HOST:
Tomorrow, around Sydney, a lot of the interest in the real estate market will be just how high prices can go. Each weekend we get quite extraordinary results coming out of the Sydney market which is absolutely boiling over. The issue for a lot of people is the extent to which foreign investment is pushing that up and we know there are rules around what foreigners can buy in our real estate market and there have been plenty of examples, anecdotal examples suggesting those rules may be being bent a little bit. I’ve got a report today from Credit Suisse saying that Chinese investment in Australian housing is set to sky rocket to $60 billion over the next six years, that’s more than double the $28 billion spent in the previous six years. That’ll obviously have an impact on house prices in Sydney you would imagine. The Federal Liberal MP Kelly O’Dwyer chairs the House of Representatives Economic Committee. She headed up an inquiry on this last year and she joins us on the line now. Kelly O’Dwyer good morning.
O’DWYER:
Good to be with you.
HOST:
Kelly, thanks for joining us. That’s a huge increase over the next six years from $28 billion to $60 billion, should we be concerned about this.
O’DWYER:
Well first boys can I just say that I am now Parliamentary Secretary to the Treasurer so I now have the responsibility for also looking at how to solve some of these issues that were raised by the House Economics Committee Report that was handed down last year. The figures that are being bandied about — I haven’t seen that report specifically — but certainly there has been an increasing trend that foreign investment has gone up and up, year after year. We saw a doubling over the last 12 months across the residential real estate sector. We heard evidence last year, through the House Economics Committee Inquiry, that foreign investment, where it increases the stock available, whether it’s units, whether it’s houses, that that is actually a good thing because it means that there are more homes for people to purchase or rent. But where you are increasing the competition in areas where there is already existing housing, and you are simply bringing in more competition for less and less stock, that obviously has an impact on prices as well. That’s what the Reserve Bank says. We know that there are many elements though that go to how much a house costs – construction costs, release of land, interest rates – all of that goes into the equation. But, we put in place a plan to help give people confidence again in our Foreign Investment Framework. After six years of Labor, not one court enforced action was taken, not one property was divested through the court. Already, the Treasurer has divested a pretty significant property in Sydney. We’ve got 100 investigations on foot and we have changed the responsibility for enforcement through to the Australian taxation Office which has formed a crack team.
HOST:
So could you just explain what are the current rules that are in place?
O’DWYER:
So the current rules in place are if you are a non-resident foreign investor you can invest in new property if you have got prior approval from the Foreign Investment Review Board. If you are a non-resident foreign investor, who wants to buy an existing home, you are not able to purchase that. That’s the rules. But, if you are a temporary resident, so if you’ve got a visa of 12 months or more, you can purchase, with prior approval from the Foreign Investment Review Board, one existing home for the purpose of it being your principal place of residence, but you have to sell it within three months of leaving the country. We found that previously, there was no data matching going on with the Foreign Investment Review Board and with the Boarder and Immigration, to check whether people who made purchases had in fact sold those homes on leaving.
HOST:
So you’re saying now that you’re actively policing it?
O’DWYER:
Correct. As of Monday, the responsibility for doing the audit, enforcement and compliance was transferred to the Australian Taxation Office for residential property. We have a crack team in there now which will be built over time. There are already about 40 or so people looking at this issue very actively. They’re not just looking at prospective sales that are going to be happening in the coming weeks and months, they’re looking back at sales that have occurred over the last number of years and they are checking whether or not those sales were compliant. We’re also bringing into effect new penalties, new civil penalties which means that we are closing loopholes. Previously people could profit from having done the wrong thing and having contravened our foreign investment framework by making money out of illegal purchases. We’ve closed that down. That will start when our legislation comes into effect on the 1st of December this year. And we’re also increasing criminal penalties as well so that you have increased terms of imprisonment and you’ve got much, much bigger fines under those penalty regimes. Any third party, who wasn’t caught by our existing rules, who has helped somebody to contravene the Foreign Investment Framework knowingly, we’re also going to give them the same sanction, those same civil and criminal sanctions.
HOST:
I guess one of the biggest issue, particularly here in the Sydney market, is housing affordability and how increasingly first home buyers are being pushed out of that market. Are you concerned about the impact that Chinese investment is having on housing affordability because, given the crack-down, you clearly are?
O’DWYER:
Well what we’re doing is we’re making sure that the rules are going to be enforced. It’s no good having rules if you’re not going to enforce those rules and it’s really ridiculous to think that we would say on the one hand that we have got foreign investment framework that understands we have sensitivities in our established property market and there are restrictions around it, but we’re going to do nothing about it if people do the wrong thing. So we’re saying that you’ve got to have enforceability behind your rules or else no one takes your rules seriously. So we’re doing that, we’ve toughened that up. We’re also going to introduce a national register so that instead of relying on anecdote, we know exactly who has purchased what in Australia. Currently Gary we can’t actually say who has purchased what at the moment. We’re all guessing. We’ve got some figures from the Foreign Investment Review Board but that does rely on the fact that everybody has gone through that screening process and we know..
HOST:
Sorry, what do those figures show, roughly?
O’DWYER:
Those figures show that it’s reasonably small but we know that the figures are actually much higher and that’s the point. The point is that we want to get accurate figures and everybody, in the evidence that they presented to the Committee last year, said we need much more accurate figures and having a national register of land will help us to do that and we’re going to bring that into effect as well.
HOST:
Alright, what about the threshold for current foreign investment here, will that be lowered in the next couple of years?
O’DWYER:
Are you talking about for residential property?
HOST:
Yes
O’DWYER:
Well there are no thresholds that apply for residential property. If people are purchasing residential property, the rules are as I’ve said, you’ve got to go to the Foreign Investment Review Board for approval, no matter what the value of the property is. So you don’t go because the property is worth a particular amount, you go no matter what the value of the property is. You need approval.
HOST:
Alright, we’re not just talking here about individual investors but we are talking about large corporations looking up to buy large blocks of suburban tracts as well.
O’DWYER:
Residential property has never been included in our Free Trade Agreements. Commercial property is different. Commercial property we have thresholds of around $250 million for some of those commercial property developments that might be mixed use property developments but no, we haven’t lowered the thresholds on that. We have lowered the thresholds though for agricultural land.
HOST:
The bottom line is tomorrow when there’s a whole lot of houses sold in Sydney and auctioned, can you, does the Government know whether someone’s bending the rules and buying it?
O’DWYER:
Well the Government can find out, because the Government has now got the ATO checking their databases to make sure that we’re tracking money coming in through AUSTRAC, that we’re looking at border and immigration and we’re matching up with all the different data sources.
HOST:
But there are obviously people who are trying to bend the rules.
O’DWYER:
That’s right. There are some people who are trying to bend the rules and we are very committed to catching them.
HOST:
Good luck with it. Thank you. Kelly O’Dwyer, who in that Parliamentary Secretary job will obviously be around with the budget next week. What do you make of that 13, 13, 32. They are doing the best they can but there are people are trying to break the rules, that’s the anecdotal evidence you get all the time.
And is Chinese investment in the property market something that we just have to live with or should we be trying to control it? Give us a call 13, 13, 32.