Australia MPs seek higher fines for illegal home-buying

Sydney

FOREIGNERS who illegally buy homes in Australia should face higher fines, a parliamentary committee has said, calling on authorities to better police existing rules.

The current A$85,000 (S$94,564) fine for foreigners breaching the rules, "seen by many as simply the cost of doing business", should be replaced with penalties tied to the property's value, the House Economics Committee said in a report that made 12 recommendations. Third parties who help foreigners break the rules should be fined, and gains from illegally purchased homes should be forfeited to the government, it added.

"The recommendations support the current foreign investment framework, but also note that there has been a lack of enforcement of existing rules," Kelly O'Dwyer, who heads the committee, said. "I'm looking forward to the government's response."

The committee started the inquiry in March on concerns that foreign, particularly Chinese, buyers were pricing Australians out of the home market. Sydney's median asking price for detached houses topped a record A$1 million this month, while prices across the nation's major cities jumped 9 per cent in the 12 months through October to the highest ever.

Ms O'Dwyer in September criticised the Foreign Investment Review Board (FIRB), which advises the Treasurer and government on foreign investment policy, saying that it failed to effectively monitor illegal purchases.

There have been no prosecutions since 2006, she said on Thursday. FIRB issued 17 divestment orders between 2003 and 2007, and none since then, the report noted.

"If the FIRB needs to be fixed, we will fix it," Treasurer Joe Hockey told reporters in Canberra on Thursday, adding that the government intends to announce increased funding for the regulator within "the next few months".

Australia in 2010 tightened rules under which offshore buyers are only allowed to purchase new properties with FIRB's permission. It also said that all temporary residents need approval from FIRB to buy properties and must sell existing ones when leaving the country.

A lack of adequate information about foreign buying makes understanding purchasing trends difficult, the Reserve Bank of Australia said in a submission to the inquiry in May.

Available data, while incomplete, suggest that foreign buying has been climbing and has been concentrated in new, higher-end dwellings, rather than existing, lower-priced ones.

Foreign buyers accounted for one in six new properties nationally and 8.2 per cent of existing homes over the six months through September, according to a survey of real estate professionals by National Australia Bank Ltd. The survey didn't break down purchasers by nationality.

Chinese buyers are leading a surge in foreign demand for Australian homes as they seek to mitigate political and economic risks at home, educate their children overseas and live in a cleaner environment, according to an August report by CLSA Asia-Pacific Markets.

The committee on Thursday recommended a national register that tracks citizenship and residency status of all home buyers, and said that Treasury and FIRB must remove barriers to effective policing of breaches.

"The system, particularly for established housing, needs to be transparent and instil confidence in the Australian community that it is fair and equitable," Amanda Lynch, chief executive officer of the Real Estate Institute of Australia, said in a statement. "These report recommendations, when implemented, will go a long way to providing this confidence."

Clients in Beijing and Shanghai are increasingly seeking existing homes as they hear FIRB rules aren't being enforced, Joseph Zaja, Sydney-based managing director of Ausin Group (Finance) Pty, which offers property and mortgage broking to Chinese buyers, said. Their friends and family on the mainland "are purchasing second-hand homes with no barriers to entry and they too are now moving onto this bandwagon", Mr Zaja added.

To fund better policing, the committee recommended a "modest" administration fee. An A$1,500 fee would generate revenue of A$158.7 million over four years, yet amount to less than 0.3 per cent of the purchase price of a home in Sydney or Melbourne, according to the report. BLOOMBERG