There has been a lot of media attention lately around the highly charged issue of foreign investment. REIA has strongly advocated for greater enforcement of the current regulations and has supported in-principal the introduction of an application fee although we believe the proposed fees are on the high side and may potentially discourage investment in some states.
We recently responded to the Government’s Options Paper and highlighted the industry’s concerns regarding the fee level. We have always strongly supported foreign investment in Australia as it has been proven to help add to the supply of new housing and we will continue to advocate to the Government the concerns of the industry.
There is currently no civil pecuniary penalty for a third party assisting foreign investors to breach the rules around residential real estate under the Foreign Acquisitions and Takeovers Act 1975. However, earlier this year, the Treasury issued an Options Paper, Strengthening Australia’s Foreign Investment Framework, which proposes that the Government introduce a civil penalty regime for breaches to apply to foreign investors and any third party who knowingly assists a foreign investor to breach the framework. The important point to remember here is that agents must knowingly assist foreign investors to break the rules.
An example of this would be an agent learns that a potential buyer is a foreign investor and then recommends ways for that investor to get around the current regulation. The Government also intends to work with the states and territories to introduce a new obligation which requires the lawyers or registered conveyancers in a property transaction to verify whether their client is a foreign investor prior to registering the land title transfer. The information on the register would be matched with foreign investment approval data to ensure compliance with the foreign investment rules. The details around exactly what information conveyancers would be required to verify is to be determined through a public consultation process.
I also thought it would be timely to clarify a few facts on this very topical issue and below is a list of ten key points on foreign investment in Australia.
10 Points on Foreign Investment in Australian Residential Real Estate
1. Despite some media claims, foreign investors and first home buyers generally do not compete for the same types of property.
Foreign buyers predominantly buy property at a much higher price than Australian first home buyers, who nationally have an average loan of only $308, 444.
First home buyers generally buy established homes below the median price and the average size of a loan to a first home buyer is 8% lower than the figure for all owner-occupier housing finance commitments excluding refinancing.
The average price of an established home purchased by a temporary resident is $1.064 m and an average price of an offthe-plan development acquired by a foreign investor is $647,000.
2. All real estate acquisitions by foreigner investors must be approved by the Foreign Investment Review Board (FIRB). Currently, there are no fees or charges for applications for approvals although the Government has proposed fees set at a minimum of $10,000.
3. FIRB have not taken any court action for breaches based on the current regulations since 2006.
4. Temporary residents can purchase property in Australia but need to apply for approval and can buy only one established dwelling, which must be used as their residence in Australia. Further, the property must be sold when it ceases to be their residence. Temporary residents cannot buy established dwellings as an investment property.
5. Foreigner investors, who do not hold a temporary residency visa can buy new dwellings as an investment property only.
6. Two-thirds of the value of approved proposed investment in real estate is in commercial real estate.
7. The three largest source countries of proposed investment in real estate, by value, are China, Canada and USA accounting for 11.4%, 9.5% and 8.5% respectively for all approvals.
8. Foreign investment in new residential real estate has been proven to add to Australia’s supply of housing at a time of a chronic under-supply.
9. The state distribution of proposed investment in residential real estate, by value, is focussed on the eastern seaboard with Victoria, New South Wales and Queensland accounting for 34%, 32% and 11% respectively of all approvals.
10. Over the last six years, the number of investment properties held by non-residents has averaged around 72,000 of properties. This equates to just 1% of Australia’s total dwelling stock.