states on a $500,000, $750,000, $1M and $2M home with mortgages of $250,000, $375,000, $500,000 and $1M respectively - as at July, 2017. Note that concessions may be available to first home buyers and that i) both SA and QLD have significant addtitional transfer fees and ii) Victoria, NSW, Queensland have now introduced additional stamp duty charges for foreign citizens purchasing property, with SA to follow with effect from January 1, 2018.
Table 1. Illustration : Cost of Stamp Duty 2017 (AUD)
Legal Fees, Including Disbursements
Your main legal cost will be for conveyancing, which is the transfer of property from one person to another. Conveyancing fees vary from State to State. You may carry out your own conveyancing, with kits available, but this is relatively rare. While you can take a cost range of $1,000 to $2,000 as indicative, it should not be relied upon and you should ask your solicitor or conveyancer for an estimate of their fees prior to their commencing work. We recommend that all foreign purchasers use a solicitor to ensure they meet FIRB notice and application requirements.
Lenders Mortgage Insurance
If your mortgage constitutes more than 80% of your property valuation you may be required (by your lender) to pay for Lenders' Mortgage Insurance (LMI). It insures the lender against the existence of a "shortfall" if, after exercising its rights to sell a property after the borrower has failed to comply with the loan agreement/mortgage, there is insufficient funds to meet the borrower's commitments. It does not protect you from having to pay what you owe on a mortgage and it does not pay out the loan in the event of the borrower's death or injury, nor cover loan repayments in the case of illness or unemployment, and therefore should not be confused with Life Insurance or Mortgage Protection Insurance. In other words, it protects the lender only!
The cost of Lender's Insurance varies considerably depending on the lender, the purchase price and the amount of deposit you contribute. It can be a significant cost and needs to be discussed in detail with the lender.
You should not exchange contracts to purchase a property until you have completed all the necessary inspections. You may be advised by your solicitor or surveyor in terms of the appropriate inspections but it will also be determined by your knowledge of the house – for example its condition, age and location.
There are a number of types of inspection:
Structural, Building or Pest Inspections – if you have concerns about the structural integrity of the house, its suitability for renovation/alteration or whether there are likely to be substantial costs involved in making it suitably habitable then you should arrange an appropriate inspection. Your solicitor or conveyancer should be able to advise you about qualified firms carrying out these activities in their State or Territory.
Surveys - your conveyancer, or legal representative, may request a survey to check the position of the houses and the position of its boundaries – to ensure that the house is correctly positioned on the land or to identify any problems with adjacent properties. It will also confirm whether the dwelling has been built in accordance with local planning requirements.
The question of who is responsible for insuring the property and carries the risk of loss should something like a fire occur, varies from State to State, and you should discuss this with your solicitor. The safest approach to take is to insure the building from the time of exchange of contracts. You might in fact find that your mortgage provider will make property insurance a condition of making funds available on exchange, or certainly settlement.
The buyers of a property are responsible, from the time of settlement, for the payment of rates on the property. If the previous owner has made a forward payment of rates you may be required to reimburse them for any payment on a pro rata basis – this is usually taken into account in the overall settlement amount.
Body Corporate, Insurance and Sinking Fund Costs
When purchasing a property that has one or more owners, such as strata title unit, you will need to take into account a number of "running" costs involved in the maintenance and insurance of the property. These include body corporate fees, liability insurance to cover any damage that may occur to the property and a regular contribution to a sinking fund.
Land Tax - Australian States and Territories
Land tax is not strictly a buying cost, rather an operating or holding cost - but it is often overlooked by expatriates. The tax is based on the unimproved value of land and an individual's principal place of residence is excluded from the tax; however some subtleties and differences exist between the States and Territories in terms of application (eg. no land tax currently exists in the Northern Territory and Land Tax in Perth includes MRIT). Non residents may now be subject to additional levels of land tax in certain states and you should seek advice in this regard.
For more information on Land Tax - particularly in terms of the amount applicable and how it is calculated - we have included links to the various State and Territory Revenue Offices: NSW : Victoria : Queensland : South Australia : Western Australia : Tasmania.