The Commonwealth Government is making changes to the rules that govern foreign investment in Australian real estate. This article does not address all of the foreign investment changes, just those of particular relevance to the off the plan apartment sector. There are a raft of new offences and substantial penalties but these will be the subject of a subsequent article. The new changes discussed below are proposed to commence on 1 December 2015. But there are things you can do now to mitigate their initial impact.
The Current Law
- A foreign buyer can make its own application for FIRB approval to buy an apartment off the plan. There is no fee payable when applying for the FIRB approval.
- A developer can obtain an “advanced off the plan certificate” to sell new apartments in a development of 100 or more to foreign investors. The foreign investor does not then need to obtain a separate approval but the developer will notify FIRB of the purchase. There is no fee payable for a developer to obtain such a certificate.
- Once the certificate is obtained the developer can sell up to 100% of the dwellings to a foreign buyer. But the development must be advertised both within Australia and overseas.
- There is no “advanced off the plan certificate” available for developments with less than 100 dwellings.
After 1 December 2015
- A foreign buyer can make its own application for FIRB approval to buy an apartment off the plan. The fee is:
- $5,000 for properties valued at $1M or less;
- $10,000 for properties valued at more than $1M PLUS a further $10,000 for each $1M of the value;
- E.g. if the purchase price is $4M then the FIRB application fee is $40,000.
- A developer can obtain an “advanced off the plan certificate” to sell new apartments in a development of 100 or more to a foreign buyer. The foreign buyer does not then need to obtain a separate approval. The fee payable for a developer to obtain such a certificate is $25,000 upfront plus every 6 months there is a reconciliation based upon the number of properties sold to foreign persons based upon the rates above. E.g., if in the first 6 month period after obtaining the certificate the developer sold 4 apartments for $1M each to foreign persons, then in addition to the initial $25,000 already paid, a further $15,000 will be payable by the developer to the Commonwealth Treasury.
- The Government is also tightening the use of off the plan certificates by limiting the value of all apartments that can be bought by a single foreign buyer to $3M in any single development. If foreign buyers want to purchase apartments above this value, they will have to seek individual approval. The Government’s explanation for this new requirement is to reduce the scope for money laundering by ensuring high wealth investors are subject to the upfront screening process.
Jackson McDonald’s Observations
- The changes will make off the plan apartments less attractive to foreign purchasers.
- The material published by FIRB and the Treasurer’s office do not give any guidance as to what happens to the substantial application fees if:
- the foreign buyer decides not to proceed with the purchase; or
- the developer decides not to proceed with the project.
- We won’t know the answer until the law is actually changed. The likely assumption at this stage is that there will be no refunds because the application fee is intended to cover the cost to process the application.
- You should amend your template off the plan contract to deal with these changes.
- If you have a project soon to be launched for which an “advanced off the plan certificate” will be needed, apply for it well before 1 December 2015.
- If you have foreign buyers looking at your projects, they would be well advised to contract to buy before 1 December 2015 and save themselves the FIRB application fee.