Changes to Foreign Investment Review Board (FIRB) Approval Process & Fees to commence in December
What You Need to Know and What You Should be Doing
Who does this affect?
Property developers, foreign investors, local sellers of residential property that are considering marketing to foreign investors, and property and banking lawyers. Everyone, really.
What’s the issue?
From 1 December 2015, the laws that set out the process for foreign investors to seek approval from Australia’s Foreign Investment Review Board (FIRB) are changing. The most significant change to these laws is the introduction of significant application fees that will be charged to foreign investors at the time they make an application to FIRB to invest in an Australia investment product.
The set of Bills that makes these changes has not yet been passed into law, but we cannot see any reason why they might be delayed or rejected by Federal Parliament.
What is the main thing I need to know and what should I do?
There are many significant changes to foreign investment laws, that include a change in the compliance and enforcement functions of FIRB in respect of residential real estate to the Australian Taxation Office, and stricter penalties for foreign investors that breach these investment rules.
However, by far the most significant change for developers and foreign investors is that if / when these new laws are put into effect on 1 December 2015, any foreign investor that wishes to purchase Australian property, whether residential, commercial or agricultural, will need to pay a fee up-front as part of their application process.
Developers that want to get an ‘up front’ FIRB approval to sell future lots or units in a completed development to foreign investors are in for an even tougher time, with significant tightening of the rules in this area that mean new up-front application fees for developers (that they may or may not pass on to foreign investors), and caps on the value of apartments or units that can be purchased by a single foreign investor before that foreign investor also needs to seek FIRB approval (in additional to the initial ‘up front’ approval obtained by the developer).
This will have an immediate impact on the investment return to foreign investors, and will need to be taken into account by anyone marketing a property investment to foreign investors.
What should I do about all this?
Property developers need to consider the following, if they are not already:
- Determine their policy as to who pays the new FIRB fees – foreign buyer or developer, or whether the fees should be apportioned?
- Review sale contracts to ensure they reflect that policy so that the fee is passed on to the foreign buyer (if applicable). If not, they should be amended.
- Consider obtaining a Blanket Approval (see below) before fees are introduced if possible, including for future stages of a development if a preliminary or other form of approval has been obtained. There is very limited time to do this, so this needs to be considered as a matter of urgency.
- Ensure approvals have been applied for and ideally obtained for all foreign sales in existing developments where Blanket Approval is not held in order to avoid payment of fees (if FIRB confirms this is the case).
What are the details?
The full list of fees and a fee calculator for residential, commercial and agricultural property investments by foreign investors is now on the FIRB website at: http://firb.gov.au/applications/estimator/
However, in summary, the fees FIRB will charge from 1 December 2015 for foreign investment into Australian residential property are:
An interest in residential land valued at $1 million or less ($0 – $1,000,000)
An interest in residential land valued at over $1 million and under $2 million ($1,000,001 – $1,999,999)
An interest in residential land valued at $2 million and under $3 million ($2,000,000 – $2,999,999)
An interest in residential land – further $1 million increments
|$10,000 per $1 million
Currently, FIRB’s up-front approval to developers to sell to foreign buyers may be obtained at no cost for developments comprising at least 100 apartments and for which a development permit is held. Once the developer gets this up-front approval, the developer may sell to foreign investors without anyone requiring further FIRB approval.
Once the new laws are in effect, developers will have to pay an up-front fee for making these sort of applications to FIRB, which means that the decision for a developer to make this form of application will now be driven not just by marketing reasons, but also financial considerations.
There will also be reporting requirements placed on developers to report to FIRB semi-annually on the number of sales to foreign investors and the price of those sales in that last 6 month period, and FIRB will charge further fees on these sales.
FIRB is expected to charge a fee for these up-front applications of $25,000, with a $5,000 variation fee for any variations to the application. The fee varies depending on the price of the apartment, but expect more than $5,000 per sale.
If you have any further questions around foreign investment, or the FIRB changes, contact Deepesh Daya at firstname.lastname@example.org or on +612 9016 0141.
This publication is © Nexus Lawyers Pty Ltd and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.