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Some facts about foreign investment in Australian property that investors should know

More Australians are finding it increasingly difficult to  buy their own home with property values increasing around Australia.

This is nothing new, I’ve heard it for years – property prices are so expensive that everyday Aussies, especially first home buyers, are being pushed out of the property market. Property values increasing around Australia

One theory consistently put forward to explain the high prices is that the market has been flooded with foreign investors.

They fly in with wallets full of money and are willing to pay top dollar, locking out the locals.

Do greedy foreign investors really push up property values?

Well firstly it’s important to understand that:

  • Non-resident foreign investors are not allowed to buy an existing home, but they can buy new homes, apartments or off the plan properties.
  • Foreign people living in Australia for no more than 12 months can buy one existing home, but they must live in it and sell it when their visa expires
  • All purchases must be screened by the Foreign Investment Review Board

Foreign Investment Review Board figures show:

  • Between July 2013 and March 2014, $24.8 billion in foreign investment has been approved
  • This was 44 per cent higher than the $17.2 billion approved in 2012-13
  • Between July 2013 and March 2014, the FIRB approved the purchase of 5755 existing properties
  • In 2012-13, this figure was 5101
  • Most of the investment is in Sydney and Melbourne

To help you understand what’s going on here are 13 facts provided by the Australian Financial Review:

1. Can foreigners buy property in Australia?

Yes, but the foreign investment review board (FIRB) has rules for foreign investments. Few are rejected, its annual reports say.

2. What are the rules?

If the investor is a foreign government, it needs to notify the Australian government and get an approval before making a direct investment regardless of the value of the investment.

It must do the same for the acquisition of a new business or land.New business or land

Regardless of value, foreigners must apply to the government for approval to take an interest in residential real estate, vacant land or to buy shares or units in Australian urban land corporations or trusts.

Foreigners also need approval if they want to invest in developed commercial real estate that is valued at $54 million or more unless the property is heritage listed, then a $5 million threshold applies.

An exception for developed commercial property applies to New Zealand investors and US investors, for whom a $1.078 billion threshold applies instead.

3. What is FIRB looking for in the approval process?

The government is looking for investments that support national interest.

In the case of residential property, the government will examine if the investment increases Australia’s housing stock.

4. How long is the approval process?

Under the Foreign Acquisitions and Takeovers Act 1975, the federal Treasurer has 30 days to consider an application and make a decision.

However, the Treasurer may extend this period by up to a further 90 days by publishing an interim order.

5. How does the FIRB work?

FIRB reviews proposed acquisitions and provides advice to the federal Treasurer.

The Treasurer approves or rejects applications, or imposes conditions on foreign investment proposals using the national interest test.

 

world foreign investment property house market stats price figures data

In general, there are no restrictions on the number of vacant and new properties or established dwellings for redevelopment that foreign investors can buy, as long as they are approved by FIRB.

6. When should a foreign investor make an application to FIRB?

Investors should lodge an application before any transaction, or make a purchase contract conditional on FIRB’s approval.

A transaction should not go ahead until the government makes a decision.

7. What kind of residential property can foreign investors buy?

Non-resident foreign investors can buy new dwellings subject to a FIRB approval.

They cannot buy established or second-hand dwellings as investment properties or as homes, except if they are operating a substantial Australian business and need to buy established dwellings to house their Australian-based staff.

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Such proposals come with conditions.

For example, the foreign investor must sell the property if it is expected to remain vacant for six months or more.

They would also need to apply to the FIRB to buy established dwellings for redevelopment. FIRB usually approves redevelopment proposals because they increase Australia’s housing stock.

FIRB will also need to approve vacant land purchases for residential development, which normally come with conditions, such as construction having to start within 24 months.

8. Can foreign investors apply for several properties at once?

Yes, but they must submit a separate application for each property.

9. How many properties can they buy?

It is important to note that temporary residents such as 457 visa holders and students can buy only one established or second-hand dwelling, which must be used as their principal place of residence.

10. Can foreigners rent out their properties?

Yes.

11. Who is exempt from FIRB approval?

Australian citizens, New Zealand citizens, a foreign national who holds an Australian permanent resident visa or foreign nationals buying a property as a joint tenant with their Australian citizen spouse.

12. Can foreigners get a mortgage or home loan to buy property in Australia?

Michelle Hutchison, a spokeswoman for financial website finder.com.au, said foreigners could obtain a mortgage to buy a home in Australia, provided they have a permanent or temporary residence visa. Who is exempt from FIRB approval

“While temporary residents are not penalised by lenders – they will be generally offered the same features and interest rates – those who are permanent residents may find it easier to be approved and have added benefits than temporary residents,” she said.

“Some lenders might also ask you to provide evidence of overseas liabilities and bank accounts. For instance, permanent resident migrants are eligible for the government’s First Home Owner’s Grant as long as they meet the conditions.”

Ms Hutchison said New Zealand citizens could also borrow up to 95 per cent of the property’s value, even if they live in New Zealand.

13. Can an international student get a mortgage or home loan?

Ms Hutchison said some lenders would allow student and bridging visa holders with stable incomes to borrow up to 80 per cent of the value of the property, but these borrowers might face stricter rules.

Source: AFR



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Some facts about foreign investment in Australian property that investors should know' have 4 comments

  1. Avatar for Property Update

    February 16, 2015 @ 4:55 pm Robert Garven

    Yes it is interesting about these facts. The question has to be asked has FIRB actually ever taken action against foreigners who do not make the criteria such as purchasing existing properties and who are not residents. I don’t think so. I do beleive the Federal Government is now going to tighten the rules and actually start to enforce these after a review was recently conducted. The other point of interest is can we purchase houses in China for instance either off the plan or already built? I think I already know the answer to that one and it is a big fat NO.

    Reply

  2. Avatar for Property Update

    February 17, 2015 @ 4:08 am Eve

    Thank you for the interesting article. Recently I had heard about a ‘loophole’ that may be used by foreign investors and am hoping that you can clarify whether it is accurate. What I had heard is that a foreign investor may purchase an existing dwelling provided that within a period of two years they replace the dwelling with a new build. I have certainly noticed that a number of period homes in my area, which is a well established suburb of Melbourne, have been bulldozed and replaced with new homes. Michael, would you confirm whether this is correct or an urban myth?

    Reply

    • Avatar for Property Update

      February 17, 2015 @ 9:18 am Michael Yardney

      Eve
      You are right – Foreign Investors can buy established residential properties if they then demolish them and build a new residence/s

      Reply


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