Housing Crisis – band aid fix or problem solved?
Summary
Significant policy changes to foreign investment rules for residential property in Australia will come into effect as of 1 April 2025 and will continue for 2 years until 31 March 2027. The new policy will ban foreign persons (which includes temporary residents and foreign-owned entities) from purchasing established dwellings, including acquisitions of interests in land entities which hold established dwellings (except for certain limited exceptions).
Policy History
Until this policy change, foreign investors have generally faced restrictions but have otherwise been able to purchase existing properties in limited circumstances – for example, if they held valid temporary visas. Foreign investors would be required to apply for approval with the Foreign Investment Review Board (FIRB) before such acquisitions. Notwithstanding these restrictions however, implementation of the policy has been relatively weak.
The Australian Taxation Office (ATO) will enforce the ban from 1 April 2025 by imposing strict penalties for violation and intensify scrutiny of foreign investment proposals. The ATO is set to receive $5.7 million in funding over the next 4 years to enforce compliance requirements to screen foreign investment proposals relating to residential property.
What are the penalties?
Significant penalties (including infringement notices, civil and criminal penalties) are imposed under the Foreign Acquisitions and Takeovers Act 1975 (Act) for breaches of the foreign investment law in relation to residential land. These include as follows:
Failing to notify the Treasurer before acquiring an interest in residential land
1. Maximum criminal penalty (s84 of the Act) – Imprisonment for 10 years, or 15,000 penalty units (or 150,000 penalty units if the person is a corporation), or both.
2. Maximum civil penalty (s94 of the Act) – The greatest of:
a) the amount of the capital gain that was made or would be made on the disposal of the relevant residential land;
b) 25% of the consideration; and
c) 25% of the market value of the relevant residential land.
3. Tier 1 infringement notice (may be applied when the investor self-discloses their breach) – 12 penalty units which is equivalent to $3,960 (or 60 penalty units, equivalent to $19,800, if the person is a corporation)*.
4. Tier 2 infringement notice (may be applied when the value of the land is <$5 million) – 60 penalty units which is equivalent to $19,800 (or 300 penalty units, equivalent to $99,000, if the person is a corporation)*.
5. Tier 3 infringement notice (may be applied when the value of the land is >$5 million) – 300 penalty units which is equivalent to $99,000 (or 1,500 penalty units, equivalent to $495,000, if the person is a corporation)*.
Failing to give register notice to the Registrar of the Register of Foreign Ownership of Australian Assets
6. Maximum civil penalty (s130ZV of the Act) – 250 penalty units which is equivalent to $82,500*.
*As at the date of this article.
Where an officer of a corporation authorises or permits a breach of the foreign investment law
in relation to residential land to occur, or fails to prevent such a breach from occurring, that
officer may be personally subject to a penalty (regardless of whether the corporation is also penalised). The maximum penalty that can apply to that officer is the same penalty as if they had committed the breach themselves.
What are the exceptions to the ban?
Subject to foreign investment approval, limited exceptions to the policy include:
1. foreign persons who seek to purchase an established dwelling for redevelopment, if the redevelopment will significantly increase Australia’s housing stock by at least 20 additional dwellings;
2. foreign persons who seek to purchase an established dwelling where the acquisition supports the availability of housing on a commercial scale. This includes (but is not limited to) proposals to acquire an interest in one or more established dwellings in multi-unit developments (such as retirement villages, assisted living or aged care facilities, and student accommodation) on a commercial scale;
3. foreign controlled companies that employ workers from Pacific island countries and Timor-Leste and are required to provide housing for them, including those participating in the Pacific Australia Labour Mobility scheme, who seek to purchase an established dwelling to house their Australian based workers;
4. foreign persons who seek to purchase existing Build to Rent developments, where the development will continue to be operated as Build to Rent.
What is next?
Foreign investors holding valid temporary visas can still apply to FIRB for approval to purchase established homes before 1 April 2025.
Foreign investors with pre-existing FIRB approvals should ensure their transaction is completed before the ban takes effect since the Treasurer has not clarified how the proposed ban will apply after 1 April 2025 to pre-existing applications.
For more information, please contact Ai Mei Yap (ayap@mphlawyers.com.au) and Michelle Huang (mhuang@mphlawyers.com.au) from our Property team.