Australia Gets Tough on Foreigner Home Buying

Australia Gets Tough on Foreigner Home Buying

Australia Gets Tough on Foreigner Home Buying

The FINANCIAL -- Australia promised more investigations into foreign buyers of residential property, in an intensifying crackdown on the abuse of homeownership laws by investors from China and elsewhere, according to Nasdaq.

Probes that have already unearthed 195 cases of possible breaches were just the start of a widening clampdown on illegal home buying, Treasurer Joe Hockey told reporters on June 9, adding the number was likely only a fraction of the investigations to come.

The dozens of cases were uncovered during a monthlong tax-related probe into foreign investment that Mr. Hockey said had involved properties ranging from 300,000 Australian dollars(US$231,000) to A$40 million.

"This is the tip of the iceberg," the treasurer said, adding he expected to review more purchases in the coming weeks and decide whether to force the owners to sell. "Unless you have permission, as a foreigner you're not allowed to buy existing residential property in Australia."

Rules on property buying by foreigners were strengthened about five years ago so as to restrict purchases to new dwellings that would boost the country's housing stock--with the added benefit of spurring residential construction while the economy needs new sources of growth as a long mining boom cools.

Under those rules, temporary residents were allowed to buy established homes with approval from the foreign- investment regulator, but had to sell when their temporary visas expired.

Last year, a government committee recommended changes to the rules, including a cleanup of procedures to help uncover illegal home buying, penalties for breaches of the framework, punishments for third-party rule-breakers, and tweaks to ensure the immigration department informs the foreign-investment watchdog when a person leaves.

In April, the Foreign Investment Review Board said China had overtaken the U.S. as Australia's biggest source of overseas investment--worth A$27.6 billion in total last year. Real estate accounted for almost half of the inflow.

Tony Abbott's conservative government is under growing pressure to make housing more affordable to Australians, as well as to keep a lid on an investor-driven housing market some fear may crash following years of record-low interest rates. The worry is that money from places such as China and Southeast Asia, channeled out of sight of regulators, is fueling the housing problem.

Mr. Hockey, under pressure over a string of missteps that have led even backers to question his political judgement, sparked an outcry during his statement when he defended the high price of residential housing in Sydney, advising people struggling to get a first home to "get a good job that pays good money".

Greens Party Leader Richard Di Natale said Mr. Hockey's solution was akin to a "let-them-eat-cake" moment, proving the ruling conservatives had lost touch with ordinary voters struggling to compete with wealthy property investors including overseas buyers.

Mr. Hockey said foreign buyers were often using trust arrangements that increased in complexity in line with the cost of homes targeted. New laws, he said, would penalize accountants and property agents offering advice to offshore buyers on how to get around local investment rules.

Earlier this year, the treasurer ordered a Hong Kong-based buyer of a A$39 million harbor mansion in Sydney to sell the property after investigations found it had been purchased illegally through a complex web of shelf companies. The house was later sold to an Australian resident of Chinese origin.

Mr. Hockey dismissed concern that the government's clampdown on home purchases by foreigners could damage investor confidence. The entry costs for Australia's real-estate market remain low for foreign investors compared with places such as Singapore or Hong Kong, he said. "This does us no damage--no damage whatsoever--as a destination for foreign investment because this is about the integrity of the current laws," said Mr. Hockey.