FEDERAL TREASURER The Hon Joe Hockey MP asked the Parliamentary Committee in March last year to inquire into and report on the level of foreign investment as it applies to residential real estate.
ACCORDING TO FOREIGN Investment Review Board (FIRB) statistics, in the first nine months of FY 13/14 the FIRB approved foreign investment into residential property in Australia of around $24.8Bn. This is 44 per cent higher than the $172Bn approved during all of FY 12/13.
WHY WAS THERE AN INQUIRY?
Basically, to ensure that the Government is actually meeting the intentions of the current foreign investment policy. The aims of the policy are to boost the supply of new housing, provide the intended economic and social benefits (more opportunity to purchase homes) and generate employment for buildings and suppliers. There were concerns raised in the wider community from time to time that foreign investment in Australian real estate was causing a distortion in the market and making housing less accessible and affordable.
WHAT WERE THE MAIN FINDINGS?
The committee found that the current foreign investment framework should be retained, but that there were a few areas which could be improved. These included practical implementation tools centred around four key findings for change:
- Timely tracking of foreign investment and where it comes from
- Stronger leadership rules within the FIRB
- Stronger enforcement of these rules
- FIRB should be in future be funded by foreign investors and not the Australian taxpayer, with a purchase application fee of $1,500.
What is your reaction to the Parliamentary Inquiry’s findings?
I was glad that the findings concluded that foreign investors are a real benefit for Australia. But I am worried about the proposal to tax or require a fee of $1,500 from overseas homebuyers every time they make an application to purchase a property – even if, through no fault of their own, they fail to buy it (for example, if another bidder wins it at auction).
Will the proposals cut international investment?
The proposed $1,500 fee could curtail foreign investment in Australia. The devil will be in the details.
If a fee is necessary, it must be applied only when a purchase is made, not every time someone just seeks permission to buy.
Anyone who has bought a property knows that you can bid on multiple properties before winning one. The report wants investors to pay $1,500, even if through no fault of their own they don’t get to buy the property in question.
Are foreign buyers good or bad for Australia?
The Inquiry found what we knew to be true, that offshore investment is actually very good for Australia in three ways:
- Overseas investment boosts the construction sector, which employs over 1 million Australians.
- Without offshore investment we wouldn’t have as many properties available for domestic buyers.
- Offshore buyers do not compete with first-home buyers.
Are foreign buyers the reason home prices are high?
The report itself revealed overwhelming evidence that foreign homebuyers are not the reason home prices are high across the board.
More likely, prices are high due to low interest rates, supply constraints and negative gearing.
How does Australia rank internationally?
We are uniquely restrictive among our Western and English-speaking peers, despite the fact that we depend more than any of them on foreign investment to fund new construction.
These countries have no regulations like ours: the United States, Canada, NZ, UK and almost all European countries.
These countries do have restrictions on international buyers: Switzerland, Singapore and Hong Kong.
How will the Australian Government enforce compliance with the new laws/regulations mentioned in the report?
Treasurer Joe Hockey now has to decide whether he wants to ask Cabinet to tighten regulation of offshore investment in real estate. Nothing will change unless the Government enacts the changes with new legislation.
With the market slowing down, this is an awkward time to meddle with something that has been so positive.