Australian residential property: FIRB and SIV changes

Recently, there have been a string of articles about the state of the Australian property market, and the Significant Investor (subclass 188 for the provisional and 888 for the permanent) Visa. Some commentators say that these are on occasion intertwined and undermined by foreign nationals. Namely, by buying established Australian residential when not approved by the Foreign Investment Review Board (FIRB), and buying Australian residential property under trust arrangements to satisfy the Significant Investor Visa (SIV) requirements of investing AUD 5 million in a complying fund.

The SIV is considered Australia's blue ribbon visa program as there are no age or English requirements that are mandatory for all other business and skilled streams and visas. Its primary design was to boost the Australian economy with direct investment.

The Australian Financial Review published no less than four articles in their weekend edition on these two topics and, in my opinion, hinted at a connection between the two. The first was the concern that the proposed new ‘tax’ on approved foreign purchases of AUD 5,000 for properties sold under AUD 1 million and AUD 10,000 at AUD 1 million, and further increments for every million would risk Australia’s housing boom as offshore investment demand (predominantly from China) was stoking the flames of the construction industry. Further to this announcement made by Australia’s Prime Minister last week was also the strengthening of penalties that may apply for those purchasing existing properties (and for those assisting these acquisitions), unlawfully. Many of these purchases are at the wealthiest end of the property market.

For those wanting to purchase existing property, it was noted in an article about the SIV program and its flaws, some visa applicants, no doubt with savvy assistance, were using loopholes to skirt the rules when it came to the spirit of the program and its complying investment requirement. Two examples were given. The first is when fund managers or even private companies provide a loan (that can be as much as 100% of the investment) back to the applicant. Therefore, their investment would be nothing but a neutered ledger entry.

The second was investing in certain funds with the sole purpose of purchasing established Australian residential property through trust arrangements but were subsequently wound up after a permanent visa was granted. The visa applicant would then keep any property purchased. I would expect that this would also be circumventing the scrutiny of the FIRB upon final settlement of the property.

According to regulations, any investment in a qualifying business specifically excludes the operation of passive investments that includes rental properties. As this example seems to be an investment into a managed fund, and not an Australian private company, it just may be allowable at this point in time. Managed funds in total, some of which allow investments in ‘real property in Australia’, represent just over 50% of current complying investments.

It is hoped for the sake of the scheme of that the Department of Immigration and Border Protection corrects the alignment of complying investments with the outcomes they want to achieve with this visa stream. Their current review may be especially warranted with the planned introduction of the almighty Premium Investor visa probably in the next financial year, which reduced the waiting time for an Australian permanent visa from 4 years down to 12 months, but increase the amount needed to be invested from AUD 5 million to a princely fee of AUD 15 million.