The Government’s approach to foreign investment policy is to encourage foreign investment consistent with community interests. In recognition of the contribution that foreign investment has made and continues to make to the development of Australia, the general stance of policy is to welcome foreign investment. Foreign investment provides scope for higher rates of economic activity and employment than could be achieved from domestic levels of savings. Foreign direct investment also provides access to new technology, management skills and overseas markets.
The Government recognises community concerns about foreign ownership of Australian assets. One of the objectives of the Government’s foreign investment policy is to balance these concerns against the strong economic benefits to Australia that arise from foreign investment.
The foreign investment policy provides for Government scrutiny of many proposed foreign purchases of Australian businesses and properties. The Government has the power under the Foreign Acquisitions and Takeovers Act 1975 (the Act) to block proposals that are determined to be contrary to the national interest. The Act also provides legislative backing for ensuring compliance with the policy.
In August and September 1999, the Government announced a number of changes to its foreign investment policy, designed to reduce notification obligations on business and to streamline the administration of foreign investment policy, while continuing to ensure that foreign investment is consistent with the interests of the Australian community. These changes are outlined in the Treasurer’s Press Release of 3 September 1999 which is available from the Treasury website. The changes have been incorporated in this policy statement.
In the majority of industry sectors, smaller proposals are exempt from notification and larger proposals are approved unless judged contrary to the national interest. The screening process undertaken by the Foreign Investment Review Board (FIRB) enables comments to be obtained from relevant parties and other Government agencies in considering whether larger or more sensitive foreign investment proposals are contrary to the national interest.
The Government determines what is `contrary to the national interest’ by having regard to the widely held community concerns of Australians. Reflecting community concerns, specific restrictions on foreign investment are in force in more sensitive sectors such as the media and developed residential real estate. The screening process provides a clear and simple mechanism for reviewing the operations of foreign investors in Australia whenever they seek to establish or acquire new business interests or purchase additional properties. In this way the Government is able to put pressure on foreign investors to operate in Australia as good corporate citizens if they wish to extend their activities in Australia.
By far the largest number of foreign investment proposals involves the purchase of real estate. The Government seeks to ensure that foreign investment in residential real estate increases the supply of residences and is not speculative in nature. The Government’s foreign investment policy, therefore, seeks to channel foreign investment in the housing sector into activity that directly increases the supply of new housing (ie, new developments – house and land, home units, townhouses, etc) and brings benefits to the local building industry and their suppliers.
The effect of the more restrictive policy measures on developed residential real estate is twofold. First, it helps reduce the possibility of excess demand building up in the existing housing market and secondly, it aims to encourage the supply of new dwellings, many of which would become available to Australian residents, either for purchase or rent. The cumulative effect should therefore be to maintain greater stability of house prices and the affordability of housing for the benefit of Australian residents.
Urban land is defined as all land in Australia other than land that is integral to a farming business. An interest in urban land includes, inter alia: options over urban freehold; a lease of urban land or improvements thereon having a term of five years or more; any financing or other arrangement that provides for the sharing of profits from an investment in Australian real estate; and shares in a company or units in a trust having an interest, option or lease over Australian urban land where the value attributable to that land is more than one half of the value of the total assets of the company or trust.
Who should apply?
Foreign interests intending to invest in real estate in Australia are required to seek prior approval for that investment unless specifically exempted by regulation. Exemptions include:
acquisitions by Australian citizens resident abroad, foreign nationals who hold permanent resident visas or hold, or are entitled to hold, a `special category visa’ (eg a New Zealand citizen) who are purchasing residential property either in their own names or through an Australian corporation or trust;
foreign nationals purchasing (as joint tenants) with an Australian citizen spouse. All other proposals by foreign interests to purchase residential real estate (including temporary residents) must apply in advance to the Government through the Foreign Investment Review Board for approval. The types of real estate proposals that should be notified to the Government include:
acquisitions of interests in urban land that involve the:
acquisition of developed non-residential commercial real estate, where the property is subject to heritage listing, valued at $5 million or more;
acquisition of developed non-residential commercial real estate, where the property is not subject to heritage listing, valued at $50 million or more;
acquisition of accommodation facilities irrespective of value;
acquisition of vacant urban real estate irrespective of value;
acquisition of residential real estate irrespective of value; or
proposals where any doubt exists as to whether they are notifiable. (Funding arrangements that include debt instruments having quasi-equity characteristics will be treated as direct foreign investment.)
A foreign interest is defined as:
a natural person not ordinarily resident in Australia;
a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds a controlling interest;
a corporation in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate controlling interest;
the trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest; or
the trustee of a trust estate in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest. A substantial foreign interest (ie, a controlling interest) occurs when a single foreigner (and any associates) has 15 per cent or more of the ownership or several foreigners (and any associates) have 40 per cent or more in aggregate of the ownership of any corporation, business or trust.
Under policy, the treatment of urban land is divided into Residential and Commercial real estate.
Below is an outline of the Government’s foreign investment policy for proposals by foreign persons to acquire interests in Australian urban land. The majority of proposals will fall within these guidelines. However, some may not. The latter proposals will be examined on a case-by-case basis.
All contracts by foreign persons to acquire interests in Australian real estate must be made conditional upon Foreign Investment approval. Residential Real Estate
Residential real estate means all Australian urban land other than commercial properties (ie offices, factories, warehouses, hotels, restaurants, shops, recreation facilities etc). Acquisitions of `hobby farms’ and `rural residential’ blocks by foreign interests are included within the residential real estate category. Developed Residential Real Estate
Developed residential real estate means existing houses, flats or units. Acquisitions of developed residential real estate by foreign interests are not normally approved except for the following two categories:
Foreign companies, with an established substantial business in Australia, buying for named senior executives continuously resident in Australia for periods longer than 12 months, provided the dwelling is sold when no longer required for this purpose. Whether a company is eligible, and the number of properties it may acquire under this category, will depend upon the scope of the foreign company’s operations and assets in Australia. Unless there are special circumstances, foreign companies normally will not be permitted to buy more than two dwellings under this category.
Foreign companies would not be eligible under this category where the property would represent a significant proportion of its Australian assets.
Foreign nationals temporarily resident in Australia, holding a current temporary resident visa which permits continuous residence in Australia for a minimum further period of more than 12 months from the time of application, purchasing a dwelling for use as their principal place of residence (and not for rental purposes), subject to the immediate sale of that property if their visa expires, or if they no longer occupy the property or when hey cease to reside in Australia. This latter category includes long-stay retirees, and students 18 years of age and over studying courses of more than twelve months duration at recognised tertiary institutions. A general limit of $300,000 applies to the value of properties acquired by students temporarily resident in Australia.
Persons who only hold visitor or bridging visas are not eligible for approval under this category. Residential Real Estate for Development
Acquisitions of residential real estate (including vacant building allotments and house and land packages where construction has not commenced) for development by foreign interests are normally approved subject to a specific condition requiring continuous construction to commence within 12 months; once construction is completed, parties are required to provide the completion date and actual development expenditure.
* To be eligible for approval under this category it is expected that a minimum of fifty per cent of the acquisition cost or current market value (whichever is higher) be spent on development.
Once the development condition has been fulfilled, properties acquired under this category may be rented out, sold to Australian interests or other eligible purchasers, or retained for the foreign investor’s own use.