Foreign investment plays an important role in the Australian economy and its development as a nation.  In particular, the purchase of real estate is a popular means of foreign investment in Australia.  Between 2013 and 2014, foreign investment in Australian real estate was valued at nearly $74.6 billion.^[1]  However, while the Australian Government welcomes foreign investment, there are several restrictions imposed on foreign persons acquiring real estate contained in the Foreign Acquisition and Takeovers Act 1975 (Cth) (‘Act’) and the Foreign Acquisition and Takeovers Regulations 1989 (Cth) (‘Regulations’).

 

Foreign acquisition of real estate

Under section 21A of the Act, the Treasurer has the power to prohibit a foreign person from acquiring an interest in Australian urban land^[2] if he or she is satisfied that the acquisition would be contrary to the ‘national interest’.^[3]  This is quite a broad power exercisable by the Treasurer.  For instance, the Treasurer has decided that generally, foreign persons cannot acquire an interest in existing residential dwellings in Australia as this is contrary to the national interest.^[4]  An acquisition includes both entering into an agreement and an option agreement to purchase real estate.^[5]

 

Who is a foreign person?

Section 5 of the Act defines a ‘foreign person’ to mean the following:

• A natural person not ordinarily resident in Australia, which under section 5A of the Act means a non-citizen who has lawfully been in Australia for at least 200 days in the past 12 months without any limitation as to time (i.e. a permanent resident);
• A corporation in which a natural person not ordinarily resident in Australia or a foreign corporation^[6] hold a controlling interest;^[7]
• A corporation in which at least two persons who are either a natural person not ordinarily resident in Australia or a foreign corporation hold an aggregate controlling interest;^[8]
• The trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest;^[9] and
• The trustee of a trust estate in which at least two persons who are either a natural person not ordinarily resident in Australia or a foreign corporation hold an aggregate substantial interest.^[10]

 

Approval process

Foreign investment in Australia is regulated by the Foreign Investment Review Board (‘FIRB’), which is a non-statutory body established to advise the Treasurer. Prior to acquiring residential real estate, a foreign person must submit an application to the FIRB using their online system or by email.  The Treasurer has 30 days to consider and decide a foreign person’s application, although they can take longer in certain instances.  The Treasurer will then notify a foreign person of its decision within 10 business days from when the decision is made.

If the foreign person then acquires the residential real estate despite the FIRB’s prohibition of such acquisition, the Treasurer can order that the foreign person dispose of the real estate within a set period of time.^[11] The foreign person in that instance could also face criminal charges.

 

When can a foreign person acquire residential real estate without FIRB approval?

The following foreign persons can acquire an interest in residential real estate in Australia without requiring FIRB approval:^[12]

• Charitable institutions;
• Trustees of foreign trusts established for charitable or benevolent purposes where the beneficiaries are persons ordinarily resident in Australia;
• Life insurance companies operating in Australia acquiring real estate for the benefit of policy holders who are ordinarily resident in Australia;
• Corporations operating in Australia that maintain a superannuation fund for its employees and such acquisition uses the funds and is for the benefit of the members who are ordinarily resident in Australia;
• Acquirers of land on which a dwelling will be constructed from a developer who has received pre-approval from the Treasurer;
• Acquirers of an interest in a time share scheme with an entitlement not exceeding four weeks in any year;
• Australian citizens who do not ordinarily reside in Australia;
• Australian corporations controlled by Australian citizens who do not ordinarily reside in Australia;
• Trustees of a trust estate with a substantial interest held by Australian citizens who do not ordinarily reside in Australia;
• Holders of a permanent resident visa;
• New Zealand citizens;
• Spouses of Australian citizens who hold their interest in the residential real estate as joint tenants with their Australian spouse;
• Acquirers of a residential dwelling, the sale of which is certified by the Treasurer;
• Tenants or licensees under a lease or licence with a term (including extensions) that is not likely to exceed five years;^[13] and
• Beneficiaries under a will or otherwise acquiring the property by operation of law (e.g. divorce proceedings).^[14]

This is not an exhaustive list and there may be further exemptions available for foreign persons who acquire non-residential real estate (e.g. commercial property). Furthermore, temporary residents with visas of more than 12 months are able to apply for FIRB approval to acquire an existing dwelling if it will be there main residence.

 

Residential contracts in Queensland

Both of the REIQ’s Contract for Houses and Residential Land (11^th edition) and Contract for Residential Lots in a Community Titles Scheme (7^th edition) contain a clause whereby the buyer warrants that they either have obtained FIRB approval prior to entering into the contract or do not require FIRB approval. This means that if a foreign person wants to enter into a contract to purchase Queensland residential real estate and they require FIRB approval, a special condition will need to be inserted into the contract.

Under section 26A(2) of the Act, if a contract for the sale of residential land is not conditional upon FIRB approval or the contract is otherwise unconditional, then the foreign person will need to give the Treasurer a statutory notice at least 40 days before entering into the contract or face a fine of up to $90,000 and/or up to two years’ imprisonment.

 

New changes

From 1 December 2015, a number of changes will be introduced by the Australian Government to the FIRB application process pending the passing of certain bills by Parliament.  One of the most important of these changes is the introduction of fees payable by foreign applicants starting at $5,000 for property valued under $1 million.  This means that if you need to submit an application to FIRB, you should ensure your application is submitted prior to 1 December 2015 or you will be required to pay an application fee.

If you would like further advice about foreign investment or other matters relating to buying or selling property in Queensland, please contact us and one of our experienced property lawyers will be able to assist.

 

 

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[1] Foreign Investment Review Board, Australian Commonwealth Treasury, Annual Report 2013-14 (2015) Chart 2.3: Applications decided.[2] Non-rural land including residential real estate.
[3] Section 4(6) of the Act expands section 21A to apply to natural persons in addition to foreign corporations.
[4] Australian Treasurer, Australia’s Foreign Investment Policy (2015) 15.[5] Act, s 12A(4)(b).
[6] ‘Foreign corporation’ is defined by the Act to mean a corporation incorporated somewhere other than Australia.
[7] ‘Controlling interest’ is defined by the Act to mean at least 15% of the voting power or shares.
[8] ‘Aggregate controlling interest’ is defined by the Act to mean at least 40% of the voting power or shares.
[9] ‘Substantial interest’ is defined by the Act to mean at least 15% of the corpus or income of the trust.
[10] ‘Aggregate substantial interest’ is defined by the Act to mean at least 40% of the corpus or income of the trust.
[11] Act, s 21A(4).
[12] Unless otherwise stated, these exemptions are contained in regulation 3 of the Regulations.
[13] Act, s 12A(1)(a).
[14] Act, s 12A(6).