There’s no escaping the fact that buying a property in Australia will naturally entail high costs. This is especially true in populated regions near major cities like Sydney and Melbourne—places where demand for housing is steadily and sharply rising well beyond the $1 million barrier.
The good news is that prospective homeowners don’t have to immediately shell out a property’s listed purchase price on day one. Developers and independent sellers often arrange mortgage agreements to make property ownership more accessible to buyers. The standard is usually a 20% down payment fee upfront, and the rest of the full amount to be settled in the following months.
While the thought of having access to your own property at a fraction of the cost sounds enticing, it’s important to consider the full scope of your cost responsibility. Knowing this can help you prepare for your future debt obligations and ensure that you’re allocating enough of your cash flow to cover them.
So whether this is your first purchase as a local in Australia or an overseas investor looking to test the waters of property investing in Australia, you’re in the right place. This article will list out some important costs you should be aware of when investing in real estate down under.
Let’s take a look at these housing costs in greater detail.
Upfront Purchase Costs
Before you navigate the current housing market in Australia and put some capital into it, it’s important to understand the full breadth of costs you’ll be incurring upon purchase.
Besides the listed price, you’ll also need to settle some necessary expenses to be able to secure the property. Knowing these costs ensures that you won’t face any surprises or settlement delays later along the timeline.
Here are some upfront purchase costs for the real estate property that you should know about:
1. Stamp Duty
One mandatory fee that you’ll have to settle when buying a real estate property in Australia is stamp duty.
This fee is a mandatory Australian government tax imposed on property transfers. It’s calculated as a percentage of the property’s value (if you want to be technical, it’s classified as an ad valorem tax), and this imposed percentage will depend on the state, the condition of the house, and the property’s location. This usually ranges between 3% to 5% of a property’s purchase price.
Stamp duty must be paid before a contract is signed between the buyer and seller, or at most, the day after. This payment is typically shouldered by the buyer. If left unpaid or in insufficient amounts, the payment will be levied at 2% per month and up to a maximum of 200% of the designated amount.
2. Legal Fees
Another fee category that investors should expect when buying property in Australia is legal fees. Consulting a lawyer who specialises in real estate is crucial, as they can help you navigate contracts and title settlements on a legally sound basis.
Lawyers and legal fees don’t cost a significant amount, typically ranging from less than 1% of the property’s purchase price. That said, multiple types of fees must be covered under this category, namely:
- Conveyancing services: This refers to the preparation and management of legal documents, including title transfer and sale deeds.
- Contract review: This refers to the services associated with ensuring that the contract terms are fair and compliant with state regulations. It also ensures that it’s aligned with your interests.
- Title and property searches: This refers to the costs associated with zoning restrictions, easements, and legal ownership.
- Settlement fees: The charges incurred by the buyer after a sales transfer has been formally executed.
Given the wide range of expenses, it’s essential to consult a reliable lawyer to ensure the property purchase proceeds smoothly and legally.
3. Building Inspection Fees
Another upfront cost that buyers should not overlook is building inspection fees. Buyers must be aware of the condition of the house they’re buying and potentially moving into so that they can avoid any surprises that may need fixing later on.
Building inspection is, therefore, a crucial step to granting property buyers and investors peace of mind, as from there they can assess the full condition of the property. This is especially true for buyers of old and refurbished homes.
Building inspection services are conducted by licensed professionals who are experts in the matter. Specifically, they assess the structural integrity and condition of the property to determine if it meets quality and compliance standards.
Some of the issues they check include foundation sturdiness, roofing durability, and other safety controls. They also look into the utility’s reliability, like electrical and plumbing safety.
Skipping this step can lead to you inheriting unresolved and neglected property problems, which can pose safety concerns for future tenants. On top of that, these problems may also worsen and deteriorate the house’s condition over time, leading to you incurring higher fees in the long run.
As such, don’t skimp out on building inspection fees. This won’t cost more than $1,000 AUD more often than not, and having a fully-inspected house makes it easier for you to negotiate with future buyers to make a purchasing decision.
4. Pest Control Fees
Another fee to consider in Australia is pest control fees.
Australia is teeming with various pests and insects that can slowly erode the materials that make up a home. This can compromise the structural integrity of the home and accelerate its loss of value.
They can also harbour bacteria and viruses that can spur illnesses in the people and animals that will call the place home in the future. Pest control is therefore a crucial component and cost to factor in when investing in a new property.
If the house has signs of any active infestations, like visible termites or an active cockroach population, then pest control should be a priority. A full round of exterminations can cost anywhere between AUD 150 and AUD 400.
5. Loan Application Fees
Unless you have a large capital stock in your bank, you’re very likely going to take out a loan to purchase property. Applying for a property loan isn’t always a walk in the park—you’ll have to apply for it, and this can take a while to process.
Whether you successfully get a loan or not, you’re bound to incur fees for applying for it. This can cost less than $1,000 AUD, depending on the type of loan and lender you’re getting the loan from. For instance, you can get EBP Money fast personal loans for a quick lump sum payment directly added to your net worth.
That said, it’s crucial to review your chosen loan structure carefully, as this can influence the mortgage arrangement and interest terms you’ll face in the future. A good rule of thumb is to build a good credit score before shopping for loans, as this can help you access loans with more favourable terms.
Ongoing Costs
Besides these fixed, upfront costs, buyers have to handle, Australian property investors must also consider the ongoing costs of the property once the procurement has been finalised.
These costs recur on a periodic basis, typically in a monthly or annual fashion. Some are fixed, while others depend on market conditions or property valuation.
Here are some common ongoing costs that Australian investors should factor in when planning to purchase and hold property for the long term:
- Council rates: Local government charges that support community services. Price depends on the region.
- Landlord insurance: Insurance coverage for risks associated with tenant damage and liability claims.
- Property management: If you hire staff or third parties to manage property on-site, then this fee will cover the cost of such services. This covers about 10% of weekly rental income.
- Maintenance: Before turning the property over to new clients, regular upkeep and maintenance must be guaranteed to ensure the property’s saleability and livability. This is especially true with age.
- Strata fees: For prospective owners looking to own apartments or townhouses, this fee covers the cost of maintaining shared amenities like gardening and daily cleaning.
- Land tax: Some states impose a land tax on investment properties once the land value exceeds certain thresholds. The rate and exemptions vary by state.
Keeping track of these recurring expenses is essential for maintaining positive cash flow and avoiding financial strain. We hope that we’ve helped you get a more comprehensive picture of the cost of property investment and the various expenses you have to pay.
All the best in buying and investing in your new property!