The terms-of-reference for the House of Representatives inquiry into foreign investment in real estate has been released, which are presented below:
The overarching principle of Australia’s foreign investment policy, as it applies to residential property, is that the investment should increase Australia’s housing stock. The policy seeks to channel foreign investment in the housing sector into activity that directly increases the supply of new housing (such as new developments of house and land, home units and townhouses) and brings benefits to the local building industry and its suppliers.
Consistent with this principle, foreign investors are able to seek approval to purchase new dwellings and vacant land for residential development. Foreign investors cannot generally buy established dwellings as investment properties or homes; however, temporary residents can apply to purchase one established dwelling to use as their residence while in Australia.
Notwithstanding these settings, concerns are raised periodically in relation to the possible impact of foreign investment on the Australian housing market.
In this context, the Committee is asked to examine;
1) the economic benefits of foreign investment in residential property;
2) whether such foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers;
3) how Australia’s foreign investment framework compares with international experience; and
4) whether the administration of Australia’s foreign investment policy relating to residential property can be enhanced.
The Committee is to report by 10 October 2014.
As noted earlier this week, I support the Government’s instigation of this Inquiry.
Data surrounding foreign investment in Australian real estate is woeful. The data that is publicly available is tardy and opaque. And when a journalist does try and gain more useful statistics on the extent of foreign property buying, they encounter huge roadblocks, with the data treated as if it was some kind of state secret (see here and here).
Enforcement of the foreign ownership rules seems equally inadequate. As the mythical Chodley Wontok found out when testing the efficacy of FIRB’s approval processes using bogus visa and passport information, the purported checks and balances in the system designed to prevent foreigners from purchasing pre-existing homes failed dismally, suggesting the rules are little more than window dressing.
The inquiry into foreign investment, therefore, provides the opportunity to deliver some transparency to the system, as well as identify holes in monitoring and enforcement processes.
That said, the wording of the terms-of-reference appears weak, and is likely to result in overly favourable findings. Benefits from foreign investment have been assumed and nowhere is there any mention in the terms-of-reference of potential costs. There is also no explicit mention of purchases of pre-existing dwellings by foreigners, which are arguably the most damaging aspect of foreign property buying, since they do not add to supply or economic activity, and simply put upward pressure on house prices (at the expense of younger locals).
It is the efficacy of these purchases of pre-existing dwellings that should be the focus of the Inquiry’s investigation, specifically:
- Whether it is appropriate for temporary residents to purchase pre-existing dwellings? What is the rationale behind this policy, given they are not citizens or permanent residents?
- Are the rules requiring temporary residents to sell their property when they leave the country being adequately enforced?
As noted previously, I would like to see foreign purchases restricted to newly constructed dwellings only (no exceptions), and a copy of an Australian passport, birth certificate or proof of permanent residency required for transfer of title for all existing dwellings.
unconventionaleconomist@hotmail.com
