FIRB application fee would help fund compliance: SMATS Group

Currently there is no cost associated with any FIRB application so there are limited financial resources for the Treasury department to police the current regulations.

The bulk of their activity remains in processing.

But a modest FIRB application fee would be acceptable to overseas buyers that are often subject to fees in other international property markets, according to Steve Douglas, the executive chairman of the SMATS Group that has arranged over $1 billion in lending for expatriate and foreign buyers over recent years.

"These fees could be directed to FIRB for process improvement and policing activity to ensure the current regulations are enforced," he said.

Steve Douglas says provided it remains realistic, it should not have a detrimental impact on the current buyer activity levels, especially if it is balanced by the return of the CGT 50% discount and fairness is restored to previous legislation.

The submission was made to the House of Representatives Standing Committee on Economics which is holding public hearings as part of its Inquiry into Foreign Investment in Australian residential real estate. 

"We do need to appropriately police the fairness of the FIRB regulations and protect the market from abuse and speculation," he told the parliamentary inquiry.

"A modest fee on the approximate 10,000 residential purchases would fund this and allow the FIRB to be properly resourced to investigate illegal activity – without introducing any new restrictions.

"This would be logical, acceptable to the market and also easy to police with a simple 'Statement of Residency' at any property settlement confirming FIRB compliance and then lodging for spot checks with FIRB."

SMATS Group is an Australian tax agent that specialises in foreign investors and expatriates.

It commenced in 1995 headquartered in Singapore with offices in Hong Kong, Malaysia, Dubai, London, New York, Perth and Sydney.

The SMATS submission suggests a modest fee would be acceptable by international standards set at:

• $2,000 for acquisitions under $500,000, and
• $3,000 for acquisitions over $500,000

"It is our strong opinion that the importance of foreign investors is not fully appreciated in Australia."

Douglas outlined two major misconceptions in the community when it comes to foreign investors.

The first misconception was that "foreigners are buying all the property at auction".

The second was that foreigners are driving up prices.

• Misconception: Foreigners are buying all the property at auctions.
• Reality: Foreigners cannot buy established property under the FIRB Regulations, so the buyer must have held Australian Citizenship or Permanent Residency or if acquired under a Temporary Residency will need to sell the house on exit of Australia. It is more likely these are “new Australians” that have migrated and have appropriate permanent Visa status.
• Misconception: Foreigners drive up prices.
• Reality: Improved supply stabilises prices. In fact sometimes Foreigners have paid too much for Australian property then are willing to sell at a loss releasing lower value stock into the market.

Source: SMATS Group's submission to the Inquiry into Foreign Investment in Australian residential real estate.

Douglas said the general community does not fully appreciate that the main driving force in property price increases was Australia’s growing population.

"It is our opinion that Australia’s strong population growth during the period of the global financial crisis between July 2007 and March 2010 was a key contributing factor to Australia’s economic resilience as it created compulsory consumption spending for new arrivals when domestic consumption fell away with economic uncertainty during the GFC."

He suggested that the current population growth now back near or above 400,000 per annum since December 2012 created a demand driven property market and with the absence of adequate supply of housing stock, must inevitably lead to a lift in prices.

In 2012-13 the FIRB approved 11,668 applications for residential property, and increase of 19.45% over the previous year; however the value of these applications actually decreased from $19.7 billion to $17.16 billion.

Douglas said it was a general misconception that foreigners push prices up.

Where in reality it is more likely that they actually keep prices down for the vast majority of Australian’s as the newly constructed dwellings of foreign investors provide important rental accommodation and expansion of projects and estates that may otherwise not attract sufficient pre-sales to permit financing to begin and allow many larger scale projects to move from concept to reality."