FIRB approval process for buying Australian real estate – quick, painless, and utterly useless The scope for foreigners to buy Australian real estate is a subject which can be sensitive for a range of reasons. Some people have concerns about foreigners buying Australian real estate on grounds of the morality of the processes by which foreigners get the money to buy Australian real estate, some have issues the extent to which foreigners buy Australian real estate and the concentrations of foreign real estate purchases, some, regrettably it needs to be acknowledged, have issues with the race of some buyers. At various times in recent years the issue has become politically sensitive. In 2010, in response to concerns which made their way into the media the then Rudd government announced a ‘crackdown’ on foreign purchases of Australian real estate, announcing a ‘dob in’ line for the public to report suspected instances of foreigners illegally buying Australian real estate and a ‘crackdown’ on the process. Despite this a regular undercurrent of commentary about the real estate market in Australia has been about the extent and volume of international purchases. Unconventional Economist posted a thread at Macrobusiness, on Friday 22 March at about 14:00, about foreign buyers of Australian real estate (http://www.macrobusiness.com.au/2013/03/understanding-foreign-property-purchases/). There have been a few real estate related topics loaded up over the last year which have generated some comment about the level of foreign buying of Australian real estate, and in particular brought into question the relative lack of data about foreign real estate purchases, their impact on the market, the process applicants go through and verification, appeal and reporting processes. The thread outlined the policy position on who can and cannot buy Australian real estate, and outlined the role of the Foreign Investment Review Board (FIRB). FIRB includes broad general level data in its annual report each year (Table 2.8). This shows that between 2005/2006 and 2011/2012 there have been 45095 applications by foreigners to buy AUD $98.23 billion worth of Australian real estate. In the last year there have been claims that the volumes of international purchases – which average roughly AUD $2.15 million per application over the 6 years in question (reflecting that some applications are for multiple properties, presumably) – are a significant factor in the resilience of Australian real estate prices, following what is generally seen as a property bubble leading up to a nearly 20% increase in 2010 – widely attributed to the increased first home owners grant made available as part of the Federal government’s fiscal stimulus package to ward off the impact of the GFC in Australia. If there is any substance to the assertion then foreign purchases of Australian real estate could be a factor in real estate prices remaining higher than they may otherwise be, then they are a factor in Australians who do not own their own houses being forced to pay more, and going further into debt to do so. The FIRB process To revisit the FIRB page upon seeing the thread by Unconventional Economist was the work of an instant. This real estate approval process begins by clicking a button marked ‘Residential real estate apply online’ and then on the next page clicking on ‘Start your first application.’
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FIRB and the Approval Process for Foreign Purchases of Residential Real Estate in Australia - March 2013
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FIRB approval process for buying Australian real estate – quick, painless, and utterly useless
The scope for foreigners to buy Australian real estate is a subject which can be sensitive for a range
of reasons. Some people have concerns about foreigners buying Australian real estate on grounds of
the morality of the processes by which foreigners get the money to buy Australian real estate, some
have issues the extent to which foreigners buy Australian real estate and the concentrations of
foreign real estate purchases, some, regrettably it needs to be acknowledged, have issues with the
race of some buyers.
At various times in recent years the issue has become politically sensitive. In 2010, in response to
concerns which made their way into the media the then Rudd government announced a ‘crackdown’
on foreign purchases of Australian real estate, announcing a ‘dob in’ line for the public to report
suspected instances of foreigners illegally buying Australian real estate and a ‘crackdown’ on the
process. Despite this a regular undercurrent of commentary about the real estate market in
Australia has been about the extent and volume of international purchases.
Unconventional Economist posted a thread at Macrobusiness, on Friday 22 March at about 14:00,
about foreign buyers of Australian real estate
(http://www.macrobusiness.com.au/2013/03/understanding-foreign-property-purchases/). There
have been a few real estate related topics loaded up over the last year which have generated some
comment about the level of foreign buying of Australian real estate, and in particular brought into
question the relative lack of data about foreign real estate purchases, their impact on the market,
the process applicants go through and verification, appeal and reporting processes. The thread
outlined the policy position on who can and cannot buy Australian real estate, and outlined the role
of the Foreign Investment Review Board (FIRB).
FIRB includes broad general level data in its annual report each year (Table 2.8). This shows that
between 2005/2006 and 2011/2012 there have been 45095 applications by foreigners to buy AUD
$98.23 billion worth of Australian real estate. In the last year there have been claims that the
volumes of international purchases – which average roughly AUD $2.15 million per application over
the 6 years in question (reflecting that some applications are for multiple properties, presumably) –
are a significant factor in the resilience of Australian real estate prices, following what is generally
seen as a property bubble leading up to a nearly 20% increase in 2010 – widely attributed to the
increased first home owners grant made available as part of the Federal government’s fiscal stimulus
package to ward off the impact of the GFC in Australia. If there is any substance to the assertion
then foreign purchases of Australian real estate could be a factor in real estate prices remaining
higher than they may otherwise be, then they are a factor in Australians who do not own their own
houses being forced to pay more, and going further into debt to do so.
The FIRB process
To revisit the FIRB page upon seeing the thread by Unconventional Economist was the work of an
instant. This real estate approval process begins by clicking a button marked ‘Residential real estate
apply online’ and then on the next page clicking on ‘Start your first application.’
In the interests of finding out about the process I have made 2 applications – one last Friday to see
what happens, and one today to go through and take screenshots of every page. Both have featured
fictional names and addresses from foreign nations, with fictional mobile phone numbers
After this the first effective page of the process take applicants out of the process by outlining those
who have no need to notify FIRB
In the interests of exploring the process further I clicked ‘no’ to all of the exemptions. That took me
to the next page asking me whether I was buying as an individual company or trust, and asking if I
had signed a contract. I went for individual and no signed contract.
Next up was another click and flick about the type of place I was buying. I indicated I was buying an
existing dwelling.
At this point I needed to provide an email address and register a password, secret question and
answer, and pass a system check. I twice provided a false name, false address (in two different
foreign countries), and false mobile phone number
The next screen confirms that an account has been created
The next screen confirms the details you enter, and asks if you have a visa to travel to/stay in
Australia. It doesn’t ask if the applicant has a visa to reside in Australia. After I initially indicated I
didn’t have a visa to travel to or stay in Australia the system held me up until I changed the click to
indicate I did have such a visa – but the visa clearly encompasses a travel visa which shouldn’t allow
me to purchase property.
The next page asks an applicant to provide passport and visa subclass details. I provided passport
numbers made in my head on the spur of the moment, and an expiry date nebulously off in the
future at some point. Obligingly the page provides a guide as the likely visa subclass numbers - I
chose one of those (878) to go with a visa grant date some time ago and an expiry date in a couple of
years.
The next page confirmed the name and birthdate I had indicated as the sole purchaser.
The next page asks for details of the property an applicant intends to buy. I put down (on both
occasions) an address in the eastern suburbs of Melbourne which I know exists, and indicated a price
of the sale (in both cases circa AUD $600K).
The next page asks if I own any other properties. I indicated no both times.
The next page is of declarations which anyone would know to click yes to.
The next page is of general declarations indicating that I am who I say I am, I am a naughty boy if I
put false or misleading declarations in, and that the FIRB can share my details around.
I click that and I have a page with a submitted application
They sent me an email confirming the details I had given them.
The outcome
I put in an application on Friday assuming someone in at FIRB may take 4 weeks to determine that
there was no me (as I had indicated in their online form) that I had no passport or visa (as indicated
in their online form). I thought there was even the vague chance that someone may even look to
see if the properties I had indicated I would buy were for sale, or even if they were worth the
indicated price.
But no.
On Monday 25 March at 13:45 I received a response from FIRB indicating that I was exempt.
Implications of the FIRB process
The FIRB process for notifying foreign real estate purchases is feeble to say the least. It is the
skimpiest of skimpy ‘notification’ systems without the faintest shred of verifying anything. The
integrity of the process is so weak as to make anyone wonder what it is effectively for.
It certainly isn’t to establish any bona fides of foreign buyers of Australian real estate. It simply
requires that these can enter a moderately plausible visa and passport number, can back that up
with moderately plausible dates and accord with some very very basic declarations that an applicant
isn’t naughty.
Given that less than a full working day had elapsed between the submission of the application and
the notification it would have to be questioned if they had actually checked anything.
In the last year I have been told more than once by real estate agents, and more than once by
foreign purchasers of Australian residential property, that the system is a joke and that in some
areas foreign purchases of residential real estate are a significant factor in local prices. I have been
told that the system has a 99.9% self-compliance rate – and as one Macrobusiness commentator
asked last week ‘how credible is that? I have been told that no party in the real estate process
(certainly not real estate agents or property vendors) would ask to see permission or approval or
evidence that a foreign buyer or potential buyer of Australian real estate had entered into the
process such as it is, and that there is no review process.
So it currently appears that the issue of foreign purchases of Australian residential real estate is one
which the relevant regulatory authority does not treat particularly seriously, and one where for
wider political reasons there needs to be seen to be a process, but for other reason there needs to
be a process so feeble as to be barely a process at all.
Pursuing this issue is not about race or pro or anti-immigration or population policy, although no
doubt they will be factors for some. Pursuing the issue is about clearly identifying the impact that
foreign purchases of Australian residential real estate has on existing Australians looking to enter the
market, the function of price in that market as a balance between supply and demand, and the
extent to which a greater or lesser degree of foreign purchases of Australian residential real estate
discriminates against their interests in favour of those who have mortgages or already own
Australian residential real estate, particularly in terms of the very significant numbers of market
participants who own more than one property and have accrued significant debt to do so.
When you consider that foreign buyers have unquestioned access to the market without even being
asked about the provenance of their funds, their right to actually buy Australian residential real
estate, their visas, and consider that property investors have negative gearing, easier access to credit
(and in 1/3 of cases are not paying any principal – Q4 2012 according to Credit Suisse) then it is
difficult to escape the conclusion that the property market is gamed against younger buyers and has
been for some time.
It would seem that we have a political/administrative system that has decided that we aren’t mature
enough to discuss the issue, and that some fibs about the existence of a process, what that process
does, and the accountability of that process, are preferable.
At the moment this would appear to be a AUD $20 billion per year regulatory black hole.
At this point some questions need to be asked.
First of FIRB
What is the purpose of the foreign purchase notification/application process?
The front page of the FIRB website refer to ‘apply’ – what are applicants applying for? (are they
applying for permission or are they simply notifying?) What are the criteria against which they are
considered
What steps does FIRB take to verify the integrity of information provided by applicants?
Then of the wider Departments of Treasury and Housing
What steps are taken to monitor the impact of foreign purchases of Australian real estate:-
On existing buyers and potential buyers of Australian residential real estate?
On Australian residential real estate prices?
On locales with a significant number of foreign purchases of Australian residential real estate?
Then of the real estate industry
What role (if any) do you believe real estate practitioners should have in monitoring foreign
purchases of Australian residential real estate?
Do you believe that foreign purchases of Australian residential real estate should be notified and
monitored? And that this monitoring should be made available to Australian residential real estate
participants?
Then of Australian political parties
To what extent should Australians have confidence that the process for notifying foreign purchases
of residential real estate has procedural integrity and a clearly stated purpose? To what extent do
you think the existing process meets this expectation?
To what extent do you think that Australians should have confidence that the process for notifying
foreign purchases of residential real estate verifies that potential purchasers do actually have a visa
appropriate to purchasing Australian residential real estate? To what extent do you think the
existing process meets this expectation?
To what extent do you think that Australians should have confidence that the process for notifying
foreign purchases of residential real estate verifies that funds used by foreigners to purchase
Australian residential real estate have not been acquired illegally or corruptly and have been accrued
in a manner broadly compatible with the values, customs and beliefs of Australians? To what extent
do you think the existing process meets this expectation?
To what extent should Australians have confidence that their government and regulatory bodies will
be able to clearly articulate the impact of foreign purchases of Australian residential real estate both
in terms of local socio demographics and real estate prices to Australians? To what extent do you
think the existing process meets this expectation?
What policies and processes regarding foreign purchases of Australian residential real estate do you