Letting in Australia: student demand, housing shortage and an owner’s duties

The Australian rental market has lived for years in persistent shortage: vacancy in the large cities is low and demand is sustained by migration and the return of international students. For an owner that means finding a tenant quickly — and simultaneously heightened regulatory attention to letting rules.

Who the tenant is

• University students in Sydney, Melbourne, Brisbane and Perth — steady, seasonally predictable demand tied to the academic year.
• New migrants — Australia takes a significant intake through skilled programmes, and these people rent their first home.
• Interstate movers, particularly into Queensland.

How letting works

Letting is regulated by state legislation, and differences between states are substantial — from the form of the agreement to rules on raising rent and on termination. The common features are durable:

• The bond is lodged with a state authority rather than held by the owner.
• A written agreement in a prescribed form, with a condition report at move-in.
• Periodic inspections are permitted with notice within a set period.
• Rent increases are limited in frequency, and in several states recent reforms abolished termination without stated grounds.
• Minimum housing standards — heating, ventilation, safety — are mandatory, and failing them carries sanctions.

The tax side for a non-resident

Rental income is taxed in Australia, and a non-resident is taxed on their own scale without the tax-free threshold available to residents. Expenses are deductible — loan interest, management, insurance, depreciation in prescribed cases. That is what underlies the well-known Australian practice of negative gearing, where a loss on a property reduces taxable income.

• On sale a non-resident does not get the capital gains discount available to residents, which noticeably changes the outcome.
• Withholding on sale: the buyer must retain part of the price and remit it to the tax office unless the seller provides a clearance certificate.

What to include in a yield calculation

• A managing agent is standard practice and a permanent cost line.
• Insurance, including landlord risk cover — and substantially more expensive in coastal zones.
• Foreign owner charges: the land tax surcharge and the vacancy fee in a number of jurisdictions.
• Compliance with minimum standards — bringing older stock up to them can cost noticeably.