• Investing in Australia Commercial Property: A Complete Guide

    Posted on Leave a comment

    australia-commercial-property

    Do you plan to buy property in Australia?
    Click here to get in touch with an experienced agent

    Australia is popular among commercial property investors who look for a politically stable country with a strong economy in the Asia Pacific.

    With a growing population, especially in the bigger cities, we’ll see a greater demand for commercial property here in the future.

    Commercial property can give you high returns, but is rarely talked about compared to residential property. In fact, commercial property generally gives you a return of 5% – 12%, while residential property averages at around 3% – 4% in Australia.

    In this guide, you’ll learn how you can invest in commercial property in Australia as a foreigner, where to invest, how high the taxes are, and more.

    Can foreigners buy commercial property in Australia?

    Foreigners generally don’t have any issues to invest in commercial property. However, you sometimes need approval from the Foreign Investment Review Board (FIRB).

    In short, FIRB advises the government on Foreign Investment Policies and make sure that foreigners understand the local investment regulations.

    When it comes to buying commercial property, FIRB reviews the following four aspects to determine whether an application is needed:

    • The property type
    • If you’re a private investor or represent a government
    • If you’re from a Free Trade Agreement (FTA) partner country
    • The value of the property

    Purchases of commercial property valued between AUD 0 to AUD 1,154 million need approval from the FIRB.

    To give you an example, if you’re a private investor from a Free Trade Agreement (FTA) partner country and buy a non-sensitive business, the limit reaches up to AUD 1,154.

    1. The Property Type

    The value threshold differs if you buy vacant commercial land, developed commercial land, sensitive or non-sensitive businesses, and agribusinesses, to name a few.

    Here, sensitive businesses can be found in the media, telecommunications, transport, defense, and military-related industries.

    As such, buying a hotel generally doesn’t fall into the category of sensitive businesses and the threshold is higher, ranging between AUD 260 million to AUD 1,154 million.

    Just keep in mind that the commercial property can be treated as sensitive if it’s located under airspace, for example. Be sure to do due diligence beforehand.

    2. FTA Partner Countries

    Private investors from FTA partner countries enjoy higher thresholds, ranging up to AUD 1,154 million when buying commercial property.

    The following countries currently have Free Trade Agreements with Australia:

    • Canada
    • Chile
    • China
    • Japan
    • Mexico
    • New Zealand
    • Singapore
    • South Korea
    • United States

    Private investors from other countries have a lower threshold and need to apply for a FIRB approval for properties valued up to AUD 260 million.

    I recommend you to check FIRB’s website where you can find a detailed chart showing the different thresholds for each property type.

    3. Representing a Government

    Investors representing foreign governments need to apply for approval from the FIRB, no matter what the value is. Therefore, the threshold starts from AUD 0.

    Commercial Property Types Available for Foreigners in Australia

    Australia has an advanced and developed economy with various property types available to investors.

    Below I have listed the most common ones and what makes each option interesting.

    Hotels

    Australia’s tourism industry is thriving and we’ve seen a big uptake from foreigners who buy hotels over the years. Sydney and Melbourne have the highest occupancy rates and are expected to perform well in the future.

    Some of the main reasons why the commercial property markets will perform well in the long term are:

    • The populations are growing in the bigger cities
    • Increased interest from foreigners
    • It’s comparably easy to buy property in Australia
    • Ownership regulations are transparent and straightforward
    • Australia is politically stable
    • The country has great education (for overseas students)
    • The quality of life is exceptional

    Truth be told, the Australian market has been very stable the past 30 years and we’ve not seen a major decline like in Hong Kong and in the US.

    Aiming for long-term investments in Australia hotels can be a good choice as the market is predicted to grow.

    Process when Investing in Hotels

    australia-invest-hotels

    You must understand the buying process before you start the process to invest in a hotel. Below I’ve included some of the main steps you should have in mind beforehand:

    1. Make a budget and confirm your investment goals

    First of all, you need to create a budget and confirm your expected ROI. The occupancy rates are higher in Melbourne and Sydney compared to Perth, for example, you should get help from an agent who can help you to reach your investment goals.

    Asia Property HQ can help you to get in touch with an Australia based agent, just fill in the contact form at the end of this article, and we’ll reply to you within 24 hours.

    2. Getting help with financing and property loans (if needed)

    It’s become more difficult for non-resident foreigners to get property loans in Australia. As such, you might need to apply for an overseas property loan. Yet keep in mind that it’s practically impossible to get property loans for commercial property, so you shouldn’t take this for granted.

    In Singapore, banks rarely offer overseas property loans for commercial property, normally residential property is the only option.

    3. Get a valuation report of the hotel

    A valuation report is oftentimes required to secure financing and you’ll be able to understand the true value of the property. As such, you should assure that there’s a valuation report in place from a third party.

    4. Working with a reputable solicitor and agent

    As mentioned above, you should seek help from an agent to find a good investment objective. A solicitor should help you through the conveyancing process and review the contracts needed.

    5. Pay the deposit

    As part of the sales process, you need to pay a deposit to secure the property. The first payment is usually 10% but might vary. Be sure that you have a valuation report in place and that you know what you’re buying, before paying the initial deposit.

    6. Finalize the sale and sign the contract

    The agent and solicitor should help you to draft the sales contracts. The contract should include all the relevant details about the purchase and the unit such as the value, payment schedule, yours and the seller’s name, and more.

    Asian Ownership of Hotels Increase Steadily

    The hotel market has grown tremendously in the past years and reached as much as AUD 56 billion in 2018, equaling an increase of 26% in just two years, according to Colliers.

    Sydney and Melbourne have been the strongest drivers, accounting for 57% of the increase.

    Almost a third of hotels are now owned by Asian investors, predominantly coming from Singapore and mainland China.

    With that said, the hotel market was hit badly during the COVID-19 pandemic, both Sydney and Melbourne had occupancy rates of around 20% in March 2020.

    Retail Property

    The retail property market is highly sensitive to economic cycles. When the economy goes well, people have more money and the retail industry thrives.

    The finances needed to buy retail property in cities like Sydney and can often not be compared to investments in industrial property and warehouses.

    Retail property is often located in central or urban areas, while industrial property and warehouses are located in more remote areas, sometimes close to highways or airports, for example.

    As such, many speak for leasing as a better option than buying retail property.

    Choosing Tenants As a Retail Property Owner

    You should also pay much attention to the type of tenant you hire. You want to avoid that the tenant closes down or move elsewhere within a couple of months, or so.

    That can leave your property empty for months, leaving you with no cash flow.

    Commercial property is known for being vacant for longer periods. It’s not the same as with residential property, where you can find a new tenant within a week.

    The great majority of new retail businesses close down within a few years. So, we can call it a tenant sensitive industry.

    Before you accept a new tenant, you need to ensure that there’s not too much competition from similar businesses in the area.

    The business also needs to cater to the local community in that area.

    When it comes to location, it’s not necessarily a bad thing if the retail property is located in a congested or crowded area. On the contrary, this is often good to increase foot traffic.

    Industrial Real Estate & Warehouses

    The industrial property market is less volatile than the other commercial property markets. It tends to increase much during economic upswings, and decrease less during downturns.

    Thus, investing in industrial property is considered fairly stable.

    As mentioned above, smaller industrial properties often fetch for lower prices, compared to retail property located in prime areas in the big cities. Thus, investors with less financial backing could have this as an option.

    Over the years, we’ve seen that the types of industrial properties change.

    With reduced manufacturing and increased activities in logistics and distribution, industrial properties should have more integrated office space, a high ceiling for warehousing, good sanitation, and room for automation.

    In addition, the location is of importance. Even if an industrial property doesn’t need to be located in central areas, like retail property, it should still be close to highways to give easy access to workers.

    Depending on the industry, it can also be highly beneficial if the industrial property is located close to harbors or airports.

    Office Space

    Investing in offices can be lucrative and it’s not only within the reach of wealthy investors or institutions.

    You don’t necessarily need to buy office space in the most central areas, but can buy in the suburbs or smaller cities.

    Office spaces can range from 20 square meters up to thousands of square meters, so there are options in terms of size, not only location.

    There are several benefits to investing in office spaces. First of all, the cash flow tends to be high and tenants keep the facilities clean. It’s their work premises and it needs to look representative when bringing clients.

    It’s also well-known that the maintenance is easy, as tenants care less about small issues, which is normally not the case with residential property.

    What to consider when buying office space

    Some key considerations you should have in mind when buying office space are:

    • The location
    • The appearance of the units
    • The surrounding environment

    For example, it’s important that the tenant and its employees have easy access to the building and with sufficient parking lots. The cost for parking is also of importance and something you should check beforehand.

    Corner rooms are also preferable to lease as this will increase the daylight and the overall satisfaction. Nowadays, employers care more about their employees’ well-being. This will also provide a wider view of the surrounding areas.

    Not to forget, there should be easy access to public transportation, restaurants, and other amenities, which employees can reach within a short distance.

    Parking Spaces

    Parking space investments have become a big thing in Australia, at least compared to other countries in the Asia Pacific.

    Nowadays, you can even find websites that solely focus on helping people to buy or to rent out parking spaces.

    It’s not strange, as the yields and capital gains can be high. At the same time, the maintenance required is low.

    It’s a good investment if you want to earn a passive income with little work involved.

    How much does it cost to buy parking spaces in Australia?

    Looking at parking fees, the monthly rates differ by region, where we find the highest rates in New South Wales (NSW). In Sydney, for example, rates range between around AUD 300 to AUD 500.

    There are currently not many car parking spaces for sale in Sydney, a reason why I haven’t included examples of costs in this article.

    Yet, in Melbourne, the supply is bigger, and with a better price consistency. Here, parking spaces range between AUD 20,000 to AUD 60,000, according to Findacarpark.com.au.

    The rates per month, on the other hand, range from around AUD 250 to AUD 500. Making a rough calculation, we see that the yields start from around 5%, but can reach much higher.

    Where should I invest in commercial property in Australia?

    Different cities and sectors perform differently, of course. Therefore, I’ve included some of the most interesting cities when investing in Australia’s commercial property market below.

    Sydney

    Sydney is one of the most popular locations when foreigners visit or decide to settle in Australia. Not surprisingly, we see some of the greatest commercial property investment opportunities here too.

    The city has seen unprecedented levels of infrastructure investment, at the same time as the demand is kept at a high level.

    Sydney will always be a preferred location among investors in Australia. If your budget allows, you should not neglect this city.

    Melbourne

    Melbourne is another big city that has seen remarkable growth in its commercial real estate in the past years. Much infrastructure investment and new projects are planned for the coming years, also in the hotel sector.

    The fringe areas of Melbourne become increasingly interesting too, taking shares from the CBD.

    Brisbane

    Property is significantly cheaper in Brisbane compared to Sydney and Melbourne. The city is predicted to see much growth in the coming years, especially in infrastructure.

    As Melbourne and Sydney have become more expensive, more and more Australians and foreigners tend to move to cheaper cities, like Brisbane.
    The future looks bright for Brisbane and you should consider it as your investment destination.

    Perth

    Being the only major city located on the Western shoreline, Perth becomes increasingly attractive when high-net-worth-individuals and companies find fewer investment opportunities in Sydney and Melbourne.

    Surprisingly, Perth’s commercial real estate market has been ranked as one of the best in the Asia Pacific, with prices that are lower to the major cities.

    Commercial Property Taxes in Australia

    Below I’ve listed the major taxes when buying commercial real estate in Australia.

    Stamp Duty

    The Australian government doesn’t levy any stamp duty, instead, each state has its duty rates, normally ranging between 4%-6%.

    Capital Gains Tax

    You’re also subject to a capital gains tax, where you have the right to deduct costs for refurbishments from the actual profit. To read more about the capital gains tax, I recommend that you visit the Australian Government’s website.

    GST

    You need to register for GST when investing in commercial property. But you can claim back points from related purchases made. The GST is currently around 10%.

    FAQ

    Below you can find some commonly asked questions and our replies.

    How do I value commercial real estate?

    Valuations of hotels, for example, can cost tens of thousands of dollars but is an important step of the purchasing process.

    It’s essential that you let a professional commercial property valuer do an assessment of the value at an early stage.

    The value can be determined by comparing the potential income with the cap rate, which is calculated by dividing the property’s net annual rental income by the value of the property.

    How do I find commercial property in Australia?

    You can find commercial real estate with the help of agents or on listing websites. A recommended option is to find a credible agent that can advise you and present several options at once. This will shorten your time to identify a suitable unit that fits your needs.

    How many hospitality businesses are there in Australia?

    There are around 235,385 hospitality venues and 1,753 shopping venues in Australia.

    What is the biggest real estate company in Australia?

    The biggest real estate agency in Australia is Ray White. The company has broken records, time after time, selling real estate billions of Australian Dollars in just a month. The world’s biggest commercial real estate agent, on the other hand, is CBRE.

  • Want to buy commercial property in Asia?

    Fill out the form to get in touch with a verified real estate agency
    specialized in commercial property in Asia


      Disclaimer: The content on this website is provided for general information about buying property in Asia, developments, agencies, regulations, taxes, and other related topics. However, we don't guarantee that we keep the content up to date or that it's free from error. We do make mistakes from time to time. We never provide legal advice of any sort.
    • Leave a Reply

      Your email address will not be published. Required fields are marked *

      [FREE PDF]
      [FREE PDF]
      [FREE PDF]
      [FREE PDF]