Sydney Harbour Photo: Wikimedia Commons
Australia is cracking down on foreign investment in its real estate, with penalties for those who have illegally purchased homes.
Australian property has become increasingly popular among overseas investors in the past year. A new report from the Foreign Investment Review Board last week revealed that the value of foreign investment in new Australia property tripled last financial year compared to the previous 12 months.
China has overtaken the US to become the biggest spender, investing $12.4 billion on real estate in 2013-2014, up from $5.9 billion in 2012-13 and more than double that of the USA and Singapore.
China’s rising demand has been fuelled by its own economic slowdown, as investors turn to other markets for more stable conditions and better returns. Australia’s schools also hold appeal for Chinese buyers, much like the UK’s universities, which attract a large number of students (and property investors) from the country.
While foreign investment has been welcomed by the government, though, prices have also soared in recent years, leaving many first time buyers unable to afford a home. Critics have blamed overseas buyers for this trend, accusing them of snapping up the housing supply and driving up values.
There are restrictions already in place to combat this. All foreign deals are subject to approval by the FIRB, while non-resident buyers are only permitted to buy new build properties. Temporary residents can buy existing homes, but can only own them while they reside in the country.
Despite this, the foreign spend on existing homes climbed to $7.17 billion, fuelling concerns that illegal purchases have increased.
In response, the government has now announced a wave of measures to crack down upon illegal investment. Foreign buyers who purchase property illegally will face a fine of $127,500 (companies face a higher charge of $637,600) as well as up to three years in jail. Estate agents or developers who knowingly aid the illegal purchases will also be subject to penalties.
Illegal foreign homeeowners may also be forced to sell their homes. If so, they will not be allowed to profit from the transaction.
“If all foreigners are doing is adding to the housing stock, that tends to reduce prices but once foreigners come into existing housing stock, that tends to increase prices,” said Prime Minister Tony Abbott .
Applications to invest will also be subject to a $5,000 fee for homes worth up to $1 million.
Illegal investors have been given until 30th November to declare any properties purchased. If they come forward before the deadline, they will not be prosecuted or fined, although they will still have to sell their property.
The reaction to the announcement, as with all aspects of the controversial subject, has been mixed. While some have welcomed the measures, others have expressed fears that it could deter buyers from overseas.
“Given the great progress made by the government in concluding key free trade agreements, it is disappointing they have made a decision which would undermine those deals and potentially discourage much-needed foreign investment in Australia,” said Jennifer Westacott, Chief Executive of the Business Council of Australia .