The House of Representatives Standing Committee on Economics has published its “Report on Foreign Investment in Residential Real Estate” (“Report”).
In brief the Report:
- pushes for better information capture by FIRB and exchange of information between Government agencies;
- chastises FIRB for what appears to be a lack of enforcement activity and seeks to address resourcing issues for FIRB;
- introduces additional penalties to make the consequences of breach more meaningful and not simply “a cost of doing business”; and
- suggests the adoption of a user pay model by bringing in a new fee to be paid by applicants seeking FIRB approval for residential land acquisitions.
The Report examines the benefits of foreign investment in residential property and whether it is boosting supply of new housing and benefiting local industry, how Australia’s foreign investment regime compares to others internationally and how the policy relating to acquisitions of residential property can be improved.
Thankfully the report has stayed clear of the racial emotion that has characterised debate around this topic in recent times. Foreign investment and foreign investors have been the focus of some commentators suggesting an adverse impact on Australia’s housing market and affordability. Ill informed comment has resulted in xenophobic tensions being inflamed unnecessarily.
The Report however recognises the importance to Australia of foreign investment in the residential real estate sector. The Report also has a sensible assessment of what is required to give the public confidence in the foreign investment regime.
Australia’s foreign investment requirements have always had the aim of ensuring that foreign investment adds to the housing stock. In only limited exceptions are foreign persons able to acquire second hand developed residential property. The development of new housing is promoted by the current policy settings. The Report does not propose interfering with the current requirements.
The Committee has identified a need for better data recording and sharing within Government and the establishment of a register of foreign ownership of residential land in order for FIRB to be better informed of what is happening in the residential sector and be better placed to ensure compliance. It will be a challenge though to bring the States and Territories together on the establishment of the proposed register. This comes on the back of the proposed rural land register to record rural land ownership by foreign persons. We hope that the Government approaches the registers with consistency.
Of great concern in the media in recent times has been the apparent lack of policing by FIRB of the current requirements. The Report recommends an increase of resources for FIRB to police the regime and hand in hand with that recommends increased penalties for defaulting foreign investors as well as the introduction of penalties for third parties that aid in the avoidance of compliance with the law.
The Off the Plan approval process which allows for pre-approval of residential developments of 100 units or more is supported by the Report. However to ensure appropriate Australian involvement in those projects, the Report recommends that marketing of new developments be undertaken in Australia to the same extent as offshore.
These are welcome measures and will go some way to restoring confidence in the system.
The report also introduces a $1,500 fee for the filing of a FIRB application in the residential space. A fee however is only paid by those complying with the system and of itself is not going to result in greater compliance. However, the fee is to be used to assist with funding the FIRB’s audit compliance and enforcement activities on a user pays basis. This may be the first of such fees with the potential for fees to be introduced for other applications in the future. Perhaps a case of watch this space….
The key recommendations of the Report are as follows:
1. The creation of a national register of land title transfers which records the residency status of all purchasers of Australian real estate.
The Committee noted that this is important because currently there is no accurate or timely data that tracks foreign investment in residential real estate.
In this respect, the Committee also noted the need for FIRB to have better access to information from other government departments (including the Department of Immigration and Border Protection) to track departing visa holders who may be required to sell their home within 3 months of departure.
2. New resources for FIRB to ensure better audit, compliance and enforcement outcomes.
No court action had been taken by FIRB since 2006 – however that does not of itself suggest that proposals were not withdrawn at FIRB’s encouragement. Nevertheless, the Committee drew attention to there being no divestment orders issued for the sale of property acquired in breach of the legislation during the Rudd-Gillard-Rudd Government. The Report suggests that it was highly unlikely there has been universal compliance with the foreign investment regime since 2007.
3. Civil penalty regime for breach of the foreign investment regime by foreign investors and third parties who assist them.
Along with a civil penalty regime, the Committee recommends that fines and pecuniary orders relate to the value of the property concerned.
An administration fee of $1,500 to fund the enhancement of FIRB’s audit, compliance and enforcement capabilities
Impact of the Report
Australia’s current foreign investment regime has been undermined by apparent poor compliance and lack of enforcement action. While the current foreign investment framework should be retained in its current form, it is appropriate that harsher penalties for those in breach of the regime and better auditing, compliance and enforcement action be put in place.