Seven Mile Beach, Broken Head
“Bold and Excellent”
FIRB is the Good Gatekeeper
The Australian Government takes a balanced approach to foreign investment. On the one hand, foreign investment brings undeniable benefits reaped by Australia in terms of economic development, innovation and job growth. On the other hand, these investments ought to help advance Australia’s “national interest” and ensure that Australian citizen’s are not disadvantaged in their own backyard. And to keep that balance it uses a gatekeeper, the Foreign Investment Review Board (‘FIRB’).
The Australian Government requires that all foreign persons must have the approval of the FIRB prior to acquiring an interest in residential land, regardless of value.i The Government policy is to encourage investment that increases housing stock, not takes it away. Given recent housing shortages and increased foreign interest in property investments, the FIRB has come into more focus. Does it work as a gatekeeper?
Foreign persons can generally purchase vacant land for residential development or newly constructed dwellings with few restrictions once their applications have been approved. The flip side is that approvals for established dwellings are generally limited and subject to conditions. For instance:
- Temporary visa holders can apply to purchase one established dwelling for use as their residence in Australia. However, they must then sell this property within six months of it ceasing to be their primary residence or end of visa.
- Foreign persons that operate a substantial Australian business can apply to purchase established dwellings to house their Australian based staff.
- Foreign persons can purchase established dwellings for redevelopment, provided the redevelopment increases Australia’s housing stock.
The FIRB reviews these applications on a case-by-case basis. The FIRB works with applicants to ensure the national interest is protected. The general presumption is that foreign investment is beneficial, given the important role it plays in Australia’s economy. Therefore, where risks to the national interest or national security are identified, the more common approach is to approve the investment subject to conditions designed to protect the national interest.
Due to this general presumption, most applications to the FIRB do get approved, and quite swiftly, particularly where the applicant has the funds available for the application fees to the FIRB and for the purchase. These fees are not insignificant, and they are determined based on the value of the land in question. The FIRB website contains information useful for calculating what may be incurred.
Once the application is lodged the process moves quickly. The Treasury has 30 days to consider the application and make a decision.ii This time frame may be extended by notifying the investor in writing however this the rare.
Given the leniency embedded within FIRB policy, failure to comply with any conditions are considered quite serious and significant penalties can apply. These include infringement notices, civil and criminal penalties.iii
In 2019–20, a total of 7,056 residential real estate applications valued at $17.1 billion were approved for proposed investment. This represents a decrease of 455 in the number of approvals from 2018–19 and continues a trend seen since 2015–16. Despite this drop in numbers, the value of proposed investment in residential real estate in 2019–20 actually increased by $2.3 billion compared to 2018–19.
Since 2016–17, the overall foreign demand for residential real estate in Australia has declined. Factors that may explain the fall in the number of residential real estate approvals include:
- a tightening of domestic credit and increased restrictions on capital transfers in home countries;
- state taxes and foreign resident stamp duty increases;
- the introduction of an exemption certificate so that only one approval is required for individuals considering a number of residential properties with the intention to purchase only one property; and
- foreign investment application fees.iv
It is hard to predict how the recent COVID-19 pandemic will affect this trend. On the one hand Australia’s hard border closure has seen foreign activities drop across the board. On the other hand, the handling of the pandemic and relatively high personal freedoms have made Australia a dream location for foreign investors.
Conversely, statistics relating to FIRB applications for development of new dwellings (which are encouraged) show a trend upwards. In 2019-20 the value of exemption certificate approvals was $9 billion, this was a slight decrease from 2018-19 at $9.2 billion.v The decrease is likely a result of the COVID-19 pandemic. Despite that, statistics show an overwhelming trend upwards from 2017-18 which was reported to be $4.6 billion.vi.
These trends, the FIRB’s tendency to grant approvals if they are pro new housing and the increase in foreign investment should encourage anyone considering Australia’s residential real estate to jump in. But this is not to buy existing residential dwellings unless they uphold the conditions of the FIRB.
The gatekeeper is doing its job by helping encourage new housing supply whilst restricting the purchase of existing residential houses. This is pro national interest and to Australia’s benefit. FIRB proves to be the good gatekeeper.
Jonathan de Vere Tyndall and Nina Spencer 30 September 2021
This article contains comment only and not legal advice, for which you should retain a solicitor. No responsibility is accepted for the accuracy of the contents.
Bibliography and End Notes
i The Australian Government Treasury, Australia’s Foreign Investment Policy (Report, TSY/AU, 1 January 2021) 6 https://firb.gov.au/sites/firb.gov.au/files/2021-01/Australias_foreign_investment_policy.pdf.
ii Ibid 13.
iv The Foreign Investment Review Board, Annual Report 2019-20 (Annual Report, 21 June 2021) 32-33 https://firb.gov.au/sites/firb.gov.au/files/2021-06/FIRB2019-20AnnualReport.pdf.
v Ibid 34.
vii Ibid 39.