The Australian House of Representatives Standing Committee on Economics released its findings following a review of foreign investment.
The findings are highlighted in this week’s CoreLogic RP Data Property Pulse.
Last week the House of Representatives Standing Committee on Economics released their recommendations following their investigation into Australia’s foreign investment framework as it applies to residential real estate.
The Committee tabled 12 recommendations:
- The current foreign investment applying to foreign purchases of residential real estate be retained in its current form, utilising the existing legislated prohibitions and restrictions on purchases of established dwellings, and encouraging foreign investment to increase Australia’s supply of new housing.
- The Foreign Investment Review Board (FIRB) and the Foreign Investment and Trade Policy Division of Treasury put in place appropriate processes for the purpose of audit, compliance and enforcement of the foreign investment framework. Such processes must accurately capture audit, compliance and enforcement data for the purpose of oversight of the FIRB and the Australian Treasury.
- The Government apply a modest administrative fee to the current screening of all foreign purchases of residential real estate, including purchases by temporary residents. Fees collected should be hypothecated to the Treasury’s Foreign Investment and Trade Policy Division for the purpose of funding audit, compliance and enforcement activities.
- The Government introduce a civil penalty regime for breaches of the foreign investment framework as it applies to residential real estate, with the following features:
- Pecuniary penalty orders imposed under this penalty regime to be calculated as a percentage of the property value to act as an effective deterrent; and
- The regime to apply to foreign investors and any third party who knowingly assists a foreign investor to breach the framework.
Pecuniary penalty orders collected should be hypothecated to the Treasury’s Foreign Investment and Trade Policy Division for the purpose of funding audit, compliance and enforcement activities
- The Government amend the Foreign Acquisitions and Takeovers Act 1975 to provide that criminal penalties for breaching the foreign investment framework as it applies to residential real estate, apply equally to any third party who knowingly assists a foreign investor in residential real estate to breach the foreign investment framework.
- In any instance where a foreign owner divests an illegally held established property, any capital gain from the sale of that property be retained by The Government. Funds collected by this measure should be hypothecated to the Treasury’s Foreign Investment and Trade Policy Division for the purpose of funding audit, compliance and enforcement activities.
- Australia’s Foreign Investment Policy be amended to explicitly require a temporary resident to divest an established property within three months if it ceases to be their primary residence.
- The Government, in conjunction with the States and Territories, establish a national register of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate. This information should be accessible by relevant agencies from a single database.
- The Government establish an alert system for the expiry of temporary visas that can be used by the Treasury to issue property divestment orders in cases of non-compliance:
- By amending the Migration Act 1958 so that the Department of Immigration and Border Protection must inform the FIRB when a temporary resident departs Australia upon expiry of their visa; and
- By establishing effective and timely internal processes at the Treasury to receive and cross-check this information against its property databases to screen for compliance with the foreign investment framework.
- The Government amend the Foreign Acquisitions and Takeovers ACT 1975 to provide that residential property sold under off-the-plan certificates that is marketed for sales overseas, must be marketed in Australia for the same period of time. Breaches of this requirement should be subject to sanctions under the Act ranging from fines to the cancellation of a sale.
- In light of the expected finalisation of the statutory review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 in early 2015, the Committee recommends that the Government consider the purchase of residential property by foreign investors as a a possible area of investigation when considering amendments to the legislation.
- Treasury’s Foreign Investment and Trade Policy Division make greater use of the databases held by AUSTRAC, and also of other relevant Federal and State Government databases, to assist the FIRB in its duties and responsibilities.
Overall the recommendations are largely within the framework that currently exists, ensuring that foreign buyers only purchase homes which are newly constructed.
There are some concerns that the additional administrative fee to screen foreign buyers will act as a disincentive to investment however, reports suggest the fee will only be $1,500.
In our opinion it is unlikely that such a nominal fee on such a high cost purchase will make a difference.
The introductions for penalties not only for those that purchase non-compliant properties, but also to those that aid such a purchase is also a good step.
Any measure that can help to reduce the occurrence of such fraud should be encouraged.
With the increasing cooperation of state land registries and the development of a national e-conveyancing platform over recent years, the development of a national register of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate is a welcome, important and achievable initiative in order provide increased transparency in relation to foreign investment in real estate through the provision of timely, accurate and reliable data.
The proposed application of a more severe civil penalty regime to third parties who ‘knowingly assist a foreign investor to breach the framework’ has broad potential application and will be a closely watched development. It has the potential to extend to real estate agents, banks facilitating the flow of purchase monies from offshore, banks providing mortgage finance and even conveyancers and legal professionals.
Importantly, the recommendations in the Report should not be viewed as a deterrent to continued foreign investment in the Australian housing market, with residential construction activity being a key contributor to Australia’s economic growth, with housing starts in in 2014 now approaching 190,000 units.