A parliamentary inquiry into foreign investment in residential real estate has called for tougher penalties to be put in place for investors who break the rules.
The report, commissioned by the House of Representatives Standing Committee on Economics, said the ability to sanction people who have breached the foreign investment framework more easily is critical.
The regulation states that all foreign investors must seek foreign investment approval before acquiring interests in Australian residential real estate. Non-residents are restricted to purchasing new houses, land for development, or the redevelopment of existing properties to increase housing supply. Temporary visa holders are permitted to purchase one established home to use as their residence while living in Australia provided it is sold once vacated.
Currently, individuals who breach the laws are subject to a criminal penalty regime that could see them fined a maximum penalty of $85,000, imprisonment for two years, or both. However, the report notes that no prosecutions have taken place under the current criminal penalty regime since 2006 – due to the onerous court proceedings to impose a penalty.
As such, the Inquiry has recommended that a civil penalty regime should be introduced for breaches of regulation, along with tougher ramifications – making it easier to prosecute the rule breakers while also being a harsher deterrent.
“A civil penalty regime should be introduced for breaches of the regulations, which would remove the need to engage in onerous court proceedings to impose a pecuniary penalty.
“Civil penalties should be imposed using a sliding scale based on the value of the property, so that it is not simply seen as the ‘cost of doing business’. This will motivate better compliance and again, additional revenue can be hypothecated to the Treasury for the purpose of audit, compliance and enforcement.”
The report has also recommended that third parties – such as real estate agents, lawyers, or accountants – who knowingly assist a foreign investor to breach the framework should also be subject to a civil and criminal penalty.
Industry reactions to the recommendations have been positive. The Housing Industry Association has welcomed the recommendations that will ensure that foreign investment continues to be a benefit to the economy.
“Foreign investment through pre-sales in multi-unit developments can be crucial to ensure that many of these projects come to market, which obviously benefits potential domestic buyers as well as renters, through more choice and competition,” HIA Chief Executive, Industry Policy and Media, Graham Wolfe said.
The Property Council of Australia has applauded the Inquiry for its sensible approach to foreign investment in Australia.
“Under these proposed recommendations, the Foreign Investment Review Board will actually have appropriate civil and criminal sanctions and be funded to ensure full compliance with the foreign investment rules,” Nick Proud, Executive Director of the Residential Development Council said.
