On 1 February the Treasurer announced tightened policy requirements for foreign investors seeking FIRB approval to acquire agricultural land.
In general, foreign investors will not be able to obtain FIRB approval to purchase agricultural land unless the land has been marketed widely. Since his decision on Kidman, the Treasurer has been keen to be seen (popularly and politically) as ensuring that Australians are able to participate in the acquisition process for agricultural land. Foreign investors have been requested to inform FIRB of the sales process as part of the consideration of their FIRB applications.
With the tightening of the FIRB process, a foreign purchaser will now have to demonstrate that the property they are looking to acquire has been offered for sale publicly in an open and transparent sale process, and ‘widely marketed’ for a minimum of 30 days. If not, unless there are special circumstances, a FIRB approval will not issue.
The change in policy has been introduced to increase the potential for Australian participation in purchasing agricultural land. Treasurer Scott Morrison has claimed the changes will provide “adequate opportunity for Australians to invest in Australian land.”
Whilst the policy intent is beneficial and aimed at promoting Australian involvement, the impact could unfortunately be detrimental to investment and value. Australian vendors that do not want to go to market will see less competitive tension in price and a drop in value.
Guidance on FIRB’s website notes that an open and transparent sale process means:
- the property is “marketed widely,” meaning that it must be listed/advertised on widely used real estate listing websites or in regional/national media;
- the property was advertised for a minimum of 30 days; and
- there was equal opportunity for offers to be made for the agricultural land while it was still available for purchase.
Strangely, targeted advertising by agents using their market knowledge and expertise will not be sufficient.
To comply with this new requirement, the foreign investor will need to demonstrate to FIRB how it became aware the agricultural land was marketed for sale and how the acquisition followed an open and transparent sale process.
Certain exceptions to this restriction include acquisitions where the foreign investor:
- is acquiring a property that had been publically advertised in the preceding six months but had not sold;
- has a substantial Australian ownership (at least 50% but could vary upwards depending on the foreign owners); or
- is required to make the acquisition in order to comply with State or Commonwealth law (e.g. mining buffer zones).
Regrettably, this new requirement is being applied retrospectively to existing applications already under consideration by FIRB. This is an unwelcome development in the FIRB process and in our view inappropriate. It sends the wrong message about the rule of law in Australia and whether Australia is open for business.
Investors with current FIRB applications will need to:
- Convince FIRB that the marketing was acceptable or that there are special circumstances – eg vendor hardship – that should allow the application to proceed; or
- Seek an extension of the statutory deadline from FIRB and request the vendor advertise the property for the minimum 30 days; or
- Withdraw the existing application, request the vendor to advertise the property for sale for the minimum 30 days and reapply to FIRB. Where this occurs, FIRB has indicated it will expedite the application and will strongly consider reimbursing the applicant the cost of the application fee. However, this is not guaranteed.
The changes will also impact upon exemption certificates. Conditions will now be imposed on all agricultural land and agribusiness exemption certificates to ensure the new “open and transparent sale process” requirement has been met and that the exemption certificate is not used as a means to get around the marketing requirement. (It is not clear if there is an intent to retrospectively apply the condition to existing agricultural land exemption certificates. There is a suggestion of a broader impact on all land exemption certificates and that is being followed up for a further alert.)
Whilst real estate agents will see an increase in the need for their services, the real impact of the new policy requirement will be on the way vendors behave. Foreign investors will comply with the Policy where they can. However if a vendor does not want to go to market, then unless there are special circumstances, a foreign investor will be unable to participate. Whilst the Treasurer will see this as a win for Australians participating in the sale, the vendor may not receive true value.
There are often good reasons for a vendor not wishing to go to market. Whilst FIRB will consider special circumstances applications, FIRB has a poor track record of timely consideration of submissions that are not subject to a statutory deadline. This will add time and cost to the process with no certainty of outcome.
Vendors are already wary of dealing with foreign investors and their view of an uncertain FIRB process. This new requirement will be a further disincentive.