Real Estate: Australian Buying Costs
This is a reasonably complex topic because buying costs vary across Australia, depending on the State or Territory in which the property is purchased, and because costs can depend on whether you are an Australian citizen, PR, temporary resident or overseas investors. Holding costs, such as land tax, can also vary similarly. We address both these costs in the "Australian Stamp Duty and Land Tax Summary for Non-Residents' available for download and in the discussion below.
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 generally add between 3% and 5% to the cost of an "average" home, with more expensive homes bearing an even higher burden. Significant additional stamp duty surcharges apply in addition where the purchaser is a "foreign person", ranging from an additional 3% to 8% in Victoria, New South Wales, Queensland, South Australia, Western Australia and Tasmania.
To illustrate the level of stamp duty applying to Australian citizens we show in Table 1 below the stamp duty payable in the five mainland states on an established home valued at $500,000, $750,000, $1M and $2M respectively, as at October, 2019. Note that concessions may be available to first home buyers, subject to conditions, buyers of new homes and that both SA and QLD have significant additional transfer fees.
Table 1. Illustration : Cost of Stamp Duty 2019 (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 and not recommended. 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 and foreign investors. The area is quite complex and some states have introduced "absentee" land tax rates which largely only impact foreign investors. Queensland is the substantial exception and it has very high rates of absentee land tax which can effect expatriate Australians and foreign investors alike. We deal with stamp duty and land tax in more detail elsewhere on the website and in the summary document below available for download which is focussed on foreign investors but still has information valid for Australian expatriates.