Australian politicians reporting on Foreign Buyers in the Home Market have recommended foreign buyers should have to pay a AUS$1,500 fee when purchasing property.
Real estate industry chiefs in Australia are concerned over parliamentary recommendations that foreign buyers should have to pay a AUS$1,500 application fee when purchasing property.
The findings of the Parliamentary Inquiry on Foreign Buyers in the Home Market, which has just been published, says the limits on purchases by investors from abroad have failed to be adequately enforced and fresh action should be taken.
The House Economics Committee that drew up the report made 12 recommendations for change, including improvements in government procedures to help uncover illegal home buying, penalties for breaches, punishments for third parties involved in rule-breaking, and law changes to ensure the immigration department informs the foreign-investment watchdog when a person leaves the country after their temporary visa expires.
The report came after growing concerns over the impact of foreign buyers, particularly Chinese investors, and claims that they have fuelled soaring housing prices.
Juwai.com co-CEO Simon Henry tells OPP Connect, “I was glad that the findings concluded that foreign investors are a real benefit for Australia. But I am worried about the proposal to tax or require a fee of $1500 from overseas homebuyers every time they make an application to purchase a property – even if through no fault of their own they fail to buy it (for example, if another bidder wins it).
“The proposed AUS$1500 fee could curtail foreign investment in Australia. The devil will be in the details.
“If a fee is necessary, it must be applied only when a purchase is made, not every time someone just seeks permission to buy.
“Anyone who has bought a property knows that you can bid on multiple properties before winning one. The Report wants investors to pay AUS$1500 – even if through no fault of their own they don’t get to buy the property in question.”
However, Mr Henry was pleased that the report found that foreign investors were not the cause of high prices and actually had a positive effect on the market.
“The inquiry found what we knew to be true, that offshore investment is actually very good for the Australia in three ways – overseas investment boosts construction, which employs over 1 million Australians; without offshore investment, we wouldn’t have as many properties available for domestic buyers and offshore buyers do not compete with first home buyers
“The report itself revealed overwhelming evidence that foreign homebuyers are not the reason home prices are high across the board. More likely, prices are high due to low interest rates, supply constraints and negative gearing.”
The report found that Australia was uniquely restrictive among Western and English-speaking countries, despite the fact that it depends more on foreign investment to fund new construction.
Despite the recommendation of charges, Mr Henry hopes that they are not actually introduced.
“Treasurer Joe Hockey now has to decide if he wants to ask cabinet to tighten regulation of offshore investment in real estate. Nothing will change unless the government enacts the changes with new rules or legislation. With the market slowing down, this is an awkward time to meddle with something that has been so positive.”
The report says that buying into the Australian Dream doesn’t come cheap. According to a recent International Monetary Fund report, the current ratio of housing prices in Australia to average incomes is 31.6% above the historical average.
Over the years, many in Australia have asked what role foreign investment plays in residential real estate.
“Under our current foreign investment framework, as it applies to residential real estate, foreign investment is channelled into new housing so that more homes, units and apartments are built – meaning more opportunity for people to purchase. It also contributes directly to economic activity – generating employment for builders and suppliers.”
When it comes to existing homes, non-resident foreign investors are prohibited from purchasing an existing home, and temporary residents (on visas of more than 12 months) can purchase just one existing home to live in while they are resident in Australia, but must sell it when their visa expires.
All purchases, whether new or existing homes, are required to be pre-screened by the Foreign Investment Review Board (FIRB), supported by the Foreign Investment and Trade Policy Division of Treasury (FITPD).
According to FIRB statistics, in the first 9 months of this financial year, FIRB-approved foreign investment into residential property of around AUS$24.8 billion, 44% higher than the aus$17.2billion approved during all of 2012-13. Much of this investment is concentrated in the Melbourne and Sydney markets.
Most of the increase is attributable to proposed investment in new property, which at AUS$19.3billion for the first nine months of 2013-14 is 79% higher than 2012-13. The total number of established property approvals for the first 9 months of 2013-14 is 5,755 compared to 5,101 for 2012-13.
Over six public hearings, and after considering more than 92 submissions, the committee has four key findings that translate into the 12 practical recommendations.
It says there is no accurate or timely data that tracks foreign investment in residential real estate. No-one really knows how much foreign investment there is in residential real estate, nor where that investment comes from.”
A national register of land title transfers that records the citizenship and residency status of all purchases of Australian real estate would fix this and would allow facts to be injected into discussions about foreign investment, rather than ‘best guestimates’. A national register would also help with compliance and enforcement with the foreign investment framework – allowing data to be compared easily.
Other relevant government information should also be captured and made available to FIRB, which had suffered “a significant failure of leadership”, it says.
The current A$85,000 ($72,769) fine for those foreigners who seek to profit by breaking the rules is “seen by many as simply the cost of doing business,” should be replaced with penalties tied to the property’s value.
Third parties who help foreigners break the rules should be fined, and gains from illegally purchased homes should be forfeited to the government, it says.
The suggested AUS$1,500 application fee for foreign buyers would generate around AUS$158.7million over four years, the Parliamentary Budget Office suggests, which would offset the cost of administration for FIRB and FITPD, yet would amount to 0.27% of the cost of an average home in Melbourne and 0.2% in Sydney.
“These practical measures will send a strong message about Australia’s commitment to its foreign investment framework in practice, as well as in words,” the report says. “The committee strongly recommends that the Government pursue the package of measures canvassed in this report.”
By Adrian Bishop, Editor, OPP Connect