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Client Update: FIRB real estate changes

1 April 2009

In brief: Following the Commonwealth Government's announcement in December 2008 that the FIRB regulations in regard to acquisition of real estate by foreigners was to be amended, the relevant legislation and policy documents have now been issued. Partner Tony Davies (view CV) looks the changes that are generally effective from 18 December 2008.

Existing 50 per cent off-the-plan residential unit approvals

Current pre-approvals (allowing up to 50 per cent of units in a development to be sold to foreign persons) will remain valid but it is not intended that any further 50 per cent pre-approvals will be issued. However, we do understand that the FIRB will, for a short period (eg 2/3 months), consider issuing such approvals on a case-by-case basis in respect of new significant developments intended to be marketed immediately.

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New residential developments to be sold off the plan

A 50 per cent pre-approval certificate will no longer be available (subject to the case-by-case proviso referred to above).
There will be no restrictions on the number of dwellings/unit in a new development that may be sold to foreign persons however the following will apply:

  • the developer must market the dwellings/units locally as well as overseas. That is, they cannot be marketed exclusively overseas;
  • the dwelling/unit must not have been previously sold (that is, it must be purchased from the developer);
  • the dwelling/unit must not have been occupied for more than 12 months. This is a new provision – previously it was necessary the dwellings/units had not been occupied prior to the sale to a foreign person; and
  • a separate approval must be obtained in respect of each contract with a foreign person. That is, there must be an application lodged with the FIRB for each individual foreign person's acquisition and approval granted by FIRB.

A new Form 4 has been introduced to cover applications by foreign persons who are individuals to purchase dwellings/units. This is a simplified form. The existing Form 3 is to be used for non-individual foreign buyers (ie. companies and trusts). That form is to be updated in the next few weeks to put it into a more simple format as Form 4. In due course it is intended that, assuming the Forms 3 and 4 are completed appropriately, an automatic approval will be issued electronically very soon (ie. 24/48 hours) after the form is lodged.

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Foreign nationals holding temporary resident status in Australia

Non-citizens who are temporary residents in Australia (ie. generally those that hold a temporary residents visa) are NOT required to obtain FIRB approval when acquiring:

  • single blocks of vacant land;
  • new dwellings; and
  • an established (secondhand) dwelling if it is to be used as a principal place of residence (including if it is going to be demolished first and then redeveloped).

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Commercial real estate

The substantial change is that the general exemption from requiring an approval for the purchase of non-residential commercial real estate valued below a specified threshold ($5 million if the property is heritage listed and $50 million if it is not heritage listed) now applies to an accommodation facility ie. hotel, motel or guesthouse. The previous Regulation treated such facilities as residential in nature but it is now acknowledged that they are essentially commercial in nature.

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Future action

Developers who are launching new residential off the plan projects (where no 50 per cent approval certification has been obtained) will need to:

  • market both locally and overseas if they want to have the ability to sell an unlimited number of dwellings/units in the development to foreign investors;
  • provide that their contracts with foreign buyers are subject to FIRB approval being obtained; and
  • streamline the process for obtaining FIRB approval so that contracts with foreign buyers can become unconditional in that regard promptly.

If you have any questions about this or any other real estate matter please contact us.

For further information, please contact:

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