Changes to foreign investment rules for residential real estate

27 April 2010

The Federal Government recently announced a major tightening of the foreign investment rules relating to residential real estate and a range of new civil penalty, compliance, monitoring and enforcement measures.

Australia's foreign investment regime relies on a combination of legislation, primarily the Foreign Acquisitions and Takeovers Act 1975 (FATA), its related regulations, the Foreign Acquisitions and Takeovers Regulations 1989 (Regulations) and an accompanying Government Policy (Policy), all of which are administered by the Foreign Investment Review Board (FIRB).

In January 2009, the Government shifted the focus of the Treasury and Foreign Investment Review Board (FIRB) to the review of large commercial transactions. The rules applying to acquisitions of residential real estate by foreign persons were relaxed. Temporary residents acquiring a property for use as their primary residence were exempt from the requirement to obtain an individual FIRB approval.

This recent announcement represents a reversal of the Government's 2009 policy position and is designed to bring the foreign investment rules "in line with community expectations".

Significant amendments to each of the FATA, the Regulations and the Policy will ensure that foreign non-residents can only invest in Australian real estate if that investment adds to the housing stock, and that investments by temporary residents in established properties are only for their use whilst they live in Australia.

Measures to tighten the rules include:

removing the exemption for temporary residents acquiring a primary residence;
requiring temporary residents acquiring a primary residence to sell the property when they leave Australia, and that if land is purchased on which a primary residence is to be developed, construction commence within 24 months;
the introduction of new civil penalties;
the implementation of a data-matching compliance monitoring program, a new 1-800 community hotline, and measures to improve compliance by real estate agents.

New civil penalties regime

As part of the new civil penalties regime, the Government will introduce:

sanctions for purchasers, sellers and agents for being involved in transactions in breach of FATA;
an explicit compulsory divestment requirement where property has been purchased in breach of the real estate investment regime; and
an additional monetary penalty equivalent to any capital gain made by the breaching purchaser at the time of the forced sale, with the capital gain to be measured in accordance with the relevant tax legislation.

Expanded monitoring

The FIRB will also undertake a significant new program of rolling three-way proactive data-matching using FIRB data, State and Territory lands and property office transactional data and Commonwealth Department of Immigration and Citizenship (DIAC) visa status data.

The activities of temporary residents or foreign non-residents investing in Australian real estate, or a real estate agent working in this area will be proactively monitored with top-of-the-line data-matching which will be backed up by new civil penalties.

Enforcement

The relationship between FIRB and the Director of Public Prosecutions will be also be significantly enhanced with both agencies commencing work on a detailed Memorandum of Understanding, focused on securing improved enforcement outcomes.

For further information, please contact:

Anthony O'Dwyer | Partner
Mullins Lawyers
t +61 7 3224 0220
f +61 7 3224 0333
aodwyer@mullinslaw.com.au