Australia Tightens Foreign Property Ownership Rules

 Temporary residents need approval o buy property

April 24 (Bloomberg) -- Australia will tighten rules on foreign investment in real estate, and introduce penalties to enforce the changes, to ensure pressure isn’t placed on housing availability for local residents.

Temporary residents will require approval from the Foreign Investment Review Board to buy property, and will have to sell when leaving the country, Assistant Treasurer Nick Sherry said. It ensures “working families are not being priced out of their own family homes,” Prime Minister Kevin Rudd said in Canberra today, a transcript from his office shows.

Treasurer Wayne Swan eased restrictions on non-residents in late 2008, making it easier for foreigners to buy property without government approval. Surging house prices, which advanced more than 10 percent last year, were among reasons the Reserve Bank of Australia boosted the benchmark interest rate this month for the fifth time in six meetings.

“Foreign purchasers can play an important role in supporting the development of new rental properties,” Aaron Gadiel, chief executive of Urban Taskforce Australia, said in an e-mailed statement. “Given that our national housing undersupply is reaching 200,000 homes, we should welcome any investment by foreign residents or businesses in boosting our supply of newly built homes.”

The lack of housing supply is the underlying issue for housing affordability, Gadiel said. Urban Taskforce Australia is an industry group representing property developers and equity financiers.

‘Foreign Speculators’

“We want to make sure that foreign speculators are not going to force up prices for Australians seeking to buy their own home, buy their first home, and we think this is the right course of action,” said Rudd, who faces an election within a year.

Australia will back up the changes with compliance, monitoring and enforcement measures including civil penalties, Assistant Treasurer Sherry said in a statement today. These include compulsory sales of property purchased in breach of the new investment regime, Sherry said.

Temporary residents will be required to start construction on undeveloped land within two years of purchase or be forced to sell, he said. The tighter rules will also apply to people on student visas, Sherry said.

Overseas Buyers

Overseas buying may have contributed to rising house prices, Sherry told reporters in Melbourne today. The measures are precautionary and won’t have a “major impact” on the housing market in Australia, Sherry said.

David Airey, president of the Real Estate Institute of Australia, is among those blaming gains in home prices on an increase in investment from overseas buyers, particularly Chinese. The institute today supported stricter rules. Prices jumped 12.7 percent in the year through February, a March 31 report by real-estate monitoring company RP Data-Rismark showed.

Overseas purchasers accounted for about 0.62 percent of transactions by LJ Hooker in 2009, David Maher, business analyst at the real estate agency, said in a telephone interview on April 15.

‘Ridiculous Claims’

“Claims that overseas buyers are pricing people out of the market are ridiculous,” Maher said. “There’d have to be a mammoth increase in the level of overseas investment to have any real effect on affordability in the Australian market. The numbers don’t show that.”

An increase in housing through the release of more land, and measures to reduce the amount of money and time it takes to develop new projects, are required to ease prices, Charles Tarbey, local chairman of Century21 Real Estate, said April 6.

The average sales price of houses and apartments its agents sold between Jan. 1 and March 29 this year was A$407,228 ($378,000), an 18 percent increase from the same period in 2009, according to Century21 data.

--With assistance from Nichola Saminather in Sydney. Editors: Jim McDonald, Ravil Shirodkar

By Ben Sharples
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net