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Scaremongering doesn’t fix foreign investment – education does

Date Posted: Mar, 2017

By Rich Harvey, CEO, propertybuyer.com.au

Imagine the government forcing you to sell your property. That's what has happened to 61 foreign buyers since the ATO and Foreign Investment Review Board (FIRB) began divestment of Australian real estate that was purchased illegally by people from overseas.

The image that springs to mind for many people here is a malevolent overseas buyer, spending millions on a property and pricing locals out of the market. However, a look at the list of divested properties shows something a little different. While there was a $39 million Point Piper purchase overturned for breaching FIRB rules, the vast majority of these divested homes are priced between $200,000 and $600,000.

Foreign investment in Australia covers a wide range of new properties.Foreign investment in Australia covers a wide range of new properties.

Foreign investment in the Australian market isn't a bad thing. The Reserve Bank has attributed recent price hikes more to supply restrictions and migration flows than buyers from overseas, while the REIA has unequivocally stated that foreign investment helps to boost housing supply.

What I think we need to help any issues with foreign investment is a bit more help and education for those looking to buy.

Is there a knowledge gap for foreign investors?

While there may be some foreign buyers that have deliberately flouted FIRB regulations, there will be many others that simply don't understand the rules around buying Australian property.

For example: overseas buyers generally have to buy new property, vacant land that they build on within four years, or an existing home they will knock down and rebuild. Only temporary residents are usually able to purchase existing dwellings and live in them.

Foreign investment helps everyone get their buying dreams off the ground.Foreign investment helps everyone get their buying dreams off the ground.

These buyers must also get approval from the FIRB before they sign a contract, buy shares in a corporation with a significant level of property assets, or even increase their share in a property when the initial share purchase gets approval. If a foreign buyer secures any kind of interest in a property without approval, they are in breach of FIRB rules.

Some of the regulations can be difficult to understand for someone unfamiliar with Australian real estate or regulations. This knowledge gap could be responsible for the divestment of someone's property, even if their intentions are pure. That's why every foreign buyer needs to play it safe, and use the services of a professional buyers' agent.

The rules don't have to be restrictive

Armed with a better understanding of Australia's foreign investment rules, overseas buyers can purchase 'between the flags' and enrich our real estate landscape, while also securing a fantastic investment. There are some simple ways that foreign buyers can help themselves in this situation:

  • ATO exemption certificates can allow buyers to bid at multiple auctions over a set time period, rather than get separate approvals each time they bid.
  • Understanding the differences between sole purchaser, tenants in common and joint tenants can help you clarify your application for FIRB approval.
  • Buyers must also provide a fee, which scales upwards based on the value of the property they want.

We can all work together for a healthier housing landscape.

This is just an introduction to the rules around buying Australian property from overseas – and I haven't even touched on how you can find the right property in the first place. There is simply too much to cover in one post, which is why we always, always recommend using a buyers' agent.

They give you an ear on the ground, local expertise in the property market, a window into exclusive listings, and in-depth knowledge of how to make sure a foreign investment abides by all the rules. Scaremongering around divestment and illegal purchases don't help anyone. By providing education to both local and foreign investors about the benefits of overseas purchases, we can all work together for a healthier housing landscape.