AUTHORITIES have failed to prosecute any foreign buyer for breaching rules aimed at preventing investment in established homes in Australia, despite a surge of purchases by foreigners including wealthy Chinese.
Amid a growing debate about housing affordability, it has emerged there has not been a single prosecution since guidelines were changed in 2010 to contain foreign investors to off-the-plan developments.
The rules were introduced to prevent foreign investment driving up the price of Australian property.
Evidence indicates wealthy foreigners are using lawyers and relatives to sidestep the regulations. The revelations come as China-based financial experts point to a looming wave of Chinese investment in Australian property that may contribute to price rises already seen as entering bubble territory, as Beijing loosens controls on the amount citizens can hold in foreign currency.
A Chinese buyer last weekend clinched the $5 million purchase of one of Adelaide’s top stately homes, The Myrtles, although how they obtained Foreign Investment Review Board approval remains unclear.
Industry professionals have told the House of Representatives economics committee that foreign investors — in the unlikely event that they were prosecuted — viewed the $85,000 fine as the “cost of doing of business”. Foreign investment laws also allow for forcing foreign investors that breach the law to sell off their illegally acquired houses, but it is not clear whether this power has been used extensively or not.
“There have been no prosecutions since 2010 under the upgraded scheme, whereas prior to this there were, on average, one or two a year,’’ the Real Estate Institute of Australia said in a submission to the committee’s inquiry into foreign investment in Australian property.
The REIA has called for a major rejig of the compliance regime for established homes, arguing that the $85,000 fine should be replaced with a penalty of 10 per cent of the property’s value.
Australia’s foreign investment laws make it one of the few countries in the world to prohibit foreign investment in established homes. Despite this prohibition, the latest figures from the FIRB show that foreign investors have doubled their purchases of Australian established property in just one year. They bought almost 5100 established homes last financial year worth $5.4 billion.
This wave of buying has come even though the only circumstances in which a foreign individual can purchase a fixed home is if they are studying here or they plan to demolish it to build two or more units.
Mark Manners, of prestige Sydney property agency Simeon Manners, said his firm recently sold a Mosman property for $15.6m to a European family and was marketing another, a nearby harbourside mansion, to foreign and local buyers. He said foreign investors bought at the top end of the market and did not affect affordability at lower rungs.
Eric Hartanto, the franchisee of Harcourts Applecross in Perth said Chinese and foreign buyers were switching to Perth luxury property as local buyers faded from the scene amid the wind-down of the mining boom.
He said Harcourts had a database of 1.3 million wealthy Chinese buyers that it used to promote its luxury offerings.
“I think Chinese are keen to purchase in this area,” he said. “They can see value for money, lifestyle and education advantages.”
Reserve Bank governor Glenn Stevens has described the surge in Asian investment in Australian property as akin to Russian oligarchs buying up London.
He said it was affecting prices.
The committee has heard that foreign investors sidestep the restrictions on fixed homes by using their offspring studying in Australian to obtain approval under the temporary resident clause, or via relatives who have become permanent residents.
In evidence before the committee earlier this month, FIRB officials said they vetted applications to invest in fixed homes and scanned rental lists to see if see if the property was being let in contravention of the laws stating it is to be used to accommodate the applicant.
The Australian has been told often wealthy investors are happy to let the property sit vacant to avoid triggering FIRB review. Another loophole appears to be in following up on whether homes bought by students or relatives of wealthy foreigners were sold within three months of the individual leaving Australia as required.
John Hill, the Treasury official in charge of compliance for real estate purchases, told the committee “there is no easy, convenient data that will automatically tell us when an individual has departed Australia and rented”.
Mr Hill said his division was examining up to 40 such cases at any one time and received thousands of calls about infringements, but said “it is very rare that we will exercise prosecution activity”.