Shining a light on foreign real estate investment

The Foreign Investment Review Board's annual report reveals just how popular our real estate is with foreign investors, but thanks to government flip-flopping we may never know what the real effects were in better times.

Transparency surrounding real estate investment by foreigners has returned with the Foreign Investment Review Board Annual Report 2010-11, released on Friday, showing 9771 real estate investments worth $41.5 billion were approved in 2010-11.

In December 2008, the Rudd government announced a change to legislation that it claimed was designed to ‘streamline’ some of the administrative requirements for the Foreign Investment Review Board (FIRB). As part of these changes, temporary residents could purchase real estate in Australia without having to report or gain approval from the FIRB, allowing the FIRB to concentrate on larger issues in the ‘national interest’.

As you can see from the above chart, extracted from the Foreign Investment Review Board's latest annual report, real estate transactions do make up the majority of the applications considered by the FIRB.

When the Rudd government originally revealed the legislation change many questioned the timing. It was at the height of the GFC, and two months after the announcement of the First Home Owners’ Boost, designed to help prop up Australia’s real estate sector. House prices had fallen 4.7 per cent. Opening up the floodgates to foreign temporary residents could be seen as a further measure to help provide extra demand and keep the housing market afloat.

By March 2010, the media was flooded with articles on Australians being outbid by an army of Chinese residents, effectively pricing Australians out of their own housing market. But the ‘streamlining of administrative requirements’ actually meant no records were kept, or more specifically it would seem that these foreign temporary residents no longer needed to lodge applications with the FIRB. There was public outcry and no real data to support just how big or small this issue actually was.

The outcry had grown so intense, that on April 24, 2010 the government buckled and a tightening of foreign investment rules relating to residential property was announced, complete with a package of new civil penalties, compliance, monitoring and enforcement measures. The government even went to lengths to set up a 1800 hotline for residents to report suspicious property buyers and help calm a heated public.

The press release by the former Assistant Treasurer, Senator Nick Sherry said: "The Rudd Government is acting to make sure that investment in Australian real estate by temporary residents and foreign non-residents, is within the law, meets community expectations and doesn’t place pressure on housing availability for Australians.”

According to the FIRB Annual Report: "As of 24 April 2010, temporary residents residing in Australia are no longer exempted from notification of proposed acquisitions of established residential real estate for their own residence, established residential real estate for the purposes of redevelopment, new residential real estate and vacant residential land. Temporary residents were previously exempt from April 2009 under the changes announced in December 2008. ”

The financial year 2010/11 is the first full year temporary residents must apply to the FIRB and where records have been kept. It may never be known just how many temporary residents purchased Australian real estate in the years 2008/09 and 2009/10.

Craig Peacock runs a blog called "Who cra$hed the economy?". You can read his posts here.


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