Australia: Changes To Australia’s Foreign Investment Review Policy – What Are The Benefits For The Real Estate Market?

Last Updated: 9 April 2009
Article by Raymond Yeung, Peter Faludi and Carrie Follas

During 2008 and 2009, the Federal Government announced a number of changes to its foreign investment review policy that should provide tangible benefits to both Australian and foreign investors. The changes simplify the approval processes and broaden the pool of potential purchasers who can invest in Australian real estate. It is hoped this will assist in making more development projects feasible and in improving the prospects of raising finance.

The changes deal with the following:

  • Removing restrictions on the acquisition of new and second-hand residential dwellings by temporary residents and foreign companies.
  • Removing minimum expenditure requirements and increasing development time frames to encourage the development of real estate by foreign investors.
  • Reducing restrictions on the sale of new residential dwellings to foreign investors to encourage the development of residential real estate by Australian interests and providing more flexibility in the housing market.
  • Changing the way accommodation facilities (such as resorts and hotels) are dealt with – ie treating them as commercial real estate, not residential real estate to encourage investment by foreign investors.

These changes affect the approval processes and the general operation of the Foreign Investment Review Board (FIRB), the advisory body of the Australian Government that examines direct investment in Australian assets and businesses by foreign investors (which includes Australian companies in which a foreign person or company holds a substantial interest).

A summary of the changes is set out below. All changes are effective as of 31 March 2009.

ACQUISITIONS OF RESIDENTIAL REAL ESTATE

Second-Hand Residential Dwellings

Foreign Companies

Foreign companies can now acquire second-hand residential dwellings for use by their Australian based staff, provided that they sell or rent the dwelling if it is expected to remain vacant for more than six months (this was previously limited to acquisitions for named senior executives, resident in Australia for periods longer than 12 months).

There is no limit to the number of second-hand residential dwellings that can be acquired for employee accommodation (this was previously limited to two dwellings). FIRB approval for the acquisition is still required but the process is streamlined.

Foreign Investors (Redevelopment Of Second-Hand Residential Dwellings)

Where a foreign investor acquires a second-hand residential dwelling for re-development, the existing dwelling must be demolished and construction of the new dwelling commenced within 24 months of FIRB approval (previously, this had to occur within 12 months).

Temporary Residents

Temporary residents are not required to notify FIRB of the acquisition of one second-hand residential dwelling. However, the dwelling must be used as the temporary resident's own residence (not for investment purposes).

Definition Of 'Temporary Residents'

The definition of 'temporary residents' permitted to acquire second-hand residential dwellings has been expanded to include all foreign persons living in Australia who hold a valid visa that permits them to stay in Australia for a continuous period of more than 12 months (regardless of the time remaining until that visa expires). The definition now also includes foreign persons holding a bridging visa that permits them to stay in Australia pending an application for permanent residency (foreign persons holding bridging visas were previously excluded). This does not include short-term visitors on tourist visas, some types of business visas and persons in Australia for medical procedures. However, it does include a wholly owned trust or Australian incorporated company of the temporary resident.

Foreign Students

Foreign students may acquire second-hand residential dwellings of any value (previously limited to $300,000). However, FIRB approval is still required.

Vacant Residential Real Estate

Foreign Investors

Foreign investors that acquire single blocks of vacant residential land are not required to spend a minimum amount on the development of the new residential dwelling (previously, FIRB required at least 50% of the acquisition cost to be spent on development). Construction of the new residential dwelling must commence within 24 months after the date of FIRB approval (previously, construction was required to commence within 12 months).

Temporary Residents

Temporary residents are not required to notify FIRB of proposed acquisitions of single blocks of vacant residential real estate.

New Residential Dwellings

Definition Of 'New Dwelling'

The definition of a 'new dwelling' now includes a new residential dwelling that has never been sold, but has been rented out for up to 12 months (previously, any occupation of a residential dwelling excluded it from being considered a new dwelling). This allows vendors to temporarily rent out new dwellings prior to selling to foreign investors.

Vendors Of New Residential Dwellings (Multiple Lot Developments)
(Policy Change Will Be Reviewed After Two Years)

Vendors can now sell any number of new residential dwellings in a new development to foreign investors, provided that the vendor markets the dwellings locally as well as overseas (previously, vendors were restricted from selling more than 50% of new dwellings in any one development to foreign investors).

Vendors Of New Residential Dwellings (Stand-Alone Dwellings)
(Policy Change Will Be Reviewed After Two Years)

Vendors are no longer required to have concurrently developed and sold a similar residential dwelling to an Australian person, in order to sell a new stand-alone residential dwelling to a foreign investor.

Temporary Residents

Temporary residents are not required to notify FIRB of proposed acquisitions of any new residential dwellings.

Administrative Changes

Advance Approvals For Sales Of New Residential Dwellings To Foreign Investors

FIRB will no longer issue advanced approval to vendors to sell up to 50% of new residential dwellings in a single development to foreign interests. FIRB will assess each sale of a new residential dwelling on a case by case basis.

ACQUISITIONS OF COMMERCIAL REAL ESTATE

Vacant Commercial Real Estate

Foreign Investors

A foreign investor acquiring vacant commercial real estate must commence substantial construction within five years of the date of receiving FIRB approval (previously, this had to occur within 12 months).

Accommodation Facilities

Accommodation Facilities Definition

Accommodation facilities such as resorts and hotels will be considered commercial real estate (previously, accommodation facilities were considered residential real estate).

Acquisitions of accommodation facilities by foreign interests will no longer require FIRB notification and approval, provided they are below the relevant monetary threshold for acquisitions of developed commercial real estate (for non-US investors, the threshold is currently $50 million, or $5 million for heritage listed properties).

2009 CHANGES TO MONETARY THRESHOLDS FOR US INVESTORS

The monetary thresholds for acquisitions of Australian assets by US investors, above which FIRB approval is required, have been increased effective from 1 January 2009. The thresholds for US investors remain higher than the corresponding thresholds for non-US investors. A link to the latest monetary thresholds can be found at www.firb.gov.au

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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