Treasury plans to simplify rules for foreign property buyers

The federal Treasury has proposed to streamline the buying of new property by foreign investors.

It says the current set of rules had unintentionally encouraged non-compliance due to its complicated structure.

It also proposes to encourage investment in sectors like retirement living, aged-care and student accommodation.

The consultation paper by the Treasury's Foreign Investment Policy Unit said the December 2015 overhaul of the foreign investment framework – the biggest in 40 years – had unintentionally “incentivised non-compliance" of the rules when it came to buying new residential property, according to a report in the Australian Financial Review.

Under current rules, foreign investors who want to purchase a new dwelling or block of vacant residential land need to apply individually for each property they are considering and pay multiple fees starting from $5000 per application.

To avoid through this cumbersome process, some foreign buyers were choosing to pay a fine and notify after they had purchased the property, rather than apply multiple times in advance, the paper said.

It suggested the introduction of an "new exemption certificate" giving foreign persons "broad pre-approval to purchase one new dwelling or vacant residential block".

Foreign buyers would then be required to notify Australian authorities when an actual purchase was made. 

The report also seeks to amend the treatment of residential land that is used for an aged-care facility, retirement village or student accommodation so that it is considered "non-vacant commercial land" thus lifting the FIRB screening threshold from zero to more than $55 million.

Some in the industry, like Julius Wei, co-founder of BMY Group, which connects Chinese high-net worth investors with opportunities in Australia, said the country was short of supply in these sectors and foreign investment into them "should be welcomed".

But he said the rules needed to incentivise foreign investors to invest for yield rather than capital gain, otherwise there could be a "huge jump in prices".

"Capital gains [in these sectors] should be taxed heavily," he said.

Wei also backed the proposed exemption certificate for individual buyers as according to him it was unfair to pay multiple fees if a buyer only intended to buy one property.