Foreign investors who purchase existing residential dwellings illegally, and third parties who knowingly assist, will face increased penalties under a new bill to be introduced into Parliament this Spring.
Coinciding a day after the Foreign Investment Review Board’s (FIRB) annual report showed a 95 per cent increase in applications by foreigners legally purchasing Australian real estate (‘Foreign investment propels Sydney, Melbourne property bubbles‘), Prime Minister Tony Abbott announced the strict new penalties. Foreign individuals breaching the law will face 3 years jail time and fines up to $127,500. Corporations could be fined up to $637,500.
Real estate agents, developers and third parties assisting with the illegal transaction will be hit with civil and criminal penalties up to $42,500 for individuals and $212,500 for companies.
While legal transactions have surged, it is unclear just how many illegal transactions are taking place. Part of the problem, according to the current government, is the Foreign Investment Review Board is under-resourced in the enforcement area with a lack of specialist investigative staff. The result – not one prosecution during the past 6 years.
Consistent with the consultation paper released in February (‘Australia set to tackle Foreign Investment Surge in Residential Real Estate‘), the Foreign Investment Review Board will be relieved of all residential real estate functions. The Australian Taxation Office with strong compliance and enforcement skills, sophisticated data-matching and a proven track record in pursuing court action will get the job.
The taxpayer will no longer foot the bill for screening and compliance operations, with a levy being placed on applications. Residential properties valued up to $1 million will attract a token fee of $5,000, with no further details released for more expensive properties. The February consultation paper suggested properties over $1 million would attract a fee of $10,000, with $10,000 increments for every 1 million dollars thereafter.
The Foreign Investment Review Board may not be entirely at fault, but rather a scapegoat for bad policy. In December 2008, three months after the collapse of Lehman Brothers and with Australia’s house prices down 4.7 percent, the Rudd Labor government ‘streamlined’ the administrative requirements of the Foreign Investment Review Board. With widespread economic panic, you would expect the government would have better things to be doing than streamlining administrative requirements, but as Australian’s would later find out, the legislation was designed to strategically open the flood gates for foreign buyers to purchase property unhindered and put a floor under Australia’s housing bubble. (‘Real Estate Investment by Foreign Residents : Top Secret‘)
Time will tell if the bill makes it into legislation, or if it’s just window dressing. The current government hopes these reforms will commence on the 1st December 2015.
» Government strengthens foreign investment framework – Prime Minister of Australia, 2nd May 2015.
» Australia set to tackle Foreign Investment Surge in Residential Real Estate – Who crashed the economy, 25th February 2015.
» Transparency returns to foreign investment in Real Estate – Who crashed the economy, 21st April 2012.
» Real Estate Investment by Foreign Residents : Top Secret – Who crashed the economy, 4th January 2012.
» Australia for sale – who crashed the economy, 27 March 2010.