Real estate agents are wary of new Foreign Investment Review Board (FIRB) rules, which take effect from December 1,2015, which may impact on how they deal with foreign investors.
These new strengthened rules can see individual agents receive penalties of up to $45,000 and companies may be fined up to $225,000 if they knowingly permit foreign investors to breach these rules. The difficulty for agents is knowing how far they must go to establish if a potential buyer is a resident and, if they are not, do they have permission to purchase a property. Currently there is an amnesty which permits owners to sell properties that they have purchased in contravention of FIRB rules and avoid prosecution.
New rules for foreign buyers are also being introduced that will require them to pay a $10,000 fee to be eligible to bid for a $1 million property; the slow is tipped to continue. These new rules, which are set to begin from December 1, will also bring with them a minimum fee of $5,000 for property valued below $1 million.
The strengthening of FIRB rules may see a reduction in median house prices as foreign investors look elsewhere for property.
According to data released by Mortgage Choice as part of their annual First Home Buyer Survey, ‘more than 80% of first home buyers who are planning to purchase property within the next 2 years believe housing is unaffordable in their state.’ NSW first home buyers were the most disillusioned with property pricing.
Making the situation unclear is the confusion surrounding interest rates. ANZ, CBA, Westpac and many small lenders have all lifted their variable home loan rates. Many owner-occupiers are seeing a rise of approximately $42 per month on a $400,000 loan. This is in contrast to investors who are seeing investor loans being increased, by some banks, by more than the variable rate home loans for owner-occupiers.
New FIRB rules are of great concern to financial institutions that may see a reduction in foreign investment business. Ping An, an insurance company with a banking division from China, is offering no deposit home loans to foreign buyers looking to purchase off-the-plan apartments in Melbourne and the Gold Coast. Ping An would pay for the initial 10% of the property, which the purchaser would need to reimburse within 2 years. Once at settlement, Ping An would finance 30% of the property value and the investor would need to source the remaining finance from an Australian financial institution.
The Australian Prudential Regulation Authority (APRA), who is now requiring Australian banks to hold more capital against mortgages after finding $50 billion worth of investment loans not declared by the banks, cannot interfere in this circumstance as their powers do not extend to foreign lenders.
If schemes like Ping An’s results in excessive levels of foreign investment into the Australian property market, then it may be necessary for the Foreign Investment Review Board (FIRB) to become involved. However, many economists insist this will not come to pass as most foreign investors usually do not have a problem arranging a deposit.
Foreign investment from China has flattened out significantly in the later parts of 2015 with the weakness in the Chinese economy the major culprit. China has just made their 6th interest rate cut in in a year in order to boost their economy. A decrease in foreign investment is great news for local buyers and investors with a decrease in competitive demand and increased supply prices are set for a decrease.
This comes at a time when the average home loan is now approximately 4.5 times larger than the average wage, according to Mortgage Choice. Many respondents to the First Home Buyer Survey said that they would like to see government remove stamp duty for first home buyers.
The Federal Treasurer, Scott Morrison, this week spoke about potential tax reforms that would persuade retirees to downsize to smaller properties and to move money made from the sale to retirement-income products. Further to this, any profits made would be excluded from the Age Pension assets test.
A program such as this would see an increase in housing supply for first home buyers, younger families and investors. The program is still being worked on by the Treasurer and his team but a draft is scheduled to be released in 2016.
When Mr Morrison meets with state and territory treasurers in December is expected to put forth a discussion on stamp duty exemptions. This will come as part of a tax package which will see an increase to the GST and a decrease to personal income tax.
If you require assistance with any compliance matters EAC has available the Agency Practice Helpline, which is a free service for EAC Members.