Seven Mile Beach, Broken Head
“Bold and Excellent”
Foreign Buyer Beware
Catchwords: foreign buyers, residential property, FIRB, Foreign Investment Review Board, new dwellings, vacant land and redevelopment of existing properties, “temporary resident”, forced sale of property, forfeiture of capital gains, black mark
Beware! There are pitfalls for foreign buyers buying into the residential property market in Australia. Foreign buyers of all residential real estate in Australia are generally required to apply for approval from the FIRB (Foreign Investment Review Board) before buying.
During 2015-16, there were a massive 41,417 applications to the FIRB which were approved, of total value $A247.9 billion. Of these, 40,149 were for new residential developments worth $A72.4 billion. China was the largest source overall with $A47.3 billion, for the 3rd year in a row, ahead of the USA and the UK.
The Government policy is that it wants investment that increases housing stock, not takes it away. So, 85.4 % of all residential approvals in 2015-16 were approvals for development of new dwellings, vacant land and redevelopment of existing properties.
Besides a few loopholes, existing homes can only be bought by a “temporary resident” for use as their home whilst residing in Australia. But they need FIRB approval first.
A temporary resident is the holder of a visa, including a student visa, that permits them to stay in Australia continuously for a period of more than 12 months; or has applied for PR (a “permanent resident”) visa and is living in Australia on a bridging visa awaiting a decision.
A temporary resident will normally be granted approval to purchase an established residential dwelling subject to the following conditions:
- The property is to be used as their principal place of residence whilst residing in Australia;
- No part of the property may be rented;
- The property must be sold within three (3) months from when it ceases to be their principal place of residence or the visa ends.
An Australian PR does not need FIRB approval to buy residential real estate in Australia.
The ATO monitors compliance with FIRB rules, so you can’t fly under the radar easily.
Buying a property without FIRB approval may result in serious consequences. These can include prosecution for a criminal conviction or for a civil penalty; forced sale of property; forfeiture of any capital gains; and a breach may be a black mark against a visa applicant on character grounds, and may result in a refusal of a visa application.
There are also criminal and civil penalties for 3rd parties who knowingly assist a foreign investor to breach the rules.
In 2015-16, there were 260 investors who were found to have breached FIRB rules. In fact, 39 of these breaches resulted in the forced sale of the property. Convictions for offences included failing to sell a home once a temporary residence visa had expired; failing to seek approval before buying an existing new home; and failure to comply with conditions of an approval such as the use of the property as a principal place of residence.
The message is clear. Best beware, do the right thing! Obtain FIRB approval first if you are a foreign buyer.
Jonathan de Vere Tyndall and Emma Moses 22/11/17
This article contains comment only and not legal advice, for which you should retain a solicitor. No responsibility is accepted for the accuracy of the contents.