Changes in foreign investment – reducing administrative costs and restricting foreign ownership
The Government has announced a number of changes to be administrated by the Foreign Investment Review Board.
These changes include a reduction in red tape to simplify Australia’s foreign investment framework and new restrictions for issuing New Dwelling Exemption Certificates.
Restricting foreign ownership in new property developments
Property developers can apply for an exemption certificate to sell new dwellings in a development to foreign persons (New Dwelling Exemption Certificate). These act as a pre-approval, allowing the developer to sell new dwellings to foreign persons without each foreign purchaser seeking their own foreign investment approval.
From 7.30pm on 9 May 2017, approval of New Dwelling Exemption Certificates will be subject to a condition that the developer may only sell a maximum of 50% of the total dwellings in the development to foreign persons.
Reducing red tape
From 1 July 2017, the Government will introduce a number of changes in an attempt to clarify and simplify Australia’s foreign investment framework. These changes were developed following public consultation on options to improve the foreign investment framework.
The announced reforms will include:
- Narrowing the meaning of sensitive land so that ‘low sensitivity’ developed commercial property subject to the lower $55 million threshold will not be captured within the meaning of sensitive land
- Improving treatment of residential applications by allowing developers to re-sell off-the-plan dwellings that failed to settle to foreign persons
- Consolidating multi-application approvals for low risk transactions into a single application, for example, introducing a single exemption certificate for foreign individuals considering a number of residential properties with the intention to only purchase one
- Standardising the fee framework for acquiring interests in agricultural land, commercial land, and business securities
- Legislating fee relief arrangements, including introducing additional low value fee rules
- Introducing a new exemption certificate that applies to low risk foreign investors
- Clarifying the treatment of developed solar and wind farms
- Restoring previous arrangements where companies with significant foreign custodian holdings (that is, legal rather than equitable interest holders) are not subject to notification requirements.
These changes represent a suite of reforms introduced to target foreign investors.
At first glance the reduction in red tape would indicate the Government’s encouragement of foreign investment into Australia.
However, the restriction for the issue New Residential Exemption Certificates when viewed in conjunction with the Government’s introduction of an annual charge on foreign owners of underutilised residential property, demonstrate the Government’s protectionist approach to residential housing in Australia.
These changes should be read in conjunction with the recent reforms at a State level in relation to the foreign acquirer duty surcharge and land tax surcharge in respect of residential land indicate a wider government ‘crackdown’ on foreign investors.
Although the reduction in compliance costs may be seen as a positive outcome, the overall impact of the reforms is that Australia may be viewed as a less attractive investment option.