|Australian PM Tony Abbot|
Australian Prime Minister Tony Abbott announced the government’s intentions of levelling the playing field when it comes to Australian residential business and real estate. Consequently, possible fees might be enforced to foreign investors attempting to enter the market, as the government will begin to propose a variety of civil fees and penalties connected to foreign investment in the real estate sector.
Real estate market threatened by speculative foreign investors
Soaring house prices paired with the massive numbers of Chinese buyers has caused Australia to roll up the welcome mat for foreign investors by tightening up pre-existing rules and considering additional fees. And while foreign investors face such difficulties, real estate investment start-up companies are attempting to push investors towards acquiring properties. BrickX, for instance, has begun enabling its investors to acquire real estate by trading $66 “Bricks”. Start-up companies experience a difficult time as it is with the pressures of entering such a tight market, so consider Regus when setting up your office space so that you’re off to the best possible start.
According to BrickX’s CEO, Darren Paterson, the company aims to allow investors to buy and sell property in a fluid manner, so they can both acquire and dispose of their assets if ever and whenever they choose.
On the other hand, in cities such as Sydney and Melbourne, foreign investors, especially Chinese ones, are a force to be reckoned with. And while the government is attempting to tighten the market for Chinese cash, low interest rates as well as massive bank lending is encouraging foreign investors to keep seeking profitable deals. As figures provided by Australia’s Foreign Investment Review Board show, during the first nine months of the financial year which ended June 2014, a total of A$24,8 billion were approved for foreign investment purposes. This whopping figure, which ended up flowing into the residential property market, surpassed last year’s amount by 44 per cent. And of those foreign investors, Chinese nationals represented by far the largest group.
Price increases stave off Australian citizens from acquiring property
The issue of property prices has become a hot topic in Australia, especially since this increasing foreign interest in real estate has caused an artificial increase in Australian home prices. Prime Minister Abbot has also considered negative gearing rules, which may account for property price increases, however he decided against reviewing them at this point.
These new fees that the government is now analysing would have foreign investors pay application fees of approximately $5,000 when they intend to buy properties worth less than A$1 million. When properties exceed this A$1 million limit, the fee would add $10,000 for every additional million dollars in the property’s value. There is a maximum fee, of course, in the case of properties valued at more than A$1 billion. In this case, applicants would pay a fee of A$100,000.
And while such figures may seem large at first, they surely aren’t a major deterrent for those foreign investors attempting to find a safe haven for their money.
Levelling the playing field
As Prime Minister Abbott explains, Australians should be given the opportunity of operating on “a level playing field” with the foreign investors attempting to enter the property market. And while the government has been attempting to increase the country’s housing stock, the integrity of Australia’s foreign investment policy for residential real estate has been threatened by the lack of both compliance and enforcement of the rules.
Currently, the country has restrictions in place preventing foreign investors from acquiring newly built property or underdeveloped land. Yet these rules are easily bent, it seems, as widespread evidence shows that international buyers often purchase properties that are off-limits. As a result, foreign investors identified as not complying with these rules will face hefty fines. They could face penalties of up to 25% of the value of their investment and may even be forced to sell the acquired property. Curiously enough, since 2006, no foreigner has received any penalty for bending the rules, the parliamentary committee concluded.
"This government is determined to ensure that the aspirational people of our country get the fairest possible go," Prime Minister Abbott insisted, hinting that young Australian citizens are often boxed out of the real estate market because of clever and speculative international investors.
However, even these efforts are believed to not be enough to deter big investors from continuing to purchase Australian properties, especially since they can easily afford the fees. Hong Kong and Singapore also made significant efforts to prevent Chinese investors from flooding their real estate market, however, even here, the government’s efforts had little if any impact. "These measures are a significant step in protecting Australia's national interests and in giving the community greater confidence in our foreign investment regime,” Mr. Abbott mentioned.
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