The real estate industry has criticised Prime Minister Tony Abbott's proposal to charge hefty fees for foreign buyers of residential property. Yesterday the PM announced plans to charge foreign investors who want to buy a residential property valued under $1 million a $5,000 application fee, plus an extra $10,000 for every additional million. Foreign investors found to be in breach of property investment laws could be forced to sell their properties for as little as 75 per cent of their value, while agents who help foreign investors breach rules could be fined $85,000, imprisoned for two years or both.

Abbott said the fees and fines will bring Australia into line with other countries like New Zealand, but were less punitive than regimes in Singapore and Hong Kong. "We are open to foreign investment but it's got to be foreign investment that is in our national interest," said Abbott. The federal government has asked the public to comment on a new options paper by March 20.

Greg Paramor, chairman of LJ Hooker, told The Real Estate Conversation he thought the proposed fees were bad policy. "It's poorly thought-through, and it's a knee-jerk reaction. It's just a stupid idea and everything coming out of Abbott's mouth at the moment is stupid. This is just Abbott banging around in a room desperately trying to find something to help him, but it's just bad policy." 

The Property Council of Australia said it supports the enforcement of existing rules on foreign ownership, but thinks the application fees proposed are excessive. "Foreign investment, be it from the UK or China, underpins new residential housing supply in Australia," said council chief executive Ken Morrison, reports The Australian Financial Review.

Ray White Real Estate chairman Brian White said the proposed fees had the potential to "shock the market". "And no market appreciates or responds well to shocks. It has connotations back to the aborted vendors tax proposed by the NSW Treasurer Michael Egan that needed to be abandoned due to market response," he said.

CBRE residential projects chairman Justin Brown said the new taxes were counterproductive. "There is significant global evidence from recent times including Canada, Singapore and Hong Kong where these types of taxes on foreign investment have been totally counterproductive, caused significant corrections within the markets and harmed the construction industry," Brown said.

Meanwhile, former Liberal leader John Hewson says there may be a "jingoistic element" to the Abbott government's proposed new rules and fees, reports The Guardian. "It may help first-home buyers in the market for new apartments, where there has been a lot of foreign investor interest, it seems mostly to do with that, but I think there may be a jingoistic element to it, for the government to be seen to be doing something about foreign investment,” he said. “But how far can a country like Australia, totally dependent on foreign investment, afford to go down that path?"