Summary

The House of Representatives Standing Committee on Economics (Committee) released its report on Foreign Investment in Residential Real Estate on 27 November 2014 (Report).

As a response to concerns continually raised regarding the impact of foreign investment on the Australian housing market, the Committee examined:

  • the economic benefits of foreign investment in residential property
  • whether such foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers
  • how Australia's foreign investment framework compares with international experience
  • whether the administration of Australia's foreign investment policy can be enhanced.

Key findings

Following six public hearings and the review of 92 submissions, the Committee found that the current Australian framework for foreign investment in residential real estate is appropriate and strikes a balance between the need for valuable foreign investment and ensuring that the stock of housing available to Australian citizens and residents is not diminished.

However, the Committee was critical of the administration of the Foreign Investment Review Board (FIRB) and the foreign investment framework and made the following four key findings.

  1. There is a distinct lack of accurate or timely data which tracks foreign investment in residential real estate.
  2. FIRB's administration and resourcing is inadequate.
  3. FIRB's inability or reluctance to enforce the foreign investment framework provides little incentive for compliance.
  4. There is an underinvestment in FIRB's audit, compliance and enforcement activities, which is arguably derived from the funding of FIRB by Australian taxpayers rather than foreign investors.

The Recommendations

The Committee made 12 key recommendations to improve the enforcement of the existing framework for foreign investment in the Australian housing market. These recommendations are:

  1. The current framework should be retained to encourage foreign investment in new housing and increase the supply of housing.
  2. Appropriate processes for the purpose of audit, compliance and enforcement of the foreign investment framework should be implemented by FIRB and the Foreign Investment and Trade Policy Division of Treasury.
  3. The introduction of a modest administrative fee to the current screening of foreign purchases of residential real estate by both foreign investors and temporary residents to assist to better resource FIRB.
  4. The introduction of a civil penalty regime for breaches of the foreign investment framework (calculated on the basis of a percentage of property value), applicable to both foreign investors and any third party who knowingly assists a foreign investor to breach the framework.
  5. Amendment of the Foreign Acquisitions and Takeovers Act 1975 (Cth) to provide that the existing criminal penalties for a breach of the foreign investment framework also apply to any third party who knowingly assists a foreign investor to breach the framework.
  6. The introduction of a requirement that any capital gain from the sale of an illegally held established property be forfeited to the Federal Government.
  7. The amendment of Australia's Foreign Investment Policy to require a temporary resident to sell any property which ceases to be a primary residence within three months.
  8. The establishment of a national register of land transfers that records the citizenship and residency status of all purchasers.
  9. Amendment of the Migration Act 1958 (Cth) to require the Department of Immigration to inform FIRB when a temporary resident departs Australia on expiration of their visa.
  10. The introduction of a requirement that all properties which have approval for off-the-plan sales to overseas investors also be marketed in Australia for the same period of time.
  11. That the Government consider the purchase of residential property by foreign investors as an area of investigation when considering amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).
  12. The Treasury's Foreign Investment and Trade Policy Division should make greater use of relevant Federal and State Government databases to assist with facilitation of FIRB's operations.

Implications

As the Report simply presents the recommendations of the Committee, no action is required. However, the Report provides useful information concerning foreign investment and may form the basis of future legislative and regulatory amendments. We will continue to monitor any implementation of the Committee's recommendations.

A full version of the Report is available here.

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