Australia has some of the weakest AML laws in the world, which has made Australian housing a honey pot for laundering dirty money.Treasurer Jim Chalmers announced over the weekend that the federal government will double the vacancy fee for homes that are owned by overseas investors, along with tripling the foreign investment fee for purchases of established homes.
The reforms are estimated to raise around $500 million in tax revenue, which will be used to fund cuts to application fees for the ‘build-to-rent’ projects.
The specific changes announced are:
- a tripling of foreign investment fees for the purchase of established homes;
- a doubling of vacancy fees for all foreign‑owned dwellings purchased since 9 May 2017 (which together mean a six‑fold increase in vacancy fees for future purchases of established dwellings);
- enhancing the ATO’s compliance regime to ensure foreign investors comply with the rules, including selling their residence when required.
“These changes further encourage foreign nationals to buy new property instead and help to ensure that those who do get approval follow the rules”, Treasurer Chalmers said.
“The higher fees for established dwellings will encourage foreign buyers to invest in new housing developments. This creates additional housing stock, jobs in the construction industry and supports economic growth”.
“The increased vacancy fees will encourage foreign investors to make their unused properties available to renters”, he said.
Dr Shane Oliver, chief economist at AMP, described the changes as “populist”:
“It’s something that is populist policy”, Oliver said.
“Foreigners are not the cause of the problem. We went through the pandemic and there were no foreigners buying property and prices still took off”.
Oliver went on to explain that the “basic problem” is that housing supply has badly lagged demand through population growth.
“If we can get to 1.2 million homes we’ll be on the way to solving the problem”, he said.
I strongly disagree with Shane Oliver here. While foreign buyers purchasing existing homes are not the major driver of house prices or the rental crisis, they do have an impact at the margin.
Moreover, an extra $500 million of revenue for the federal budget should not be balked at.
If anything, I would like to see the federal government go harder and completely ban the purchase of existing homes by temporary residents, as well as implement the global “tranche 2” anti-money laundering (AML) laws pertaining to real estate gate keepers.
The former Rudd Government made the short-sighted decision in 2009 to allow temporary migrants to purchase established housing.
The subsequent boom in temporary migration – in particular, international students (the largest share of whom come from China) – has therefore boosted demand for Australian homes:
In 2003, Australia agreed to implement comprehensive ‘Tranche 2’ global AML rules covering so-called real estate gatekeepers: accountants, lawyers, and real estate agents.
These rules have been continually postponed by the federal government amid strong pushback from the same industries that would be subject to the regulation.
The Albanese government should break the 20-year cycle of stonewalling and implement the Tranche 2 AML rules once and for all, alongside banning the purchase of established homes by non-permanent residents.
Otherwise, locals will continue to be priced out of housing by foreigners, and Australian housing will remain a global magnet and shelter for dirty laundered money.
