FIRB Property Investment Rules & Guide
Recent changes have been made to the Foreign Investment Review Board's (FIRB) policy relating to investment properties...
Foreign Investment Review Board Approval
As an international citizen who is interested in purchasing real estate in Australia, if that person is not a permanent resident of Australia they must first obtain prior written approval from the Australian Government and more specifically from the Foreign Investments Review Board or more commonly referred to as the FIRB. Recent amendments to the legislation were made in December 2008 and will be effective in February 2009. The new amendments will affect the policy of foreign investors administratively and have been summarised further in this letter. At this stage as the implementations are forthcoming, I have concentrated on the existing procedures, although the new procedures should not derogate greatly from these.
Existing Procedures
Under the FIRB legislation, residential property is broken down in residential, second-hand estate, vacant land, new dwellings, stand-alone dwellings.Residential real estate includes hobby farms, rural residential blocks and urban land other than commercial properties, ie offices, factories, warehouses, restaurants and shops. Second-hand real estate are dwellings that have been previously occupied.New Dwellings include home units, townhouses, house and land packages (where construction has commenced), strata title, hotel/motel units in a new development either off the plan, either during construction or at the completion of construction. However no more than 50% of the dwellings are permitted to be sold to foreign interests, in any one development.Stand-Alone Dwellings include house and land package where construction has commenced or is completed, the purchase may be approved providing the following are satisfied:
- the developer has constructed a similar dwelling with overlapping construction dates;
- the similar dwelling is being sold, or has been sold for a similar consideration;
- the similar dwelling is in a proximal location; and d. the similar dwelling has been, or is to be purchased by an Australian or other eligible person.
If a similar property does not exist then approval will not be given.
The exemption to the requirement for approval will be given if the prospective purchaser is:
- an Australian citizen who has a foreign spouse and the two purchase property as joint tenants
- an Australian citizen residing abroad, or outside of Australia
- a foreign national who holds a permanent resident visa, or a “special category visa” ie a New Zealand citizen.
Usually approval is given in respect of the following types of properties:
- vacant land – provided the purchaser commences and continues construction of a dwelling within 12 months from the date of purchase and FIRB approval
- existing residence to be redeveloped – although the house must remain unoccupied during the redevelopment
- new properties ie off the plan purchasers – provided offcourse that the dwelling has never been occupied or sold and that no more than 50% of the dwellings in any one development are sold to foreign investors.
Pre-existing homes
As the scope and aim of the foreign investment policy is to increase the supply of new housing generally foreign investors are not permitted to purchase pre-owned houses, flats or units that have previously been occupied.
Exception to the purchase of pre-existing homes
However the following are exceptions to the rule that foreign investors are not permitted to purchase pre-existing homes:
- foreign nationals who are temporarily resident (ie hold a current temporary resident visa) in Australia for more than 12 months from the time of application, who are buying a home in Australia and who intend to use the property as their principal place of residence and not for rental purposes and must consequently be sold when that person’s visa expires; and
i. persons who hold visitor or bridging visas are not eligible under this category
ii. Student with student visas over 18 years of age in a continuing course for more than 12 months although the limit on the value of the property is $300,000.00
- foreign companies purchasing a home for their senior executives who will be residing in Australia for more than 12 months:
i. Unless there are special circumstances, foreign companies will not usually be permitted to purchase more than dwelling under this category.
How long does it take for an application to be processed
It can take up to 30 days to receive a response and/or approval.
How is the application made
In order to obtain FIRB approval the investor/purchaser must provide a copy of the front page of the contract for sale setting out the details of the property proposed to be purchased.
As FIRB approval is required prior to entering into a contract for the purchase of property in Australia (also known as exchange of contracts), a foreign investor should not sign and exchange a contract without that approval. If there is some urgency to sign and exchange contracts, the investor/purchaser must request that the contract is made conditional on the FIRB approval being obtained. The FIRB will not give approval after the contract has been signed and exchanged. Applications can now be made electronic ie online and emailed to firbapplications@treasury.gov.au or faxed to 02 6263 2940.
Documents required to be lodged and the appropriate attachments
Each document should be submitted as a separate file attachments to the email. The preferred format for attachments would be as .pdf or .doc files. Applicants should avoid attaching multiple individual pages as separate picture files. The email message should also include a webpage hyperlink to the appropriate current web addresses of any other material or information relevant to the application. Separate attachments would include the following (if applicable):
- covering explanatory letter;
- C1/R3/D2 form;
- statutory notice form 25/26/26A;
- contract to purchase the property (if submitting C1 or R3 form) or development plans (if submitting D2 form); and
- other supporting documents such as company annual reports and financial statements.
There are three application forms that are available for simple real estate applications. They are as follows:The R3 Form is used by individuals wanting to purchase residential real estate. The download also contains a 26A notice which must be completed and returned with the R3 Form. The R3 form may also be filled in online via the website – please note that the completed R3 form and 26A notice must then be printed, signed by all applicants and forwarded with supporting documentation for the application to be valid.
The C1 Form is used by companies or trusts wanting to purchase real estate. Please note the download also contains a 26A notice which must be completed and returned with the C1 Form. The C1 form may also be filled in online via the website –The completed C1 form and 26A notice must then be printed, signed by all applicants and forwarded with supporting documentation for the application to be valid.
The D2 Form is used by developers wanting advanced approval to sell up to 50 per cent of a new residential development to foreign persons.
These forms will be amended in line with the FIRB’s efforts to streamline procedures, however those forms are not yet available.
Proposed Changes that will affect FIRB procedures
On 18 December 2008, the Assistant Treasurer released details of administrative changes to the FIRB requirements in respect of acquisitions of residential real estate. The current restrictions will continue to apply however the procures are more streamlined. The changes are policy driven and will be implemented in stages, although they will come into effect immediately.
The Policy has changed as follows:
Temporary residents purchasing second hand dwellings
The definition of ‘temporary resident’ includes all foreign persons living in Australia on a valid visa, irrespective of the expiry date of that visa, including bridging visas pending the outcome of a substantive visa application (eg if they have applied for permanent residency) but, for example, does not include short-term visitors such as tourists, business people and those here for a medical procedure.
More importantly foreign students resident in Australia are no longer subject to a $300,000 limit on the value of an established dwelling purchased as their principal place of residence.
Vacant residential land
The period within which a dwelling is required to be built on vacant land will increase from 12 months to 24 months. Acquisitions by foreign-owned companies, trust estates and non-resident foreign persons of single blocks of vacant residential land are required to build a dwelling within a period of 24 months (previously within 12 months and development expenditure of at least 50 per cent of land cost).
The conditions previously applied to acquisitions by temporary residents of single blocks of vacant residential land no longer apply (such acquisitions will be exempt after the Regulations are amended in early 2009).
‘Single blocks’ of vacant land generally refers to a block of land on which only a single dwelling could be constructed. This does not include large tracts of land (eg for the purpose of subdivision) or multiple adjacent single blocks (eg to develop a multi-dwelling apartment complex) – additional development conditions may apply to such acquisitions.
New dwellings
The existing requirement that only 50 per cent of new dwellings can be sold to foreign persons on an ‘off the plan’ basis has been removed provided developers market locally as well as overseas. Vendors are no longer required to have concurrently developed a similar dwelling in order to be able to sell a new stand-alone dwelling to a foreign person. This will be reviewed after two years. A ‘new dwelling’ is currently defined as having never been occupied or sold; this now includes dwellings that have not been sold but that have been rented out for no more than 12 months.
Foreign companies purchasing second hand dwellings
Foreign-owned companies can now purchase established dwellings for the use of their Australian based staff provided that they sell or rent the dwelling if it is expected to remain vacant for more than 6 months. There is no limit to the number of established dwellings which can be purchased, where required for employee accommodation.
Redevelopment of second hand dwellings
A proposed redevelopment must increase the number of dwellings and no rental income can be obtained from the existing dwelling prior to demolition. Such redevelopments are required to demolish the existing dwelling and commence construction of the new dwellings within 24 months in line with vacant land (previously 12 months), and development expenditure must be at least 50 per cent of the purchase price of the property.From February 2009 the amendments to the regulations will result in the following:
Temporary residents’ exemption Temporary residents will not be required to notify the FIRB in respect of proposed acquisitions of:
- an established dwelling for their own residence (not for investment purposes);
- any new dwellings; and
- single blocks of vacant residential land (other acquisitions of vacant land will require notification and will normally be approved subject to development within 24 months).
The exemption will include acquisitions of property by temporary residents via their wholly owned trust or Australian incorporated company.
The existing notification requirements will continue to apply to non-residents, who must notify all proposed acquisitions of residential real estate.
Accommodation facilities
Accommodation facilities such as resorts and hotels will be treated as commercial real estate rather than residential real estate. Acquisitions of such facilities – or individual units within them – valued below the relevant developed commercial property threshold ($5 million for heritage listed property, $50 million for non-heritage listed property or $953 million for US investors) will be exempt from the Foreign Acquisitions and Takeovers Act 1975 and will not require notification and approval.
Streamlined administrative procedures
Streamlined administrative procedures will be established for foreign-owned companies, trust estates and non-resident foreign persons to notify and receive approval for proposed acquisitions of vacant residential land and newly constructed dwellings. New application forms and statutory notices will be introduced to facilitate the streamlined procedures.
Developers will no longer be issued advance approval for sales of new dwellings to foreign persons – all non-resident foreign purchasers must submit individual applications (although developers may submit these on behalf of the purchaser/s). Temporary residents will be exempt and not required to notify.
The information in this document are to be used as a guide only.