Australia set to tackle Foreign Investment Surge in Residential Real Estate

Written by admin on February 25, 2015 – 9:36 pm

Following the release of the Report on Foreign Investment in Residential Real Estate from the House of Representatives Standing Committee on Economics in November 2014, the Australian Government has today released a consultation paper on proposed reforms.

According to Foreign Investment Review Board (FIRB) statistics, The House of Representatives Standing Committee on Economics’ report indicated that “approved” foreign investment in Australian residential property has been surging in recent years. It cited in the first 9 months of last year, prior to the release of the report, foreign investment surged 44 per cent compared to all of 2012-2013 with “much of this investment [..] concentrated in the Melbourne and Sydney markets.” Fairfax tabloids in Sydney and Melbourne have been littered with articles of Chinese buyers outbidding locals with prices exceeding reserves in the hundreds of thousands.

Leading property experts say the Sydney property bubble has been in “hyperdrive” with prices surging almost 30 per cent in just two years, creating a challenge for the Reserve Bank of Australia who is keen to slash the official cash rate to stem rapidly rising unemployment. With house prices at ten times income, Sydney is the third most expensive city in the world for housing following Hong Kong and Vancouver, according to the most recent Demographia survey. Melbourne is not far behind as the fifth most expensive city in the world for shelter.

It is unclear what contribution Foreign investment is making to surging home prices. The Australian Bureau of Statistics (ABS) told the House of Representatives Standing Committee on Economics inquiry, data on foreign investment is “patchy”. It regularly scanned trade magazines and newspapers to try to ascertain the level of foreign investment:

“We do scan press reports and real estate specialist magazines to try to identify purchases of real estate, and [to] record those and record valuation changes from those. But I have to say, that’s a bit hit and miss,” assistant statistician Paul Mahoney said.

Treasurer Joe Hockey said today, “At the moment we simply do not have enough data and that’s because no-one has taken foreign investment regimes seriously in the past.”

Currently flouted legislation do require all foreign persons to gain approval prior to purchasing residential real estate in Australia. To encourage the supply of new homes, non-residents can only apply to purchase newly constructed dwellings or vacant land for development. Given that temporary residents residing in Australia need a place to live, temporary residents may purchase one established dwelling to live in, but must sell the property when they leave Australia.

Today’s consultation paper recommends the introduction of fees for foreign buyers of Australia’s residential real estate. A token application fee of $5,000 would apply for properties under $1 million dollars. Properties over $1 million would attract a fee of $10,000, with $10,000 increments for every 1 million dollars thereafter. The report notes the FIRB and Treasury (who provides secretariat support to the FIRB) is currently funded through consolidated revenue and suggests the Australian Taxpayer should not bear the costs of foreign audit, compliance and enforcement operations – sensible budget savings.

The report on Foreign Investment in Residential Real Estate released last year also recommended a user pay model but with a modest fee of only $1,500 to fund “enhanced audit, compliance and enforcement capacity within FIRB.” On the other extreme, Today’s report notes countries such as Singapore and Hong Kong levy an additional buyer’s “stamp duty” of 15 per cent of the purchase price. (Maybe we could do the same with proceeds to help fund the Committed Liquidity Facility?)

Just as laughable as the ABS scanning magazines to ascertain foreign investment is the FIRB’s track record on enforcement. It’s a point not lost on Prime Minister Tony Abbott who said in a National Press Club speech last fortnight, there had not been a single prosecution in six years.

The consultation paper highlights, “while the Foreign Investment Review Board and Treasury were well placed to continue undertaking the upfront screening of residential real estate applications, its internal processes and lack of specialist investigative and enforcement staff have weakened the enforcement of the foreign investment rules.”

A recommendation is to create a new “specialist, dedicated compliance and enforcement” unit within the Australian Taxation Office to enforce foreign investment legislation for residential real estate. It suggests the tax office is better suited as it has staff with compliance and enforcement skills, sophisticated data-matching and “experience in pursuing court action”, i.e. a proven track record of getting results!

While this may be a consultation paper, it is understood from an interview two weeks ago that Prime Minister Tony Abbott has taken immediate action, directing Treasury to start issuing divestment orders for immediate sales of illegal purchases.

The next target for the Abbott government is expected to be limited recourse borrowing arrangements by superannuation funds.

» Strengthening Australia’s Foreign Investment Framework – The Treasury, Australian Government – 25th February 2015.
» Report on Foreign Investment in Residential Real Estate – House of Representatives Standing Committee on Economics, November 2014.
» PM Tony Abbott orders Treasury squad to force immediate sales on foreign property investors – The Daily Telegraph, 13th February 2015.
» Australian housing overheating and could eventually face a correction: Moody’s – Who crashed the economy?, 29th June 2014.
» Report into foreign investment in residential real estate could come too late – Who crashed the economy?, 19th March 2014.
» Real Estate Investment by Foreign Residents : Top Secret – Who crashed the economy?, 4th January 2012.


Posted in Australian Economy, Australian Housing, Foreign Investment Review Board, Sydney Housing Bubble | 32 Comments »

32 Comments to “Australia set to tackle Foreign Investment Surge in Residential Real Estate”

  1. Master Yoda Says:

    Nothing will happen, this is just a stunt to fool the Australian people that the government is serious about the flood of dirty money (mostly from China), that is pushing up Sydney and Melbourne property prices through the stratosphere. The reality is, the government will just pay lip service to the issue, and that’s it.

    The application fees for foreign buyers will do little to deter them, what’s 5,10 or 15k to some multimillionaire?, it’s loose change.

    The Australian economy is doomed, and our luck is rapidly running out, the mining boom is dead, manufacturing is virtually non existent, and all we have left with is a government sanctioned Ponzi scheme known as property speculation, and the massive debt that comes with that.

  2. dibbsy Says:

    What is 15k to a millionaire? Well part of a reason people become millionaires is they don’t just throw away 15k easily, and they also invest wisely.

    I think the idea that people with money just splash it around is exactly the opposite to reality.

    You can still buy a 3 bedroom house in Brisbane for around 400k within 12k’s of the city.

  3. Matty Says:

    What a slick move by the gov’t.

    Make the public “think” you’re trying to protect them. The reality is far more sinister.

    They know full well these “fees” will do virtually nothing in terms of foreign demand: What it will do is line the government coffers a little more. Triple win!

    1: Public think you’re doing the right thing
    2: No change to market conditions
    3: Increase tax revenue

    It’s beautiful.

  4. Bill Says:

    I agree.

  5. Claudem777 Says:

    It is difficult to ascertain the real reasoning for this current move.

    As it was clearly neither foreign investors nor even the mining (Iron Ore/Commodities price) boom that initially created the monstrous world-record-beating Australian Housing Ponzi Scheme (which was already through the stratosphere by mid-2003,)but rather, banks lending to literally anyone who still had at least a “discernible” pulse as long as it was for property purchase and especially speculation, even if they had little to no income (in thousands of cases).

    The monstrous world-record beating Australian Ponzi Housing Scheme has to end (out of necessity) relatively soon (for several reasons including but not limited to the fact that money will begin to become more expensive probably by the third quarter of this year 2015) depending on how hard Janet does the “Yellin”.

    As the global monetary system is a fiasco anyway, I am not so certain anymore that it will really matter whether or not the US Economy is genuinely doing well or not as it has now become standard practice to simply use Frankenstein Numbers for employment and inflation figures. For instance, House Price/Value was removed from being included in official CPI as from 1998, in clear preparation for the coming global Housing Ponzi Schemes and their subsequent crashes.

    It is more about what the global banking cartel want to do next (deflate one housing bubble and start another elsewhere or create a bubble in a different industry or another in house prices in a new/different country etc).

    So it is necessary at about this time to prepare a scapegoat in readiness for both the public but more importantly MPs to apportion the blame for the coming inevitable catastrophic personal and national financial consequences for the inevitable but long overdue ending of the monstrous bubble’s extended run and maintenance (2002-2015).

    It will be strange thing indeed to see shows such as “The Block” disappear completely from our screens and friends at barbecues no longer stating with ignorant bliss that “My House is worth a million dollars!”for so many years too. In fact not even wanting to mention housing at all for an entire generation to come.

    If a scapegoat is not prepared now, then the blame for the catastrophic housing collapse will inevitably fall “personally” upon the MP who was in power at the time of the collapse, even though they essentially had no control over it anyway.

    The foreign investment issue in Australia (people complaining about it) is about the safest and perhaps only scapegoating tool one could reasonably use (or more importantly for an MP to defend themselves with “because the Australian people were very concerned about this foreign investment”). Even though it had little to do with creation and catastophic bust of the Australian Housing Ponzi Scheme to begin with “in the true “Scheme” of things”.

    This thing (monstrous housing bubble) is a literal “monster” of incredible proportions that is ultimately going to leave an entire generation scarred for life, wiping out even a great proportion of the so-called “middle class” in its wake, so going for the Foreign Investor’s idea is about the safest scapegoat that any MP could possibly hope for, as it provides a measure of redeeming quality in the fact that the Australian people have long already been blaming foreign investment anyway (even though this is not entirely or remotely true if people are to be honest with themselves).

    5, 10 or 15K charge is nothing but loose change but if the crash has to now arrive out of necessity, this move serves the best of both worlds for the MPs current and post-position credibility.

  6. nsw2206 Says:

    Yoda, if its a lip service then its a pretty good one.

    I dont think it will take much to pop this bubble, its too far extended witht he coming headwinds..

    go Tony Abbott!!! I never thought he would do anything worthwhile, but I guess destroying the bubble is in his nature

  7. Jas2u Says:

    Agree Yoda. Message is clear: Contribute to this ponzi scheme PYRAMID or be punished by currency counterfeiting. Whether melon drops on knife or knife drops on melon! However, contributers will also be slaughtered for sure. It remains to be seen when these massive mortgages will become impossible to service? Locals refuse to listen and seems unstoppable too. My workplace specufesters are mortgaged up-to eyeballs but still reevaluating their assets to grab more ‘bargains’ further. This madness will continue in one form or other until mass confidence break-up by WW3 or the like.

  8. Adze Says:

    Master Yoda is right. This is a diversion – nothing more.

  9. Morpheus Says:

    This is just a another desperate effort by Mr Abbott to justify his position as PM. Apparently they need him out before the UN climate change conference at the end of the year and replace him with Mr Turnbull (Goldman Sachs- Carbon Trading). It will not change anything in the RE markets as the foreign funds are parked here because it is easy to do so. When you are laundering black money you expect to lose a larger percentage.

  10. Nexus789 Says:

    Master Yoda – economy be bad it is…..I agree with all your comments and I think the collapse when it comes will be a precipitous one. So much of the debt is multi-layered and interlinked.

    Analysis by Prof Keen shows that an economy that has a large ‘finance sector’ will be less efficient and prone to collapse. Essentially Australia is a ‘rentier’ economy that is addicted to debt. Once the debt music stops the house of debt will collapse.

    The numb-nuts in government are going to do nothing as this is like the ‘boat people’ con. Get people fixated on that and then open the taps of 457, student and other Visa’s. This is the same. Have some ‘report’ and pretend you are doing something. The reason why nothing will happen is that Australian politicians, or scum, have a combined property portfolio of over $300m. On top of that they have massive pensions so if it goes to custard its I’ll alright jack and screw you – meaning us the community.

  11. Anon Says:

    I can’t wait until a foreign corporate property investor
    sues the Australian government for loss of income over this
    in accordance with the TPP’s investor-state dispute
    settlement provisions. 🙂

  12. madmike Says:

    Have to agree with yoda whats 5 or 10k when they are willing to bid 200 thousand over the reserve.

  13. Plex Says:

    If only Tony Abbott would say to himself, “I’m f[CENSORDED]ked 6 ways to Sunday’s breakfast. If I can managed to last until my elected term, that will be the best I can do. I know! I’ll do something good for this country, well I have nothing to lose… I’ll pop this bubble, bringing on an disastar that will eventually saving this country. History, or the far future, may end up thank me for it one day.

    Ahhhhh! The day dreams.

    This beast will end up destroying itself in its own order. It will end up eating everything, even those that aren’t apart of property, its’ been eating the youth of Australia, no one will be spared.

  14. Pete Says:

    Love the headlines today. Front page of the Australian Financial Review was “Outrage at PM’s move to hit foreign property buyers with $10,000 fee”. The Australian had a photo of some foreign investment specialist warning doom and gloom if the proposals go ahead.

    A couple years ago, every property expert was unanimous that foreign investment made up such a small portion of the market, that there was nothing to worry about. Today, every property expert is unanimous the property market will crash if these changes are made.

    Yet, Sydney prices have gone up 29 per cent in 2 years, about $300,000 in round terms. Now a $5,000 fee on an insignificant number of buyers will crash the market. Amazing!

  15. mi0vko Says:

    please forgive my ignorance, but surly the Australian government can stop foreign investors from buying houses in Australia,can this government not see that the hard working aussie is unable to afford a house in his own country. every citizen should be able to afford their own property in the own country, a house should be a place for people to live not to line the pockets of GREEDY investors and speculators. I really hope the investors get burned when the bubble bursts,

  16. admin Says:

    @mi0vko – They can and this is exactly what Canada did when faced with exactly the same issue. In fact, Canada suspended its Immigrant Investor Program (IIP) in July 2012 while undertaking an inquiry into the scheme and then once the inquiry determined the scheme was “abused” and contributed little to the Canadian economy, it axed the program immediately in February 2014.

  17. Rupert Says:

    The sad thing is that the ‘hard-working Aussie’ just accepts this monstrous situation as totally normal and continues to pile in to buying property regardless.

    Most of my friends tell me I should buy before I ‘miss out’, that it’s misguided of me to consider mortgage payments, deposits, stamp duty, job security etc, but that I should always think of ‘capital growth’, and dive in to the market.

    I’m encouraged daily to lower my standards by settling for less and getting my foot on the ladder by buying a smaller house in a suburb miles from my life and work.

    And to make matters worse, we are bombarded by adverts on TV selling debt enslavement in the same way they sell junk food, gambling and alcohol.

    Is it me, or has everybody totally lost their marbles?

    I really fear for Australia, but equally I fear that nothing is going to change anytime soon. So sad.

  18. Matty Says:

    Well, well, well.

    It’s almost complete.

    Rocketing government debt.
    Total enslavement of the people through private debt.
    Increasing taxes on the middle class (gst) & Reduction of wellfare being talked about.

    And, the ex banker as PM of the country….

    Haven’t we seen this before? Who benefits the most from the inevitable collapse?

    http://www.bloomberg.com/news/articles/2012-10-02/top-1-got-93-of-income-growth-as-rich-poor-gap-widened

    http://economix.blogs.nytimes.com/2013/09/10/the-rich-get-richer-through-the-recovery/?_r=0

    http://www.latimes.com/business/la-fi-recession-economy-20140622-story.html#page=1

    That was just on the first page of google: Hardly hidden information.

    If people think things were awful under abbott and hockey (who despite their poor communication were for the greater good mostly) just wait til you get your ex-banking, slick speaking, WEALTHIEST POLITICIAN EVER calling the shots.

    There has NEVER been a more important time in this generation to emulate the rich: The middle class and poor are on a path to financial ruin: This site has been warning you for years: Are you prepared?

  19. Morpheus Says:

    @ Matty

    Unfortunately Mr Turnbull is a member of the Banking/Political revolving door fraternity of Goldman Sachs. He will join a long list of Heads of State groomed for the job and who are prepared to protect the banks at the expense of the people. Remember his support for the labour party’s Carbon Tax which would have led to carbon trading and enormous commissions for the banks. His promotion is not a good omen as these placements usually come before a major financial upheaval which will endanger the financial power of the 1%. It is a high stakes game and we are not in it.

    http://en.wikipedia.org/wiki/List_of_former_employees_of_Goldman_Sachs

  20. Matty Says:

    @19 Morpheus

    Absolutely. This is what I was alluding to. The USA had paulson do the dirty work, and it looks as though Turnbull is the Aussie solution.

    This should be spectacular.

  21. Morpheus Says:

    @ Matty

    You may be interested in the techniques used by the western banking/corporate cartels to lure countries into non-repayable debt as disclosed by an ex-operative in his book “The Confessions of an Economic Hit Man” by John Perkins (Amazon). It details how politicians are conned into accepting huge infrastructure financing based on false projections. The plan is to expand the sovereign debt to a stage where the banks control the country.

  22. average_bloke Says:

    Straight from the horse’s mouth.

    http://youtu.be/7udP-Ox5OHY

  23. Master Yoda Says:

    @Morpheus

    I have always wondered why the banksters keep lending money to broke countries, who have no chance in hell of paying the money back, and now you have answered my question.

    Look at Greece for example (and no, I am not picking on the Greeks),their economy simply does not generate the amount of GDP in order to have any chance of paying back the hundreds of billions of Euros they have been lent. It’s like a bank lending out thousands of dollars to an unemployed person on Centrelink benefits, it’s crazy.

  24. Jas2u Says:

    https://au.news.yahoo.com/thewest/business/wa/a/26469108/warning-of-more-mine-job-cuts/
    https://au.news.yahoo.com/thewest/business/a/26457360/rio-set-to-announce-job-cuts/
    http://www.abc.net.au/news/2015-02-27/glencore-shelves-expansion-plans-and-cuts-120-jobs-in-response-/6268886

  25. Bill Says:

    The new interest rates have just kicked in, making it harder than ever to save up money to buy a house. The monthly interest on my savings dropped 20%. Meanwhile, house prices are going even higher due to investors taking advantage of the lower interest rates. Unemployment rising, etc. This is insane.

  26. Matty Says:

    @ Morpheus

    Yep. Or the other good book “The creature from Jekyll Island”

    http://en.wikipedia.org/wiki/File:The_Creature_from_Jekyll_Island_WND.jpg

    In every major economic disaster, the rich, without exception, always arise richer.

    Either this is one big amazing co-incidence OR
    It is planned………

    I’m no wacko, but the end goal of the rich is to move ALL productivity and labour onto government balance sheets in the form of debt….. Which is owed to the rich.

    When the government will bail out your bad loans, time and time again, of course you lend without care…. And the central banks are the end beneficiary.

    One big co-incidence or planned: Pretty obvious when you learn how the system functions:

    Jefferson was right: Central banks are more dangerous than standing armies:

    If the USA was invaded, and people forced to work for the next forty years there would be an uprising.

    Let the USA citizens borrow, and be forced to repay for forty years, nothing happens, in fact the people brag that their country is the greatest! Amazing.

  27. Morpheus Says:

    @ Master Yoda

    Yes Greece is a good example. The next step is to asset strip them when they cannot pay. ie. privatise for a fraction of their true value utilities, islands , and government corporations. Also the troika bailout was to save the banks who lent to them. The Greek people received only 4% of it but are responsible for the total new debt.
    My big concern is the same process is being applied to Australia. Queensland has lost its AAA credit rating due to out of control borrowing. Consider spending $1 billion on a desalination plant that has never worked. Also $1.85 billion on 13km of light rail. (Gold Coast)There is no doubts similar projects exist in every state. As in every other country we seem to have an endless supply of dumb and corrupt politicians willing to run up bigger and bigger debts in our name.

    @ Matty

    As you mentioned it is not happening by co-incidence. Excellent book “The Creature from Jekyll Island” is required reading for anyone concerned about the destructive self serving nature of central banks.

  28. Master Yoda Says:

    Now the economists are warning the Reserve Bank about the insane property prices, but the RBA aren’t listening.

    Honestly, “the lunatics are running the asylum”.

    http://www.smh.com.au/business/the-economy/no-economic-benefit-in-further-surge-in-house-prices-economists-warn-rba-20150302-13ssey.html

  29. average_bloke Says:

    Irish forest fire metaphor, not the same as OZ but interesting nonetheless.

    http://www.irishtimes.com/business/financial-services/david-mcwilliams-irish-economy-set-up-to-fail-1.2118484

  30. mi0vko Says:

    @average_bloke, David mc williams in the video clip was right, there is NO difference between the australian housing bubble and the irish bubble of the 2000s,the goverment needs to step in NOW and stop this bubble from getting larger, it seems the aus government seem to adopt the attitude of “she,ll be right mate” this whole affair could have been prevented but the genie out of the bottle now.

  31. Rupert Says:

    @29 thank you for the link average_bloke – brilliant.

    Now, will someone tell me WHO in Australia, either in politics or business or broadcasting or journalism would be allowed to say the same thing to a select committee here? And even if he or she were allowed, do you think he or she would be allowed to speak freely without being interrupted, heckled and belittled? I’m really struggling to think of anyone in Australia who could emulate David McWilliams’ speech. The fact is that we ARE heading for a crash like the one in Ireland and no-one is doing anything to put out the fire!

  32. Matty. Says:

    @ 29:

    David McWilliams…ah, haven’t seen him for a while. He did a series called Addicted to Money: and I loved it. Bought the dvd.

    @31 Our version would be Steve Keen: I once read (can’t find the link sorry) an article he did years ago, like in 2004, He made a great argument about how our private debt was out of control….Move forward 10 years, YES 10 YEARS, and things have only been super charged with ultra low interest rates.

    As McWilliams says, if it wasn’t so serious it would be funny