While foreign investment has largely been acknowledged as beneficial to real estate in Australia - and the rest of the economy too - illegal house purchases have poisoned the well for legitimate transactions. Fortunately, the latest announcement from the federal government could put this issue to bed.
New measures coming into place
Following the Options Paper, which was released in February this year, Joe Hockey has announced some changes to the way foreign investment in Australian real estate will be administered.
In a 2 May release Mr Hockey revealed that assessment of residential real estate investment by overseas parties will move to the Australian Taxation Office (ATO).
"The ATO will use its data-matching systems to identify possible breaches and the commonwealth will pursue those foreign investors who break the rules," he said in the official release.
Not only will enhanced detection methods be used, but stricter penalties will make it easier for officials to enforce government policy. Criminal penalties of up to $127,500, or three years in prison, have been introduced for individuals who break the rules, while companies face steeper financial repercussions.
Civil penalties have also been instituted to mitigate any ill-gotten capital gain and fines have been introduced for third parties who knowingly assist in a breach of the foreign investment rules.
The cost of enforcement has been removed from taxpayers, and will instead be made up in fees levied on all foreign investment applications. While this may have merit, some industry experts warn that high fees could reduce desirable overseas investment, which increases housing and job supply in Australia.
"The government's stated objective is to improve housing affordability but it will achieve the exact opposite with these excessive new fees particularly if other states follow Victoria's lead and lift their taxes," said Property Council of Australia chief executive Ken Morrison in a 4 May statement.
While there may be disapproval of the high fees being attached to applications, the sentiment is that the new enforcement measures should enable greater accountability in the real estate sector.
Mr Morrison pointed out that benign investment from overseas parties is one of the key factors in keeping residential construction ticking over - something that is currently propping up a disproportionate amount of the economy. He suggested that the lower fee considered by the Parliamentary Committee would be more than enough to cover costs and relieve taxpayers of the burden of enforcement expenses.
