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-resident than resident Australians - Queensland's land tax is an example.

Stamp Duty

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 tables below we show the impact of stamp duty in the six states on a $500,000, $750,000 and $1M home with mortgages of $250,000, $375,000 and $500,000 respectively - as at early 2008. Note that concessions may be available to first home buyers.

Table 1.  Cost of Stamp Duty 2007/2008 ($AUD)

 There are a number of calculators available on websites which will provide a detailed calculation of the stamp duty payable on any purchase. An example is:

http://moneymanager.com.au/home-loans/calculators/stamp-duty-calculator.html

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.

Lenders Mortgage Insurance

If you borrow more than 80% of the value of the property you are purchasing you may be required (by your lender) to pay for Lenders' Mortgage Insurance. It insures the lender against the existence of a "shortfall" if, after exercising it rights to sell a property after the lender 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. 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!

Note that this form of insurance, as we mention in the section dealing with Mortgage finance, can be difficult to obtain for an expatriate – insurance companies will often refuse to cover an individual outside Australia. The best option, if available, is to contribute more than 20% of the value of the property. 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.

Inspections

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.

Building Insurance

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.

Council Rates

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 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). The chart below gives an indication only of the land tax applying across Australia - you should confirm your individual position with appropriate advisers. The reference in the chart to Queensland NR - means the rate applying to persons who are not currently resident in Australia and of course this is particularly important to Australian expats.

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 : ACT.

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