This week, Treasurer Joe Hockey announced the strongest measures yet in his crackdown on illegal foreign investment in the residential property market.
Mr Hockey said that six homes in Perth, Brisbane and Sydney will have to be sold and a much more substantial 462 other possible breaches are being investigated.
The homes are owned by the residents of four different countries and range in value from $152,000 to $1.86 million.
“Unlike the previous Government, which didn’t take action, we are determined to enforce the rules and where appropriate make them even tighter,” Mr Hockey said.
“I will be introducing legislation into the Parliament in the next two weeks that will ensure the reporting requirements, enforcement and penalty regimes for foreign investors who break the laws are stricter and more significant.”
Mr Hockey has flagged an increase in penalties for breaches of the rules, with non-residents who illegally hold existing real estate to face a maximum criminal penalty of $127,000 or three years imprisonment.
They will also lose the capital gain made on the property, 25 per cent of the purchase price or 25 per cent of the market value of the property.
Mr Hockey’s action follows growing pressure from aspiring homebuyers who are furious that they are being priced out of the market by foreign, and especially Chinese, investors.
Chinese investors[/caption]The existing investment rules are designed to force foreign investors to buy off the plan, funding the construction of new properties and thereby increase the housing stock. However, there is widespread agreement that many are, in fact, flooding the established home market instead.
Media reports have claimed that Chinese investors are paying well above market prices for homes, partly as a way of diversifying their money out of China with its perceived economic and political risks and into a safe haven.
It is claimed that many investors do not even rent out the homes they have acquired, thereby reducing the housing supply to both owner occupiers and renters.
In response to these complaints, Mr Hockey has been forced to act and this crackdown may be the smallest politically acceptable response.
So what does this mean for the property industry? It seems that this is one area where developers and real estate agents have very different interests.
It is in the interests of agents to encourage foreign investment in established housing, thereby increasing turnover, boosting pries and their fee income.
But much of this investment in the established housing market may well be coming at the expense of investment in new housing built by developers.
This means that developers may well gain from Mr Hockey’s crackdown as foreign buyers redirect their cash into new housing that complies with the rules.
Certainly, Mr Hockey was at pains to defend foreign investment in the development industry, highlighting its positive effect in creating new jobs and taking up the slack from the slowdown in mining.