All questions

Real estate ownership

i Planning

Planning rules provide the legal framework for the way that land can be used and developed in Australia.

Planning rules are strictly enforced. Illegal development will be subject to use prohibition orders and demolition orders. For that reason, checking planning and building compliance is a vital part of the conveyancing process for the purchase of property.

Common land zonings are: residential (general, low density, medium density and high density), rural, business, general commercial, industrial, mixed zoning and environmental. Each zoning has rules for exempt development (which does not need a permit), complying and permissible development (which needs a permit) and prohibited development.

For built structures, checking building compliance is an important part of the conveyancing process when purchasing real estate in Australia.

Complying with the planning rules to develop a property in Australia requires expert assistance from specialists such as town planners, traffic consultants, environmental consultants, land surveyors, civil engineers and lawyers.

Local authorities (local councils) determine applications for development permits or approvals, except for state significant applications, which are determined by the state planning authorities.

ii Environmental

Each state has an environmental planning authority that regulates the investigation and clean-up of contaminated land to prevent pollution and safeguard community wellbeing. The planning and development process determines what remediation is necessary to make contaminated land suitable for use.

Examples of contaminated land are found in localities where heavy industry or intensive agriculture are present, or individual sites that have been used for chemical storage, such as petroleum service stations, and sites with asbestos materials in buildings or in the soil.

If a property is purchased for development, especially for residential development, obtaining an environmental clearance is an important part of the conveyancing process because the contract for the sale and purchase of land will normally preclude the purchaser from making any claim against the seller. The purchaser should request that the contract be made conditional upon the issue of an environmental clearance certificate, at the vendor's cost.

If a property is purchased as an investment, then an asbestos clearance may be appropriate if the improvements were built pre-1980s. Asbestos might be found in loose-fill asbestos insulation in the roof cavities of houses, asbestos lagging around pipes, asbestos roofing and in electrical boards.

iii Tax

Transfer tax, also known as stamp duty, is levied on the transfer of real estate in Australia. It is payable by a purchaser either within a fixed period of time after the contract is entered into, or on completion of the contract, depending on the state.

The rate of duty is according to the price in the contract for the sale and purchase of the real estate, unless it is a gift or a transfer between related parties, when the rate is according to the market value of the real estate.

The rate of duty varies between the states and territories. Exemptions can apply to first-home purchasers and to the purchase of new houses and apartments. Stamp duty surcharges apply to foreign purchasers in New South Wales, Victoria and Queensland.

This is a snapshot of the current duty payable:

  1. New South Wales – for an A$800,000 property, the stamp duty payable is A$31,490. An 8 per cent surcharge is payable by foreign purchasers of residential property, which adds another A$63,490. There is no surcharge for commercial property.
  2. Victoria – for an A$800,000 property, the stamp duty payable is A$43,070. A 7 per cent surcharge is payable by foreign purchasers of residential property, which adds another A$56,000.
  3. Queensland – for an A$800,000 property, the stamp duty payable is A$21,850. A 3 per cent surcharge is payable by foreign purchasers of residential property, which adds another A$24,000.
iv Finance and security

Australian real estate is acceptable security for loan finance. Lenders require 'first mortgagee' status, which is that their mortgage is the first ranking mortgage recorded on the title to the property. The reason is that in the event of default, the first mortgagee has the right to sell the property in its capacity as mortgagee exercising its power of sale. This right is not restricted by subsequent mortgages or other interests recorded on the title to the property.

The availability of loan finance for Australian real estate is governed by three factors:

  1. The status of the borrower. Are they a resident or non-resident? Are they purchasing for owner-occupation or for investment?
  2. Loan serviceability. Australian lenders will only take into account Australian sourced income for meeting loan servicing requirements, and take into account only part of the rent to be received from the property.
  3. The nature of the property. Is it residential – a house or an apartment? Is it commercial – a hotel, retail, industrial or office? Is it agricultural – a farm or other rural property? If commercial, what is the remaining term of the lease and the quality of the tenant?

The factors translate into whether or not loan finance is available, the loan-to-value ratio if approved, and the interest rate payable.