Because of the recent influx of overseas interest in the Australian real estate market, owners and investors need to be familiar with the Foreign Investment Review Board (FIRB) requirements. FIRB’s role is to review applications by foreign persons to invest in Australia. Foreign persons include a person who does not ordinarily reside in Australia or a corporation where a natural person, not ordinarily resident in Australia, holds a controlling interest or a foreign corporation holds a controlling interest. Different policies apply to the purchase of commercial and residential property by foreign persons.
Commercial real estate
With developed commercial real estate, foreign persons must inform FIRB if they seek to buy an interest that exceeds $54 million in value. If the property is heritage listed, then a $5 million dollar ceiling applies. If the foreign persons are United States or New Zealand investors, and in the future when the China-Australia Free Trade Agreement is signed and legislation passed, Chinese investors, then a ceiling of $1,078 million applies. Where a foreign investor seeks to buy vacant land for commercial development, FIRB approval is required, irrespective of the value of the land, but the applications are generally approved with conditions imposed.
Residential real estate
For residential real estate, FIRB seeks to ensure foreign investment in residential property increases the supply of Australia’s housing stock. So foreign persons are generally granted approval by FIRB to acquire a ‘new dwelling’. To constitute a ‘new dwelling’ the property must be acquired directly from the developer and not been occupied for the preceding 12 month period. Foreign persons may apply to acquire single vacant lots but the approval usually requires that person to start continuous construction of a dwelling on the land within 2 years of the approval. The same applies where the applicant wishes to acquire vacant land to develop multiple dwellings.
Foreign persons may also apply to redevelop an existing dwelling if the existing dwelling is demolished and multiple properties constructed on the land. A ‘redevelopment’ is not a refurbishment of the existing dwelling. FIRB will only approve an application to demolish an existing dwelling and replace it with a single dwelling if it can be established that the dwelling has exceeded its economic life as established by a report from a builder and/or licensed valuer.
Approval for a redevelopment is generally granted provided that the existing dwelling is not rented out prior to demolition and that substantial construction of the new dwellings occurs within 24 months.
Developer advance FIRB approval
Developers can also apply to FIRB for a ‘blanket’ advance approval to sell new residential dwellings “off the plan” to foreign persons where 100 or more dwellings are to be constructed. This process allows the developer to sell up to all of the dwellings to foreign persons without those purchasers needing to seek separate FIRB approval.
In those cases, the developer is required to provide the pre-approval to the foreign purchasers at the time of sale (usually in the sale contract) and to the market the development both within Australia and abroad. When applying for the approval, the developer must attach certain information, including a schedule detailing the type of dwellings to be constructed (eg units or townhouses), the anticipated selling prices, the marketing plan for the project and the development approval from the relevant authority.
China-Australia Free Trade Agreement
Under the China-Australia Free Trade Agreement announced in November 2014, private Chinese investors will be able to purchase Australian commercial property up to a value of $1.078 billion without requiring FIRB approval.
This is a significant easing from the previous $54 million threshold and brings arrangements for private Chinese investors into line with US and New Zealand investors.
However, existing arrangements requiring screening of foreign investors in residential real estate remain. FIRB will also screen Chinese private investment proposals in agricultural land over $15 million and agri-business over $53 million.