Foreign property investment back in the spotlight

Foreign investment has been a hot topic in the property market of late, as concerns are raised by some groups that it’s preventing buyers getting onto the ladder. However, as a new raft of measures are brought into force, could these problems finally be kept at bay?

Introducing the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015

Federal Treasurer Joe Hockey presented the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 before parliament on August 20. It outlines a number of different strategies that are set to be introduced to keep the negative effects of foreign investment at bay.

He argued that it’s the first time since 1975 that such extensive changes have been put forward. One of the biggest measures is that criminal penalties will be increased from $90,000 to $135,000 for anyone who infringes property investment legislation.

Legislation will affect property investors.

For lesser crimes, civil pecuniary penalties and infringement notices will be issued.

“Third parties such as real estate agents, migration agents, conveyancers and lawyers who knowingly assist a foreign investor to breach the rules will also now be subject to both civil and criminal penalties,” acknowledged Mr Hockey.

The Australian Tax Office (ATO) will play a greater role, as it has been given $47.5 million by the federal government to be spent over the next four years on improving compliance and rule enforcement. The ATO will be able to use its advanced technology to analyse over 600 million transactions, allowing unscrupulous activity to be better detected.

Why the changes are necessary

The Australian property market has evolved considerably over the past few decades, and the same can be said for the country’s demographics. As a result, regulations needed to be introduced that were more in line with where the country is now, rather than where it stood several years ago.

Victoria, like many other states, has become a key destination for overseas migrants. Data from the Department of Immigration and Border Protection shows that during the 2014-15 financial year, there were 15,004 applications for permanent visas. Many of these people will no doubt be keen to buy into Carlton real estate and other parts of Melbourne, therefore putting further pressure on the market.

India, China and the UK provided the highest number of migrants over this period. As they go in search of the best places to live in Melbourne, there are concerns that the current supply levels may not be able to keep pace with demand.

The problem has become so prominent that towards the end of last year, the Australian Prudential Regulation Authority (APRA) announced that it would be clamping down on investment lending. High-risk mortgages were a particular area of concern, as was the strong growth in loans granted to investors.

APRA noted that it would be increasing its supervision of the market, which in turn should enhance lending to owner occupiers and ensure Ascot Vale real estate remains accessible to everyone.

It’s the first time since 1975 that such extensive changes have been put forward.

The outlook for the property market

The APRA guidelines alongside the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015 have the potential to transform the national property market. However, how likely is it that this will happen?

Responding to Mr Hockey’s announcement, the Property Council of Australia suggested that the focus should be on affordability, not discouraging investment activity.

“Stamping out illegal foreign investment activity isn’t the main game when it comes to issues around housing affordability,” noted Chief Executive Ken Morrison.

“Governments must adopt genuine tax reform and improve planning frameworks if we are to ease house price pressures – they are the only meaningful solutions.”

With the bill not due to come into effect until December 1, it will be a while yet before the true effects start to be felt. Until then, be sure to speak to the team at Nelson Alexander Real Estate, regardless of whether you’re buying as an owner occupier or investor.