WEBSTER:
Anecdotally, I have this every weekend when I talk to Dr Andrew Wilson from Domain, anecdotally people say “the Chinese are buying up stuff like you wouldn’t believe”. The root cause of the problem is a pretty simple thing, interest rates are low; people are buying up property and that’s it. So while ever that’s the case [inaudible] keep going off. Lots of speculation that it will cool off at the end of 2016/2017. Well with interest rates at 2 per cent that’s probably not going to happen. Now foreign investment is the key factor, definitely the major one in the eyes and minds of many. So let’s have a look at it because there was one thing that I noticed this morning, and I thought I knew all about it, but this one is a loophole that I wasn’t aware of. Kelly O’Dwyer is the Parliamentary Secretary to the Treasurer, she sits on the board that is trying to close down some of these loopholes – the FIRB – and I’m pleased to say she joins me on the line. G’day Kelly.
O’DWYER:
G’day Tim.
WEBSTER:
There’s a little loophole there that I wasn’t aware of that probably should be closed. So the old knockdown – you’re not allowed to buy a new one, but you can buy an existing property, knock it down and then build a new one so you get around the rule.
O’DWYER:
We’ve been very keen to closedown loopholes that people have been exploiting in breach of our foreign investment framework. We understand people are very concerned about this issue Tim, because Australians, quite rightly, believe that they should get a fair go when it comes to the property market and while we want to encourage foreign investment that increases dwelling stock, where foreign investors some in and purchase existing homes – that they’re not entitled to under our foreign investment framework – that isn’t fair. That’s something that we are looking at very seriously and we’ve introduced new rules to deal with it. These include new civil penalties – third parties now coming into the law for the very first time – so if they encourage people to breach the rules there are going to be significant penalties – stopping people from profiting from purchasing homes illegally, all of that is what we are interested in – transferring audit and enforcement to the Australian Taxation Office.
WEBSTER:
Just specifically on this one though, because I think this one is important in the eyes of many, technically speaking, is this a loophole? So a foreign buyer buys an existing home, knocks it down then builds a new one, can they therefore get around the not buying an existing dwelling rule?
O’DWYER:
What’s happened is that there was a guidance note and policy that was introduced to say that if a home was at the end of its “economic life” that you can build a new home. Now over the years that seems to have changed in terms of how it has been interpreted by the various officials that that have looked at this issue. Initially, the property had be completely derelict, uninhabitable, before you could knock it down and build a new home. In more recent times, it appears that this has been a more lateral interpretation of that and it has been much broader. We are going back to the original definition that it needs to be derelict before somebody can knock down a home and before it can be approved by the Foreign Investment Review Board.
WEBSTER:
Ok – so you can’t just decide you’re going to knock it down no matter what?
O’DWYER:
Correct, that’s right.
WEBSTER:
Ok. That should be pretty simple – solved that one.
O’DWYER:
Yep, that’s exactly right. That’s why we think you’ve got to have a practical approach. It is beggar’s belief that through the entire period of time of the previous Labor Government, not one court enforcement activity took place for the illegal purchase of property, that they weren’t able to divest people of illegally purchased properties. We’ve put new resources into the Foreign Investment Review Board and into the Australian Taxation Office – which is going to follow through with the compliance activity that needs to be conducted to catch people who are doing the wrong thing. There’s a telephone number, Tim, that people can use to dob people in if they think that there has been an illegal purchase and we, as the Government, can investigate it. Can I give you the number?
WEBSTER:
Sure, absolutely.
O’DWYER:
1800 050 377 – that’s 1800 050 377.
WEBSTER: Fantastic, now there’s plenty of accusations around that the Foreign Investment Review Board is a bit listless, doesn’t have enough power, enough funding, or staff to police all of this. Fair comment or not?
O’DWYER:
We’ve changed it. Certainly that had previously been the case, where there hadn’t been enough focus on the compliance activity. It is all very well to have rules, but if you’re not prepared to enforce the rules then it doesn’t really mean all that much.
WEBSTER:
Correct.
O’DWYER: We’ve said that’s not good enough. If we’ve got rules in place they need to be enforced and we need to be serious about enforcing them. This is why we’ve transferred the responsibility for investigations to the Australian Taxation Office rather than having Treasury conduct those investigations. We’ve beefed it up – we’ve got now a big team, 60 people, who are now looking at these issues. Previously it was a handful of people looking at these issues. And we’ve put serious resources into matching data that various government departments have. So we’re now, for the first time, matching immigration data against AUSTRAC data, which is the data where we see the movement of money; matching it against the Taxation Office data, so that we can build a picture of strange things that are going on and we can focus our activities on those people perhaps may not be doing the right thing, investigating it and then brining the full force of the law to bear.
WEBSTER:
Yeah, and Kelly look, it is anecdotal but I hear it all the time, you know, there’s an auction on the weekend or a series of auctions on the weekend and somebody rings up and says, you know, one of the buyers was a bloke who’d flown in from China he’s going to buy this unit for his kids and people go “how are they allowed to do that?” Now, what’s that rule in relation to how long you have a visa in this country before you can buy a property?
O’DWYER:
There’s a very clear rule that says that a foreign investor can purchase new property because it is increasing existing dwelling stock – when you’ve got approval from the Foreign Investment Review Board – for existing homes. If you’re a non-resident foreign investor you can’t, but if you are a temporary resident – so somebody who has a visa of twelve months or more – you can buy one existing home with the approval of the Foreign Investment Review Board.
WEBSTER:
But only one.
O’DWYER:
Only one and you have to have it approved and you must sell it when you leave the country. Now the big problem here was that in 2008, just before Christmas, the Labor Government lifted the requirement for temporary residents to have to notify the Foreign Investment Review Board and get approval for that purchase of the existing home. Now many people can speculate on what that has then led to. The Labor Government then had to change that back. But by them, I do query whether there had already been a significant impact at that point in time by the changes that were made in 2008. Now we’re having to deal with the consequences of that and making sure that we tighten the rules so that people understand exactly what they’re allowed to do. And for those people who are doing the wrong thing, to make sure that their divested of their property.
WEBSTER:
Yeah right. Because, you know, I get the calls all the time and it troubles me because young people say look, I am a first home buyer but I’m just priced out of the market, I can’t do it in Sydney, I can’t afford it. But, you know, if you think about it logically we really need to rethink, in Sydney in particular, when we get into the market, what sort of property we buy I mean, building these medium-density housing, well not high-rises, medium-rises around railway stations, all of these things into the future are going to be what we need to do. We have just got to get rid of the perception in people’s heads, and by the sounds of it you’re doing it, that you just can’t get into the market because people from overseas buying up everything and that is a perception that’s been around for a while.
O’DWYER:
This is Tim another reason why we are, for the very first time, bringing in a national register of residential property, as well as agricultural property, where we can deal with more than just anecdote. Where we can actually deal in the facts and we can work out who has purchased what, at what volume and what impact we think it might be having, so we can have a much more nuanced discussion about this issue. We’re not reliant on what we’ve been told about what’s happened at a property auction on the weekend – although we do take that very seriously – but we can put together some facts around this which is why we’re bringing in this national register, which is why we’re engaging with states and territories that do have the land register whereby we can also determine whether or not properties are purchased by foreign investors.
WEBSTER:
Just finally, now is this too hard or not? Does there need to be some sort of system where the FIRB records align with the passport office?
O’DWYER:
We do need to make sure that the Foreign Investment Review Board is actually talking to Immigration. In the past, we found out during a Parliamentary review that was conducted in 2014, that they weren’t. They were prohibited through legislation from sharing that data. We’ve changed that, we have said that it needs to be shared and that we need to know.
WEBSTER:
Alright, good on you. Thanks for your time.
O’DWYER:
Terrific. Thanks Tim.