What's the point of the foreign investment rules?

Expert Advice by Rich Harvey 26/05/2015

When Prime Minister Tony Abbott announced changes to the foreign investment framework at the beginning of May, there was a lot of shouting about whether the overseas market would crush the hopes of local buyers trying to get their foot in the market. I've covered that elsewhere, noting that foreign investors are often targeting high-end properties that aren't what your regular Australian investors are seeking out.

But now that the dust has settled a bit on the changes to the laws, we can look at what the legislation will actually do. One of the main points in the PM's press release was the introduction of a $5,000 fee for overseas buyers purchasing real estate here at a cost of under $1 million.

While this fee may deter some lower end buyers, the reality is this application fee will, not be a major barrier that some people thought. The growth and extraordinary benefits you get from buying real estate in Australia far outweigh this minimal fee - if I was cynical, I might call it revenue raising. So what do the changes to our foreign investment framework do?

They make the market safer

While the fees for legitimate transactions are minimal, the fines for flouting our laws are much more significant. Individual penalties are now up to $127,500 and three years in prison, while for businesses the fine goes up to $637,500.

This cleans up the market considerably, especially with the change in enforcement. The Foreign Investment Review Board (FIRB) only had eight staff tackling residential real estate as of last year - nowhere near enough resources to chase up every overseas buyer. With this role moving to the Australian Taxation Office (ATO), the enforcement of these penalties will be much more prominent and efficient.

More money and better data-matching systems means anyone breaking our investment rules will be caught. This ensures that foreign investment in Australia doesn't deal you a dud hand.

It fosters competition across the board

While overseas buyers might not be in direct competition with local families for that three-bedroom family home in Leichhardt, Manly or Bondi, they can create competition amongst themselves for high-end properties. Think the eastern suburbs, or lower north shore or Sydney. The new foreign investment rules make these areas even more of a safe haven for buyers from outside Australia.

In turn, this will stimulate manufacturing, construction and jobs. If foreign investment demand increases because it's safer here, then local construction companies can do four jobs instead of three - everyone's a winner. Remember that foreign investors can only purchase brand new property (ie off plan property or buy land and build within 2 years) so this creates a multiplier effect for the economy.  We should welcome well placed foreign investment to increase our housing stock. 

The rules aren't a barrier to foreign investment, they're steps to make our market safer. It fosters buying habits that don't just benefit the overseas buyer, but also have the interests of Australians in mind.

If you are looking to navigate your way through the property market, remember that a buyers’ agent can help you locate the ideal property and save you a great deal of time and hassle dealing with real estate agents.  Whether you’re a local resident or foreign buyer, a buyers’ agent acts with your best interests in mind to search appraise and negotiate the best opportunities that match your requirements. And they have the best local knowledge.

Rich Harvey

Managing Director, propertybuyer

This article was written by Rich Harvey, founder and Managing Director of propertybuyer, Sydney & Australia’s most awarded Buyers Agents. Propertybuyer helps property investors and home buyers search and negotiate the right property at the right price, everytime.  For further details please visit www.propertybuyer.com.au or call +61 2 9975 3311 or 1300 655 615.

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While due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.