Foreign investors to be slugged with huge fee, penalty increases

Foreign investors in Australian property are set to be slugged with huge fee and penalty increases when they buy a property or leave them vacant.

The Federal Government on Sunday (10 December) announced new rules tripling fees for foreigners who buy established houses in Australia and a doubling in penalties for those who leave dwellings vacant.

A joint media release issued by Julie Collins, Minister for Housing and for Homelessness, and the Treasurer, Jim Chalmers, took aim at foreign investors already burdened by significantly more financial obligations than local buyers.

The doubling of vacancy fees for all foreign‑owned dwellings applies to those purchased since 9 May 2017 (which together mean a six‑fold increase in vacancy fees for future purchases of established dwellings).

The announcement also included notice that the government was enhancing the Australian Taxation Office’s compliance regime to ensure foreign investors comply with the rules, including selling their residence when required.

Foreign nationals are generally barred from buying existing property but can do so in very limited circumstances such as when they come to live in Australia for work or study. When they leave the country, they are required to sell the property if they have not become a permanent resident.

The Government intends to introduce legislation next year to implement the new fees that it hopes will raise around half a billion dollars.

“These changes further encourage foreign nationals to buy new property instead and help to ensure that those who do get approval follow the rules,” Mr Chalmers said.

“The higher fees for established dwellings will encourage foreign buyers to invest in new housing developments, which creates additional housing stock, jobs in the construction industry and supports economic growth.

“The increased vacancy fees will encourage foreign investors to make their unused properties available to renters.”

The proposed changes to foreign investment rules are part of the Albanese Government’s broad agenda to improve housing affordability and supply.

It’s pledge to build an extra million or more homes in five years has already run into trouble.

Interest in Australian property from international buyers has continued to soar despite the eye-watering financial obstacles thrown up by the government.

Encouraging build-to-rent

In addition to the fee and penalty changes, the Federal Government is also trying to encourage more foreigners to invest in build-to-rent projects.

Ms Collins said the government will make sure foreign investment application fees for such projects are at the lowest commercial level, regardless of the kind of land involved.

“Currently build-to-rent investors can be subject to different and higher fees if their projects involve particular kinds of land, like residential.

“Lowering the fees for these investments will help to ensure our foreign investment framework is consistent and predictable for all build-to-rent investors, and encourage the development of these projects right across the country that are specifically designed, built and managed to provide long‑term rental options for Australians.”

The application of commercial foreign investment fees to all future build-to-rent projects will apply after 14 December 2023.

The need to encourage more investment in the build-to-rent sector was borne out in the most recent API Magazine quarterly Property Sentiment Report, which showed just 3 per cent of respondents intended to transact in that property type in the coming 12 months.

Property Council Chief Executive Mike Zorbas welcomed the government announcement, noting high foreign investment fees are a disincentive for global investment that is needed to achieve the 1.2 million homes by 2029 housing target.

“Build-to-rent has the potential to create 150,000 homes over the next decade, but the settings must be right,” Mr Zorbas said. 

“To give people the full spectrum of affordable housing choice we need to tap into institutional investment and today’s announcement is an important step. 

“Encouraging overseas investment to go into new assets makes good sense,” he said.  

Mixed reception to foreign fee hikes

The bid to boost housing supply by increasing fees for foreign investors who leave properties they own in Australia vacant was welcomed by some but received warily by others.

National Party leader David Littleproud said he didn’t expect it to have much impact because foreign investors could easily afford the hiked fees.

He said rules that require foreign buyers to hold at least temporary residency should be extended to either suspend foreign-owned purchases during the housing crisis, or ban them entirely.

"While we have a housing crisis, Australians should get a priority on buying homes in Australia. We've got a supply issue," Mr Littleproud said.

"This government wanted to bring in one and a half million new migrants, 500,000 this year. That's just putting so much pressure on our migration system."

Everybody’s Home spokesperson, Maiy Azize, agreed the measure won’t be enough to fix the rental crisis.

“This is a step in the right direction, but it won’t solve the housing crisis,” Ms Azize said.

“Right now, domestic investors are the ones pushing up the cost of housing and profiting from tax handouts - and an empty home is an empty home, regardless of who owns it. 

“If the government is serious about making homes more affordable, it would end the tax handouts that are used by a significant number of investors.

“This means abolishing negative gearing and capital gains tax. The billions we raise can go into desperately needed social housing.

“Investors can’t keep pushing up the cost of housing for everyone else. The government must get serious about tax reform for all investors, not just those who live overseas.”

Mr Zorbas also said more needed to be done on the domestic front to tackle the dire lack of housing that had reached crisis levels.

“More settings need to change to unlock the potential of global institutional investment into new Australian housing, including critical areas where governments can save money through service aggregation, such as retirement living communities and purpose-built student accommodation. 

“Cutting against the investment grain are those outright deterrents to long term overseas investment in our cities and housing, such as looming Federal thin capitalisation changes and increasing Foreign Investment Review Board fees.”

Thin capitalisation refers to tax changes proposed by the government to make multinational companies pay their fair share of taxes. A thinly capitalised entity is one whose assets are funded by a high level of debt and relatively little equity. 

Mr Zorbas also singled out “the thoughtless but popular state foreigner taxes on new homes and State Treasurers’ devil-may-care attitude to investment-stunting quarterly tax hikes on property”.  

“It is clear that changing property investment rules week in and week out, evident most recently in taxes rushed through by the Victorian and NSW governments, will prevent us reaching our 1.2 million homes target.”