While the Albanese government’s plans to adjust the foreign investment framework are expected to boost Australia’s housing stock and provide more homes for Australians, not everyone is convinced it will have the desired impact.

Including higher fees for the purchase of established homes, increased penalties for those who leave properties vacant, and strengthened compliance activity, the federal government’s proposed new measures are expected to ensure foreign nationals, typically barred from buying existing property, can only do so under strict criteria.

Recently announced changes include:

• A tripling of foreign investment fees for the purchase of established homes.
• A doubling of vacancy fees for all foreign‑owned dwellings purchased since 9 May 2017 – resulting in a combined a six‑fold increase in vacancy fees for future purchases of established dwellings – to ensure unused properties are available to renters.
• Enhancing the ATO’s compliance regime to ensure foreign investors comply with the rules, including selling their residence when required, for example, when they leave the country and have not become permanent residents.

However, to encourage the delivery of more homes across Australia, the federal government’s application fees for foreign investment in Build-to-Rent (BTR) projects will be charged the lowest possible investment application fee, regardless of the land involved.

As the law currently stands, BTR investors can be subject to higher fees if their projects involve certain parcels of land – and this has posed a significant impediment.

For example, on a residential deal worth $50m, the fees associated amount to $1.1m if treated as residential. However, if treated as a commercial deal the equivalent fees amount to $13,200.

Who is buying?

Unsurprisingly, the number of foreigners approved to buy established homes is being eclipsed by those choosing to invest in new dwellings.

However, it’s China-based buyers who are registering a disproportionately high interest in Australian residential property. Foreign Investment Review Board (FIRB) data suggests 826 approvals for over $1.1bn worth of Australian property were granted to Chinese buyers in the June quarter alone.

It’s understood that the application of commercial foreign investment fees to all future BTR projects will apply after 14 December 2023.

The federal government is also hoping that by having higher fees for established dwellings, foreign buyers will be encouraged to invest in new housing projects.

Despite improvements in the government’s drafting, federal ThinCap changes will still impact the genuine business activities of property trusts, make access to debt more difficult and reduce the allocation of global capital available to build new homes.

What impact will higher fees have?

Based on federal government numbers, an estimated $500m raised in higher fees from foreign buyers will be funneled into boosting rental housing stock.

But given that foreign buyers do so for some very specific purposes, like housing their children who are studying locally, Daniel Ho of listing portal Juwai IQI doubts fees alone will dilute their appetite for Australian property.

Similarly, the Property Council of Australia (PCA) is doubtful that reduced application fees for BTR projects will encourage investment, especially while taxation settings remain prohibitive.

The PCA doesn’t envisage additional foreign investment in the BTR sector until key taxation anomalies are addressed.

While BTR has the potential to create 150,000 homes over the next decade, PCA CEO Mike Zorbas urges the national cabinet to think holistically about the tax settings that can help or hinder investment in creating more homes for Australians.

“Despite improvements in the government’s drafting, federal ThinCap changes will still impact the genuine business activities of property trusts, make access to debt more difficult and reduce the allocation of global capital available to build new homes,” said Zorbas.

“That is before you account for thoughtless but popular state foreigner taxes on new homes and State Treasurers’ devil-may-care attitude to investment-stunting quarterly tax hikes on property.” 

Image: Chinese buyers have taken a particular fancy to top-end Sydney-based luxury housing in the $10m to $20m range.