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Foreign buyer inquiry to recommend national database and harsher penalties

Foreign Buyers

New rules forcing foreign buyers to register their Australian property purchases on a single national database at settlement of a sale is likely to be the main recommendation from a parliamentary inquiry set to be released on Thursday.
It is understood that the long-awaited report will also recommend stiffer civil penalties for illegally holding local real estate as well as a modest application fee to cover the costs of processing the paperwork for foreign buyers.

The inquiry was launched in March following claims that foreign buyers are pushing up Australian house prices and almost 100 submissions were made to the committee headed by Liberal MP Kelly O’Dwyer.

Recent Treasury figures show there was a spike in Foreign Investment Review Board approvals in the nine months to March to a record high of $24.8 billion, 44 per cent higher than the $17.2 billion approved for the previous year.

There were concerns throughout the inquiry over the lack of detailed data concerning foreign buyers, which was fuelled by anecdotal reports foreigners were flouting the rules and buying established property.

A submission to the inquiry by UBS noted growing demand by temporary residents for established properties, with the share of FIRB approvals for existing homes rising from about 10 per cent a decade ago to 30 per cent.

O’Dwyer has been damning of the FIRB throughout the inquiry for failing to monitor and enforce the rules for foreign buyers. The industry watchdog has not prosecuted a single case since 2006, however it has stated there are 33 ongoing investigations.

A request by the committee to the Independent Parliamentary Budget Office to model a $1500 application fee showed it would generate $106 million over four years. That revenue would be used to boost the FIRB capability to police foreign purchases.

The Real Estate Institute of Australia said in its submission that the current maximum penalty of $85,000 for non-compliance by temporary residents did not go far enough. O’Dwyer reiterated this concern during the inquiry, saying that for a buyer of a multi-million dollar property that considered by some as “the cost of doing business”.

The source suggested the inquiry is likely to push for a tougher penalty rate that is proportional to the value of the property purchased and confiscating any gains made from illegally holding a property.

The current rules stipulate that foreigners or short-term visa holders may only buy off-the-plan or new dwellings or vacant land for development, but temporary residents, such as students studying in Australia, may buy an established home to live in while they are here.

Foreign companies are also often permitted to buy established property for housing Australian-based staff.

Overseas investment in new and off-the-plan real estate is widely credited with helping to fuel the residential construction industry, increasing housing stock.

The federal government moved to capitalise on offshore interest in November 2012 by launching the Significant Investor Visa scheme whereby temporary residency is granted in return spending $5 million on complying investments, excluding any property.

As of earlier this month 500 visas had been granted, 472 of which have been approved since the Coalition came to power last September.

Under the scheme $2.36 billion has been invested into the Australian economy.

As reported by Lucy Macken Domain News Reporter 27 November

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