The Australian has published a great report today describing in detail how: foreign property buyers side-step the Foreign Investment Review Board (FIRB) rules precluding foreign non-residents from buying pre-existing dwellings; how FIRB has, since 2010, failed to prosecute any foreign buyer for breaching the foreign ownership rules; and how FIRB is completely incapable of monitoring/enforcing whether a foreign temporary resident has sold their home within three months of departing Australia:
Evidence indicates wealthy foreigners are using lawyers and relatives to sidestep the regulations…
Industry professionals have told the House of Representatives economics committee that foreign investors — in the unlikely event that they were prosecuted — viewed the $85,000 fine as the “cost of doing of business”…
…often wealthy investors are happy to let the property sit vacant to avoid triggering FIRB review…
John Hill, the Treasury official in charge of compliance for real estate purchases, told the committee “there is no easy, convenient data that will automatically tell us when an individual has departed Australia and rented”.
Mr Hill said his division was examining up to 40 such cases at any one time and received thousands of calls about infringements, but said “it is very rare that we will exercise prosecution activity”.
The article suggests that foreign purchases of pre-existing homes through family members is substantial, raising doubts over whether the reported 5,091 existing homes sold to foreigners in 2012-13 (valued at $5.42 billion) is anywhere near accurate (see below table).
The revelation that many foreigners are allowing their homes to sit vacant in order to avoid FIRB detection is also highly disturbing, since such actions effectively reduce Australia’s supply of rental accommodation, placing upward pressure on rents. Certainly, I have heard many anecdotes about homes sitting idle in places like Balwyn and Glen Waverley in Melbourne, which are regarded as hot spots for foreign purchasers.
Leaving aside the merits of foreigners purchasing newly constructed dwellings, which at least adds to supply, the threshold questions that the Parliamentary Committee on into foreign real estate investment must answer are:
- whether the $12.7 billion spent (13,571 properties purchased) over the last 4 years on established residential property by foreign nationals is worth the offsetting burden placed on the younger generation of Australians?
- whether the rules in place to prevent foreigners from purchasing pre-existing homes, and to ensure homes purchased by temporary residents are sold upon existing Australia, are being adequately enforced? and
- whether changes should be made to tighten the foreign ownership rules and ensure their enforcement.
Young Australians have a right to expect the government to implement measures to make housing more accessible by increasing supply, as well as clamping down on excess demand, whether from foreigners or local tax-advantaged speculators.