The AFR’s Nick Lenaghan has revealed this morning that foreign companies are being set-up to specifically side-step Foreign Investment Review Board (FIRB) rules precluding non-residents from purchasing pre-existing Australian dwellings.
The schemes works by “establishing a buying entity which complies with Australian law. That entity then buys a property using funds from the offshore investor, who becomes a secured creditor on the property title”.
According to one of the scheme’s creators, lawyer Dominique Grubisa (check here spruik out here), foreign buyers would then be free to source and purchase their own properties and could “buy unlimited properties” in Australia.
However, lawyers and the chair of the parliamentary inquiry into foreign ownership, Kelly O’Dwyer, have ridiculed such schemes, claiming that they would in fact breach FIRB provisions, since the Foreign Investments and Takeovers Act has strict anti-avoidance provisions that precludes non-residents from “acquiring the land or acquiring the vehicle that owns the land or controlling the vehicle that owns the land”.
The Government’s proposed reforms of the FIRB system would also establish a civil penalties regime, which would punish those that seek to aid and abet illegal transactions via fines of up to $42,500 for an individual or $212,500 for a company.
And herein lies one of the best reforms to come out of the parliamentary inquiry. My own ‘off-the-record’ discussions with real estate agents has revealed that a significant number of foreigners, particularly around Melbourne’s inner-east, Glen Waverley and Mount Waverley, have used trust structures, family members, and other means to avoid FIRB.
At least some of these avenues would be closed via: 1) penalising third parties that knowingly help to evade the rules; and 2) better monitoring and surveliance data/processes of foreign transactions.
So long as they are enforced.
