The Parliamentary Committee examining foreign investment has released its report, and if I had to sum it up in one word it would be “transparency”.
Here is a summary of the recommendations:
- Retaining the current framework applying to foreign purchases of Australian housing to encourage foreign investment in new dwellings and increase housing supply.
- Improving the internal processes at Treasury and the Foreign Investment Review Board (FIRB) and removing barriers to enable adequate audit, compliance, and enforcement of the foreign investment framework.
- Applying a modest administrative fee to the current screening of foreign purchases of residential real estate to better resource FIRB. Fees collected should be hypothecated to the Treasury’s Foreign Investment and Trade Policy Division for the purpose of funding audit, compliance and enforcement activities.
- Introduction of a civil penalty regime for breaches of the foreign investment framework. Pecuniary penalty orders imposed under this penalty regime should be calculated as a percentage of the property value to act as an effective deterrent.
- Requiring that penalties now apply to all third parties who knowingly assist a foreign investor to breach the framework.
- Requiring that any capital gains from the sale of an illegally held property be forfeited to the Government. Funds collected by this measure should be hypothecated to the Treasury’s Foreign Investment and Trade Policy Division for the purpose of funding audit, compliance and enforcement activities.
- Amending Australia’s Foreign Investment Policy to explicitly require a temporary resident to divest an established property within three months if it ceases to be their primary residence.
- In conjunction with the States and Territories, establishing a national register of land title transfers that records the citizenship and residency status of all purchasers of Australian real estate. This information should be accessible by relevant agencies from a single database.
- Establishing an alert system for the expiry of temporary visas that can be used by the Treasury to issue property divestment orders in cases of non-compliance. This includes amending the Migration Act so that the Department of Immigration must inform FIRB when a temporary resident departs Australia upon expiry of their visa. It will also require establishing effective and timely internal processes at the Treasury to receive and cross-check this information against its property databases to screen for compliance with the foreign investment framework.
- Amending the Foreign Acquisitions and Takeovers Act 1975 to provide that residential property sold under off-the-plan certificates that is marketed for sale overseas, must be marketed in Australia for the same period of time. Breaches of this requirement should be subject to sanctions under the Act ranging from fines to the cancellation of a sale.
- In light of the expected finalisation of the statutory review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 in early 2015, the Committee recommends that the Government consider the purchase of residential property by foreign investors as a possible area of investigation when considering amendments to the legislation.
- The Committee recommends that Treasury’s Foreign Investment and Trade Policy Division make greater use of the databases held by AUSTRAC, and also of other relevant Federal and State Government databases, to assist the Foreign Investment Review Board in its duties and responsibilities.
As you can see, the recommendations would address virtually all flaws in Australia’s foreign investment monitoring/surveillance regime. In fact, if I had to devise a Christmas wishlist, this would be it, with the only addition being banning all sales of pre-existing dwellings to temporary residents.
In delivering the Committee’s report, Liberal chair, Kelly O’Dwyer noted:
“The Committee has undertaken a thorough review of the foreign investment framework as it applies to residential real estate. We have found that the framework itself is appropriate and strikes the right balance in terms of encouraging beneficial foreign investment in the housing market, however its application is severely lacking.”
“I regard the current internal processes at the Treasury and FIRB as a systems failure. Most concerning is that sanctions seem to be virtually non-existent. There have been no prosecutions since 2006 and no divestment orders since 2007. Suggestions by officials, that this is due to complete compliance with the rules is simply not credible. The data on foreign purchases of Australian houses and apartments is inadequate, making policy evaluations very difficult”…
“Australians must have confidence that the rules, including those that apply to existing homes, are being enforced. Our inquiry revealed, that as it stands today, they could not have that confidence.”
“This report makes 12 common sense recommendations to Government to enable proper enforcement of the existing framework for foreign investment in Australian housing; provide extra resources to do so; and accurately measure the impact of foreign investment by collecting accurate and timely data. These practical measures are critical in order to ensure that foreign investment in Australian housing continues to serve our national interest for future decades.”
Well done Ms O’Dwyer. You and the Committee have nailed the recommendations. And it is now up to the Government to implement them in full and put an end to foreigners buying-up our pre-existing housing stock, inflating housing costs, and shafting first time buyers.
For too long, Australian property has been used as a safe haven for dodgy Chinese money. And the transparency and enforcement that these reforms bring will go a long way to prevent foreign money from being laundered through Australian houses.