HG Alert: Changes to Foreign Investment Review Process - Apr 2009

Changes to Foreign Investment Review Process Implemented on 31 March 2009

The final stage of changes to the Government’s foreign investment screening arrangements for acquisitions of real estate by foreign persons was fully implemented on 31 March 2009 – over a month after initial expectations.

The Assistant Treasurer announced the changes on 18 December 2008, with policy changes being implemented immediately. The balance of the changes, to be incorporated into the Regulations (Foreign Acquisitions and Takeovers Regulations 1989 and Foreign Acquisitions and Takeovers (Notices) Regulations), were due to be implemented in February 2009.

Changes made to the regulations

Streamlined procedures

New and updated forms have been issued for foreign persons to complete and submit to the Foreign Investment Review Board (FIRB) in relation to the acquisition of residential real estate:

  • Form 3 – to be completed by companies and trustees (this Form has not yet been updated); and
  • Form 4 – to be completed by individuals.

The new Forms are written in plain English and are intended to be more user-friendly.

Individuals are no longer required to submit supporting documentation for the acquisition of residential real estate.

Resorts and hotels

Resorts, hotels, hostels and guesthouses (or individual dwellings within them) which are of a commercial nature, are now considered commercial real estate which do not require FIRB approval for acquisitions below the commercial thresholds of:

  • $953 million for the 2009 calendar year for US investors;
  • $5 million for heritage listed property; and
  • $50 million for all other acquisitions.

In order for individual dwellings within resorts, hotels and the like to be considered of a commercial nature, they must be used as part of the hotel (eg managed by the hotel operator), and not just physically located in it.

The FIRB will still consider individual dwellings which are owner occupied or rented privately (ie not through the hotel) as residential premises, and the acquisition of such properties will still require the ordinary approval required for residential real estate.

Foreign investors will need to fully investigate this issue prior to signing contracts. If there is any doubt as to whether or not a dwelling is operated as part of the resort or hotel, enquiries should be made with hotel management, and warranties given by the seller included in the contract.

There is no longer provision for pre-approval to be obtained for the sale of an interest in a building (either existing or off-the-plan) in which hotel services are or would be provided.

Temporary residents

Temporary residents acquiring an interest in the following will not be required to notify the FIRB of proposed acquisitions of:

  • vacant land which is zoned to permit construction of a single residential dwelling, and there is no interest in any adjoining vacant land;
  • established residential dwellings which are to be used as their principal place of residence; and
  • new residential dwellings.

Temporary residents will still need to apply for approval for all other acquisitions.

A new definition of “temporary resident” has been inserted to include foreign persons living in Australia who:

  • hold a valid temporary visa permitting them to stay in Australia for a continuous period of more than 12 months (without regard to the time remaining on the visa); or
  • have submitted an application for permanent residency, and hold a bridging visa permitting them to remain in Australia until their application is finalised.

Amendment to monetary threshold – 2006

The monetary threshold for US investors acquiring an interest in a foreign company with Australian assets and subsidiaries (known as offshore takeovers) has increased to $200 million. This amendment is taken to have commenced on 2 December 2006.

This retrospective amendment rectifies an error made in a previous amendment of the Regulations in 2006, when it was intended to increase the threshold to $200 million.

What is the purpose of the changes?

The changes are intended to:

  • streamline the notification and administrative processes for certain acquisitions of real estate (which are not considered contrary to the national interest and are currently routinely approved); and
  • correct an amendment made to a monetary threshold in December 2006.

For further information regarding these changes to the foreign investment review process, please contact HopgoodGanim’s Commercial Property team.