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What you need to know about foreign investment regulations for residential real estate

In this article we provide a helpful summary of the relevant regulations and information you’ll need.

Firstly, you will need to apply for and receive foreign investment approval before purchasing established residential dwellings for redevelopment. Normally, foreign persons will be permitted to purchase an established dwelling for redevelopment, provided that redevelopment genuinely increases the housing stock. This is generally taken to mean that at least one additional dwelling will be created.

Listed below are the factors that will be taken into consideration when assessing an application to purchase established residential dwellings for redevelopment along with the conditions normally applied to an approval. These are according to the (Australian Government) Foreign Investment Review Board, Guidance Note 6.

1. Redeveloping an established dwelling with multiple dwellings.

A redevelopment proposal will normally get an approval when an established dwelling or dwellings will be removed, and replaced with more dwellings than the ones that were demolished.

These proposals are normally approved subject to conditions where:

  • the existing dwelling(s) must remain vacant before demolition and redevelopment;
  • the existing dwelling(s) is demolished and construction of the new dwelling finished within 4 years of approval date; and
  • evidence of completion of the dwelling is submitted within thirty days of it being received by the applicant. This may include a final occupancy or builder completion certificate.

If the plans for redevelopment or intentions for the use of the property change after receiving approval, foreign persons will normally be required to seek a variation.
In exceptional circumstances when the development can’t be completed in the required 4 years, the foreign person could apply for a variation to the condition — this application for variation has to be made at least 2 months before the end of the 4 years. A fee will apply. Variations are considered on a case-by-case basis.

2. Retaining an established dwelling and building an additional dwelling.

Proposals to retain an established dwelling and build an additional dwelling will generally be approved when the additional dwelling is of comparable size and value to the existing property, and when constructed, either one or both dwellings will be made available for use by independent third parties (by renting or selling to a third party) .
Proposals for additional developments that are intended only as an expansion or refurbishment of an existing dwelling, or are linked to an existing dwelling, such as accommodation for an existing family member in the form of a ‘granny flat’, entertainment space or other private guest accommodation, will normally not be approved.

3. Redeveloping an established dwelling with a single new dwelling.

Foreign persons will generally not get approval to buy an established dwelling to redevelop into a single new dwelling, regardless of the condition of the existing dwelling.
This consideration will extend to situations where a foreign person wants to purchase 2 established dwellings to redevelop into 2 new dwellings, 3 established dwellings to redevelop into 3 new dwellings, and so on.

Vacant land that previously had an established dwelling on it would generally not be considered as ‘vacant land’ for the purposes of Australia’s foreign investment rules, and applications to buy the land in order to build a single dwelling on it would generally not get approval.

Applications for approval to purchase residential properties will not be considered until the relevant application fees have been paid.

Fees payable for residential land:

  • Acquiring an interest in residential land if the price of the acquisition is $1 million or less. Fee: $5,000
  • Acquiring an interest in residential land if the price of the acquisition is more than $1 million and less than $2 million. Fee: $10,000
  • Acquiring an interest in residential land if the price of the acquisition is between $2 million and less than $3 million. Fee: $20,000
  • For each further $1 million increment in value. Fee: $10,000 per $1 million
  • Applying for a variation of an approval condition. Fee: $5,000

While the process of foreign development approval has become tighter, it is by no means impossible. The Government’s policy is driven by encouraging foreign investment primarily in new dwellings, because this creates additional jobs in the Australian construction industry and helps support economic growth. It also increases government revenues with stamp duties and other taxes, and from the overall higher economic growth that flows on from extra investment.

As we have listed above, there are also many opportunities to buy established dwellings and engage in development of those properties. However before investing you need to understand the regulations clearly – and also the system of fees that apply to the initial purchase.

An understanding of the requirements will allow you to make informed decisions when purchasing your next property, so you avoid breaching any regulations. Being clear with both your short and long term intentions will make for a more streamlined process.

If you are a non-resident or a temporary resident in Australia and would like more information about investing in established residential dwellings for development, SAW Constructions can assist. Call us today, (03) 9550 0700.