On 18 December 2008, Chris Bowen MP, the Assistant Treasurer, announced changes to the Government's foreign investment screening arrangements for acquisitions of residential real estate by foreign persons. The purpose of the changes is described as streamlining the current notification and administrative arrangements.

The changes will be implemented progressively as follows:

  • amendments that simply require changes to policy came into effect immediately on 18 December 2008; and
  • amendments requiring changes to the Foreign Acquisitions and Takeovers Regulations 1989 (the Regulations) will come into effect after the necessary amendments have been made (expected late February or early March 2009 – date to be advised).

How does it affect Property Developers?

These changes particularly affect property developers and those selling "off-the-plan".

From 18 December 2008 the policy has changed whereby the existing requirement that only 50% of new dwellings can be sold to foreign persons on an "off-the-plan" basis has been removed provided developers market locally as well as overseas. While the abolition of the 50% limit of sales to foreign persons is a welcome change, developers should take note of this new requirement to market overseas. This will no doubt increase costs to developers in an already challenging market for new residential development and place an additional administrative burden on developers.

From late February or early March 2009 (date to be advised) - we are also expecting amendments to the Regulations. Subject to the amendments of the Regulations, developers will no longer be issued advance approval for sales of new dwellings to foreign persons – all non-resident foreign persons must submit individual applications (or the developers may submit this on behalf of the foreign purchasers).

Consequently, developers will not be able to enter into a contract with a foreign person until approval is received unless the contract is conditional on FIRB approval. Once again, this will increase uncertainty in the current challenging climate for developers. Legal issues will also arise as to whether the developer is making an application as agent for the foreign purchaser. Final specific details have not been released but developers should be aware of these upcoming changes to the Regulations.

Other changes have also been announced. These include:

  • removing the $300,000 limit on acquisitions of property being acquired by student visa holders as their principal place of residence;
  • extending the definition of "new dwelling" which previously had a requirement that the dwelling had never been occupied or sold, to now include dwellings that have not been sold but have been rented out for no more than 12 months; and
  • accommodation facilities such as resorts, hotels and serviced apartments will be treated as commercial real estate rather than residential real estate and therefore notification and approval will only be required where the value of the property exceeds the commercial property threshold (this is subject to amendment of the Regulations).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.