The implications for foreign investment in residential real estate are important for developers, real estate agents, buyers and sellers.
The following measures will be in place for the duration of the COVID-19 crisis:
- a foreign person must seek Foreign Investment Review Board (“FIRB”) approval for their proposed investment into Australia regardless of the value of the investment or the nature of the foreign investor; and
- the timeframe for FIRB and the ATO to review new FIRB applications may take up to 6 months.
Application fees payable for approvals are still in place and current. All exemptions under the foreign investment framework also remain unaffected by the recent changes announced by the Treasurer.
Developers will not be affected by the changes if they already hold a new (or near-new) dwelling exemption certificate for their development. The conditions imposed under the existing certificate continue to apply to the developer’s existing and new contracts with foreign buyers.
If an application for a new (or near-new) dwelling exemption certificate was lodged before 29 March 2020, the applicant may be contacted by case officers seeking to extend statutory deadlines on their applications from 30 days up to 6 months. However, this does not mean that the application will necessarily require 6 months to be reviewed.
What takes priority?
The Government has advised that priority will be given to investments that protect and support Australian businesses and jobs. If an applicant provides supporting documentation to demonstrate that their project protects and supports Australian businesses and jobs, this may increase the likelihood of FIRB screening the application as a priority, and may subsequently increase the chance of obtaining an exemption certificate before the 6-month mark.
New Applications for exemption certificates
If a developer lodges an application for an exemption certificate to sell new (or near-new) dwellings to foreign persons after 29 March 2020, the major impact is the processing time which may now take up to 6 months (rather than 30 days). Bear in mind that FIRB will not commence review of an application until the correct application fee has been paid.
It is therefore imperative for a developer to take into account the screening timeframe of 6 months as part of their development management process if they wish to procure an exemption certificate for their development. We recommend that an application be lodged as soon as possible to avoid any delays.
Residential Dwellings and Vacant Commercial Land
A foreign buyer’s proposed purchase of new residential dwellings or vacant commercial land already had $0 monetary thresholds before the Treasurer’s announcement. These rules remain the same for foreign investors:
- a foreign person is generally not permitted to purchase second hand dwellings; and
- a foreign person must make an application for FIRB approval in respect of new residential dwellings and vacant commercial land.
Developed Commercial Land
The major impact will be on developed commercial land which previously had a threshold as high as $1,192 million if the foreign person is from an agreement investor country and $275 million for other foreign persons (except for developed commercial land that is considered to be sensitive). As the monetary threshold has been reduced to $0, a foreign investor is now required to apply for FIRB approval regardless of the nature of the investor, value of the asset or sensitivity of the developed commercial land.
Integrated Tourism Developments
The Treasurer did not announce any changes to the exemptions that apply to integrated tourism developments. Therefore, a foreign person seeking to purchase vacant residential land, a new dwelling or an established dwelling within an integrated tourism development designated prior to September 1999 are still exempt from the need to apply and receive FIRB approval.
What does this mean?
Ultimately, foreign investors not previously required to obtain FIRB approval will now be required to as a result the $0 threshold. Both current and new applications will be affected by the extension of review timeframe up to a period of 6 months.
If you believe that your application requires urgent attention, we recommend that you submit additional supporting information to FIRBapplications@treasury.gov.au setting out the details of the commercial imperatives and impact if a decision is not able to be made by a certain date. Alternatively, you can contact us for advice and assistance in preparing your submission and supporting documents to FIRB.
How our expertise may assist with your investment
Hickey Lawyers has extensive experience in assisting foreign investors as well as assisting local and foreign developers in procuring exemption certificates for their developments.
During these unprecedented times, we recommend that all foreign investors lodge their applications and pay the relevant application fee, as soon as possible, to kick start the review timeframe.
If your investment is complex and has commercial deadlines that must be met or if you simply wish to obtain advice as to what the best approach is when it comes to applying for FIRB approval or exemption certificates, please contact us at (07) 5574 1000.