Foreign Investment


If you are not an Australian citizen or permanent resident you can’t just go out and buy any property you like – you have to stay within the rules set out by the Foreign Investment Review Board (FIRB).

Brief Summary

The FIRB set the rules for investment both by businesses or individuals, all the way from mega mergers or takeovers down to the individual property investors like you and me. These rules basically state that as a foreigner you can only buy residential real estate under the following conditions:
  • Non-residents or temporary residents are able to purchase new property from a developer / vendor provided that it has never been occupied or sold and provided no more than 50 per cent of the dwellings in any one development are sold to foreign interests.
  • Non-residents or temporary residents are also allowed to purchase vacant land for development. If they purchase vacant land for development they would need to commence continuous construction within 12 months of obtaining foreign investment approval and must add 50% to the purchase value of the land. 

Applications to purchase existing residences for redevelopment are considered on a case-by-case basis. Proposals approved under this category must provide for an increase in the housing stock, that is, an increase in the number of dwellings. You must spend at least 50% of the acquisition cost or current market value (which ever is the greater) on the redevelopment of the site and there are a number of specific conditions:
  • The existing residence can not be occupied prior to demolition and redevelopment. 
  • Where the property is at the end of its economic life (ie, derelict, uninhabitable) a proposal may be approved for the construction of one dwelling. 
  • To demonstrate that the property is uninhabitable and must be demolished, a valuation of the existing structures by a licensed valuer may be required. Photographs and other forms of evidence may also be required. 
  • Once construction is completed, parties notify the completion date and actual development expenditure.

Once you own the property there are no restrictions, i.e. you can rent the property or sell it if desired. Vacant land can not be sold without development. As soon as you enter into a contract to purchase a property you are taken to have acquired an interest in that property, this includes purchases with extended settlements periods and contracts to purchase the property via exercising an option. Your obligation to improve the vacant land to a value of at least 50 per cent of the purchase price of the land or market value does not change. 
 
One exception to the above is covered in Paragraph 12(A)(7)(a) of the Foreign Acquisitions and Takeovers Act 1975 (the Act) which exempts an acquisition of an interest in Australian urban land from the Commonwealth, a State or Territory Government. This means for example that you can buy properties from Defense Housing Australia even if they are already occupied by tenants.
 
The acquisition of commercial property under $50 million dollar is exempt of FIRB approval except for heritage listed properties where the limit is $5 million. Properties above $50 million are normally approved as long as the acquisition is not deemed to harm Australia's national interest. There are special (higher) thresholds for US citizens, please see the Urban Land Policy for details.

Approval Process


The FIRB approvals process is normally handled by your solicitor and in my experience usually takes about 4 weeks to come through. Before you sign a contract make sure it is conditional upon FIRB approval.
 
This is only a summary of the FIRB rules to give you an idea what you can and can not invest in as a foreign national. For more details see www.firb.gov.au and make sure you speak to your solicitor.
 

Can you avoid FIRB regulations?


Maybe avoid is the wrong terminology, but you can set up structures - even as a non resident - which will allow you to buy just about any residential property without having to meet the abovementioned FIRB restrictions. One such structure is where you set up a trust and have an Australian company act as the trustee of the trust. The complication is for an Australian company you need at least one resident director which means that as non resident you do need to find someone you can trust who is willing to be a nominee director in your company. There are risks associated with this, but these can be managed.