June 13, 2018
Property | ACT
You finally get that sale over the line, and then you realise you are dealing with a foreign buyer. So how do you make your deal stick? To make sure that you can help your buyer through this process, you really need to understand the basics.
What is the Australian Government policy?
Foreign persons generally need to apply for foreign investment approval before purchasing residential real estate in Australia. The approval process was created with a purpose to monitor and control the level of foreign investment made in Australia and to ensure the correct balance between encouraging investment and Australia’s national interest. The Commonwealth Government’s policy is to channel foreign investment into new dwellings to create jobs and economic growth.
What is the lingo?
Approval is often referred to as ‘FATA’ Approval or FIRB approval:
- “FATA’ the legislation which governs the approvals which is the Foreign Acquisitions and Takeovers Act 1975 (FATA) recently amended in 2015.
- “FIRB” stands for “Foreign Investment Review Board” which is a body established in 1976 to advise the Treasurer and the Government on Australia’s Foreign Investment Policy and its administration.
Who needs approval?
Anyone who is not:
- an Australian citizen;
- a New Zealand citizen;
- the holder of an Australian permanent resident visa;
- an individual purchasing property as joint tenants (but not tenants in common) with their Australian citizen spouse, New Zealand citizen spouse, or Australian permanent resident spouse;
- an Australian corporation that would not be a foreign person if interests directly held in it by Australian citizens living abroad, Australian permanent visa holders or New Zealand citizens were disregarded;
- the trustee of a resident trust, if at the time of the acquisition, the trustee would not be a foreign person if interests directly held in it by Australian citizens living abroad, Australian permanent visa holders or New Zealand citizens were disregarded; or
- a charity operating in Australia primarily for the benefit of persons ordinarily resident in Australia.
Can foreign buyers buy any residential property?
No, they generally cannot. Applications to purchase new dwellings are usually approved without conditions but not established dwellings. A new dwelling is a dwelling that will be, is being, or has been built on residential land, has not been previously sold as a dwelling and has either not been previously occupied; or if the dwelling is part of a development, was sold by the developer of that development and has not previously been occupied for more than 12 months in total. A dwelling purchases as a knock down re-build would generally not be considered a new dwelling but if it is purchases to establish more dwellings then it may be approved with conditions.
Do some developers hold exemptions?
Developers can apply for dwelling exemption certificates so that foreign persons do not need to apply for FIRB approval. You should ask the Seller if they hold this certificate.
How do you apply?
All foreign investment applications should be submitted through the online system – see www.firb.com.au . Foreign investment applications costs can vary depending on the type of property is being purchased and take generally take about 6 weeks to approve.
What happens if foreign buyers don’t comply?
It is important that foreign buyer complies with the FATA as strict criminal and civil penalties may apply for breaches of the law, including disposal orders. This is where the federal government forces the foreign purchaser to dispose of the property and pay a fine.
What happens if the purchaser lives in Australia and overseas?
Foreign persons who purchase residential real estate will be subject to an annual vacancy charge where the property is not rented out or occupied for more than six months per year.
Do foreign buyers drive up prices?
This is a complex topic. There have been suggestions with the increasing foreign investment in Australian real estate that it has been a significant contributor to driving property prices up. The FIRB annual report illustrated an exponential rise each financial year of foreign investment in Australia. Whilst China has now been dominating the Australian real estate market, this had not always been the case. There has been significant interest from other countries such as United States, United Kingdom, Europe, and Japan in Australia’s market.
If I have a foreign buyer, how can I get my sale over the line in the ACT?
Contracts for sale issued by law firms should make them conditional on FIRB approval. A clause should be inserted into the contract to allow purchasers to have the option to rescind the contract if the Foreign Investment Review Board does not approve the application. The FIRB Annual Reports for the past several years indicate that it is likely that applications made to the board will be approved if all conditions regarding the property are met. The FIRB Annual report for the past several years illustrates the exponential growth in foreign investors.
Alternatively, a Put and Call Option Deed could be considered.
The author would like to thank Faraz Jafri, Paralegal for their contribution to the article.