05/07/10
TURKALERT: Tightening the Rules for Foreign Investors of Residential Real Estate
By: Elena Condos (Lawyer)
Legal Expertise Area: Business & Property
Summary: On 24 April 2010, the Assistant Treasurer announced that the rules regulating foreign investment of residential property in Australia would be changed. The new change is a reversal of the rules that were relaxed in early 2009.
Who Does This Impact? Foreign persons (1) looking to buy residential property in Australia (‘Foreign Investors’), vendors, real estate agents and developers of residential estates.
What Action Should Be Taken? Parties involved in transactions for the sale and purchase of residential real estate should ensure familiarity with the new rules and should consider appropriate risk management strategies in order to avoid the imposition of sanctions.
2009 Changes to Foreign Investment Rules In early 2009, the Government relaxed the laws for Foreign Investors buying residential property in Australia. The result was that temporary residents could acquire a property as a principal residence without:
- a limit on the purchase price of an existing residential property; or
- having to obtain prior approval from the Foreign Investment Review Board (‘FIRB’); or
- being required to sell the property upon returning to their country of origin.
Prior to the 2009 changes, developers of off the plan projects were required to sell a minimum of 50% of the development to Australian buyers. However, the 2009 changes meant that developers had no such restriction and could therefore sell 100% of their off the plan development to Foreign Investors.
2010 Changes to Foreign Investment Rules The Government announced the April 2010 changes which sought to revert some of the laws implemented in 2009. The major changes included:
- the reintroduction of the requirement for Foreign Investors to obtain FIRB approval prior to purchasing a residential property;
- the requirement that Foreign Investors sell their property upon return to their country of origin or when it ceases to be their principal residence; and
- a requirement to build within 24 months, if vacant land is purchased for the development of a principal residence.
Temporary residents will still be able to purchase an existing residential property as a principal residence without a limit on the purchase price. However, applications for the purchase of established residential property for investment purposes will not be approved.
The following persons are not required to obtain FIRB approval:
- Australian citizens living abroad; or
- The spouse of an Australian citizen (not a permanent resident) if purchasing residential property in both names as joint tenants (not tenants in common); or
- New Zealand citizens purchasing residential property.
The Government has also retained the allowance for developers to sell 100% of an off the plan development to Foreign Investors.
New Penalties Imposed by the 2010 Changes In the past, Foreign Investors of residential property were never tightly monitored or controlled. With the 2010 changes, the Government is also introducing improved compliance monitoring and tough penalties for those who break the rules. These new penalties will not only affect Foreign Investors, but will also penalise vendors and agents who are involved in non compliant transactions. Properties purchased in breach of the rules will attract sanctions, including the forced divestment of the property and financial penalties.
Compliance will be monitored through a national program. The program will use data from the FIRB, State and Territory land/titles offices and the Department of Immigration and Citizenship to match the information collected by each group for consistency.
When the proposed monitoring and penalty system is to be implemented and what effect it will have is yet to be determined.
Endnotes
(1) Section 5 of the Foreign Acquisitions and Takeovers Act 1975 defines a ‘foreign person’ as including a natural person not ordinarily resident in Australia or a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds a controlling interest.
For more information, please contact:
Elena Condos
Lawyer
T: 03 8600 5031
elena.condos@turkslegal.com.au
This TurkAlert is current at its date of publication. While every care has been taken in the preparation of this TurkAlert it does not constitute legal advice and should not be relied upon for this purpose. Specific legal advice should be sought on particular matters. TurksLegal does not accept responsibility for any errors in or omissions from this TurkAlert. This TurkAlert is copyright and no part may be reproduced in any form without the permission of TurksLegal. For any enquiries, please contact the author of this TurkAlert. © TurksLegal 2010
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