Acquiring real estate is generally considered a good career move and a wise financial investment. However, it can problematic if you don’t get the necessary advice you need to make an informed decision!
Types of Property Ownership
In order to avoid complications down the line, it’s important to understand ownership structures. Below are a few common but significantly different ways to own property in Australia.
1. Sole ownership
As the name states, this refers to individual ownership or interest in a property vested in only one person. In the event that the sole owner passes away, their property may have to go through probate or letters of administration - a legal process that should be undertaken after a person passes away so distribution of his or her assets can be made to his or her beneficiaries.
2. Tenancy in common
Under this structure, two or more parties share ownership of a property (similar to shares in a company). Shares may or may not be divided equally, and each co-owner can generally deal with their assets how they wish – e.g. under a will etc.
While you’re acquiring a property with another person, the right of survivorship does not apply to this structure. This means that the surviving tenants in common do not automatically acquire the right to claim the shares upon the death of the co-owner. Instead, these shares are considered part of the deceased’s estate (assets and liabilities) and can be transferred to its beneficiaries. The shares can also be put up for sale by the estate’s legal representative. This structure might be suitable for relatives or business partners.
3. Joint tenants
Under a joint tenancy or joint ownership relationship, both owners have equal interest and rights to the property. This kind of ownership is common among husbands and wives or other couples that are in long-term committed relationships.
Unlike with tenancy in common, the right to survivorship applies to joint tenancy. Upon a joint tenant’s death, their portion of the property automatically vests to the other surviving joint tenant.
There are other types of ownership structures such as owning property under a trust, company etc. Talk to us if you want to do this!
Real Estate Transaction Costs in Australia
The total cost of acquiring Australian real estate goes beyond your deposit and a mortgage. To get a more accurate estimate of your property purchase cost, make sure to account for things such as:
● Stamp duty
Charged by the state and territory governments, stamp duty or land transfer duty is the amount you pay for property transfers. In some circumstances, you may be eligible for a concession or exemption from paying stamp duty. This can be expensive so make sure you use the stamp duty calculator before making a purchase to have an understanding as to what the duty amount will be.
● Goods and services tax (GST)
Under the New Tax System (Goods and Services Tax) Act 1999, GST is defined as the 10% of the value of goods and services sold in Australia. The GST applicable on a real property would depend on its type and its purpose. If the property is taxable, the contract of sale should mention:
a. whether or not the contract price includes GST
b. the margin rate if the margin scheme is applicable
These are the fees usually charged quarterly by local governments on the properties within their jurisdiction. Your rates bill would depend on your local council’s rates, valuation methods, and payment due dates and adjusted at the settlement of your property (generally from the day you settle).
● Building and pest inspection
Prior to purchasing a property, you might wish to perform a building and pest inspection. This way you will appreciate if there is any issues with the property and reflect this in the offer you are prepared to offer to the Vendor to acquire the property.
● Conveyancing fees/legal fees
Depending on the scope of work that needs to be completed, generally, you will need to account for approximately $800-$1,500.00 for a conveyancing transaction. There will also be disbursements for searches conducted on the property – e.g. land tax search, title search, etc. This can be in the amount of approximately $2-$400.00 per transaction – owner’s corporation certificates can significantly increase this amount.
Real Estate Documents to Keep In Mind
Generally, when it comes to property purchases, a lot of focus is placed on acquiring the financial means to proceed with the transaction. However, handling the paperwork is just as important as finding the best financing options. Below is a list of the documents that are commonly seen in a property transaction.
1. Letter of intent
By nature, a letter of intent expresses the objective to proceed with the negotiations in good faith. It establishes the basic terms of the proposed transaction which can be used in the future contract of sale.
2. Contract of sale
It usually contains relevant information such as:
● details of the property
● the buyer and seller’s details
● details of the conveyancer and agent (if you’re using one)
● the final purchase price, deposit amount, and payment due dates
● property inclusions and/or exclusions
The contract may also contain general and special conditions, such as those requiring the buyer to do his own due diligence on the property, penalties for settlement delays, the landlord and tenant’s rights and obligations if the property is leased.
3. Section 32 statement
Section 32 or Vendor’s Statement. is a required document that is normally prepared by a legal practitioner/conveyancer prior to a sale of property.
The information included in this document may vary depending on state laws. For example, under Victoria’s Sale of Land Act 1962, the Section 32 statement contains information about:
● encumbrances on the property (e.g. mortgages, covenant, easements)
● notices, orders, and declarations against the property
● building permits
● outgoings or other charges (e.g. council rates, owner’s corporation fees)
● zoning classification and restrictions
Buyers can have their lawyer or conveyancer check the statement before signing a contract of sale.
4. FIRB approval and capital gains withholding
For temporary residents or foreign investors looking into acquiring Australian real estate, you need the approval of the Foreign Investment Review Board. You can file the application online or get assistance from a lawyer/conveyancer.
Foreign persons can also check whether they are eligible or not for residential real estate exemption certificates which will allow them to acquire properties without having to seek FIRB approval.
Capital gains withholding
Property owners selling real estate with a market value of $750,000 or more will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds. Where a valid clearance certificate is not provided by settlement, the purchaser is required to withhold 12.5% of the purchase price and pay this to the ATO.
Legal Assistance for Your Australian Real Estate Transactions
Looking forward to building your property portfolio? Make sure you have a fool-proof plan before you proceed with this huge financial undertaking. Consult with TNS Lawyers today to learn which type of ownership suits you best, draft contract clauses that protect you and your property, and prepare a detailed and personalised plan for the direction you want to head down.