Inquiry into Foreign Investment in Residential Real Estate
As has been well documented in the press recently, investment in property assets by offshore players, whether direct or indirect, has significantly increased.
This increased activity, along with concerns over the current regulatory framework, triggered the Federal inquiry undertaken by the House of Representatives Standing Committee on Economics (Committee) into:
- foreign investment in residential real estate in Australia
- the role of the Foreign Investment Review Board (FIRB), the body established to regulate and monitor foreign investment in Australia.
On 28 November 2014 the Committee released their inquiry report. Our summary of the key findings and recommendations of the report is below.
The Committee chaired six public hearings and received 92 submissions. In summary, the Committee’s key findings are:
- there is no accurate or timely data that tracks foreign investment in residential real estate
- there has been a significant failure of leadership at FIRB
- insufficient enforcement activity leads to non-compliance
- currently the taxpayer foots the bill for the administration of FIRB rather than the foreign investors applying for approval.
The Committee also commented on the public perception that overseas investment in Australia’s property market puts upward pressure on house prices. Whilst acknowledging that affordability is a serious issue, the Committee concluded that:
- the current foreign investment framework should be retained
- from the evidence received, foreign investment is not causing significant market distortions, particularly for first home buyers
- foreign investment levels are not high enough to cause such market distortions, and that overseas buyers mainly buy different types of properties at different price brackets from first home buyers
- foreign investment is crucial to the continuing development of the housing sector and restrictions on foreign investments would likely result in price increases.
Some of the Committee’s key recommendations include:
- introducing a FIRB administration fee of $1500, payable by each applicant seeking FIRB approval for the purchase of residential real estate, including purchases by temporary residents
- establishment of a single national register of land title transfers, with the co-operation of the States and Territories, to record the citizenship and residency status of all purchasers of Australian real estate
- introducing a civil penalty regime and criminal penalties, for breaching the foreign investment framework as it applies to residential real estate
- 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
- in any instance where a foreign owner divests an illegally held, established property, any capital gain from the sale of that property be retained for the purpose of funding audit, compliance and enforcement activities
- the Department of Immigration and Border Protection to establish an alert system for the expiry of temporary visas that can be used by Treasury to issue property divestment orders in cases of non-compliance
- provide that residential property that is sold off-the-plan, and is marketed for sale overseas, must be marketed in Australia for the same period of time
- FIRB becomes more active in monitoring enforcement
- FIRB and Treasury put in place appropriate processes for the purpose of audit, compliance and enforcement of the foreign investment framework, including the capture of data for the purpose of oversight.
Whilst the Committee’s recommendations will have no legal effect until, and if, legislation is drafted and passed by the Commonwealth Parliament, they may certainly be influential in helping Government make informed policy decisions and may result in greater scrutiny by FIRB to applications in the meantime.
The report can be accessed in full here.