Foreign investors in Australian property are subject to legislative requirements at both the Commonwealth and State levels.
Currently, these investors satisfy the requirements by:
- purchasing the type of property that they are permitted to purchase, depending upon their circumstances, the value and nature of the property, and whether a developer has procured any off-the-plan pre-approvals for the property;
- making their contract to purchase or their long term lease subject to an application to the Foreign Investment Review Board being approved by the Treasurer, or confirming that the transaction does not require such approval; and
- complying with State-specific requirements, such as notifying the Queensland Government of their status as a foreign investor when their interest in a property is registered in the land registry, so that they are registered on the Queensland Foreign Ownership of Land Register.
The Australian Government has announced that it will strengthen the foreign investment requirements, with the following reforms expected to apply from 1 December 2015. We expect that further details of the reforms will be released in the coming months.
All applications to the Foreign Investment Review Board will attract a fee. The fees will range from $5,000 to $100,000, depending upon the type of investor, the type of acquisition, the nature of the property and the value of the acquisition. Importantly, Chinese, Japanese, Korean, Singaporean and Thai investors will be subject to special thresholds in certain circumstances
Using investors' information
The Australian Government will establish a national land register for foreign investments and will carry out data matching, so as to detect any non-reporting of foreign investments.
Non-complying foreign investors will be exposed to increased maximum penalties and to new types of enforcement action, which could include:
- different types of penalties, including forfeiting a percentage of the purchase price or market value of the property;
- imprisonment of individuals; and
- a divestment order, requiring that the property be sold, and that any capital gain made by the investor be forfeited to the Government.
Further, third parties (whether real estate agents, marketeers, developers, solicitors or otherwise) who knowingly assist investors in such non-compliance will now incur penalties.
What you need to do
If you have breached the existing requirements, reduced penalties will apply in certain circumstances if you come forward before 1 December 2015. Investors should therefore review any previous transactions to ensure that they have complied with the existing requirements, and seek advice if this is not the case.
Foreign investors should bring existing purchases and the negotiation of long term leases to completion in advance of the introduction of these reforms.
Otherwise, foreign investors should include the application cost in their financial feasibility studies and ensure that the transaction documentation accommodates the reforms.