The chair of the parliamentary inquiry into foreign real estate investment, Liberal MP Kelly O’Dwyer, has been very vocal on the inadequacy of the Australia’s foreign investment regime, last month slamming the Foreign Investment Review Board’s (FIRB) lack of surveillance and enforcement, which has failed to prosecute a single non-resident buyer since 2006:
What we’ve found out though, through the evidence that our committee has received, is that these rules have simply not been enforced through prosecution since 2006 by the Foreign Investment Review Board. I think there has been a failure of leadership of the Foreign Investment Review Board on this. I think they have dropped the ball. I think that if we have rules in place, those rules need to be properly enforced.
…we’ve heard some anecdotal evidence that suggests that there are people who are deliberately contravening the rules. The problem is of course is that those people who are deliberately contravening the rules are simply not going to the Foreign Investment Review Board for approval. So it is quite a difficult and tricky area. The other problem… is that there aren’t particularly strong disincentives under our penalty regime if somebody was to make either one purchase or multiple purchases. Under the existing rules, if FIRB did in fact prosecute somebody who had purchased one or more properties and they were not able to purchase those properties ’cause they were a non-resident foreign investor, it would take some time to go through the court process. And then, if that property had gone up in value, that individual would be able to keep the windfall gain that they had made through the increase in value of that property. Now that’s simply ridiculous and clearly needs to change…
I think our compliance and auditing regime is not as strong as it needs to be…
Today, Fairfax is reporting that the parliamentary inquiry into foreign real estate investment will introduce tough new penalties for breaches of the rules precluding non-residents from purchasing pre-existing dwellings, as well as failure by temporary residents to sell their Australian home within three months of departing Australia, when it releases its report late next month:
Ms O’Dwyer told Fairfax Media the inquiry was considering beefing up penalties for foreigners who flout real estate laws, to make them proportional to the value of the property purchased.
“The largest penalty fee that can be imposed is about $85,000. We have been told by many witnesses that that is simply seen as the cost of doing business,” she said.
The inquiry was also likely to recommend that foreigners who are forced to divest a property lose the capital they have accumulated in the dwelling between buying it and selling.
The current system, which allows them to keep profits, was “clearly creating the wrong sort of incentive. It’s creating an incentive for bad behaviour,” she said.
Obviously these are positive steps, which should help to dissuade illegal foreign purchases of pre-existing homes.
Previously Ms O’Dwyer has also flagged extending the penalty regime beyond the purchaser to those that aid and abet illegal purchases, such as real estate agents and lawyers, which hopefully is still on the cards.
With any luck, the parliamentary review will also require that buyers of pre-existing housing in Australia provide proof of citizenship/residency, with added checks and balances such as requiring real estate agents to highlight the rules at the point-of-sale and requiring conveyancers to check-off and report breaches at settlement.
That said, any reforms to the foreign investment regime must also be backed-up with increased funding for FIRB. Currently, staffing and resources are inadequate and the rules will continue to be flouted as long as surveillance is lax and there is minimal chance of getting caught.
