The Australian Government will make sure foreign investment application fees for build-to-rent projects are at the lowest commercial level, no matter the kind of land involved, under new changes to the foreign investment framework.
Currently build-to-rent investors can be subject to different, higher fees if their projects involve particular kinds of land, like residential land.
For example, on a residential deal worth $50 million, the fees associated amount to $1.1 million if treated as residential, however if treated as a commercial deal the equivalent fees amount to $13,200. For foreign investors into build-to-rent developments, which is classed as residential, this has posed a significant impediment.
“Lowering the fees for these investments will help to ensure our foreign investment framework is consistent and predictable for all Build to Rent investors, and encourage the development of these projects right across the country that are specifically designed, built and managed to provide long‑term rental options for Australians,” the government said.
The application of commercial foreign investment fees to all future build-to-rent projects will apply after 14 December 2023.
Property Council Chief Executive Mike Zorbas welcomed the announcement noting high foreign investment fees are a disincentive for global investment that is needed to achieve our 1.2 million homes by 2029 housing target.
“Build-to-rent has the potential to create 150,000 homes over the next decade, but the settings must be right,” Mr Zorbas said.
“To give people the full spectrum of affordable housing choice we need to tap into institutional investment and today’s announcement is an important step.
“Encouraging overseas investment to go into new assets makes good sense,” he said.
The government also announced a tripling of foreign investment fees for the purchase of established homes and a doubling of vacancy fees for all foreign‑owned dwellings purchased since 9 May 2017.
Also included in the changes was enhancing the ATO’s compliance regime to ensure foreign investors comply with the rules, including selling their residence when required.
The Property Council notes that more settings need to change to unlock the potential of global institutional investment into new Australian housing, including critical areas where governments can save money through service aggregation such as retirement living communities and purpose-built student accommodation.
“In a highly competitive global market for capital, the National Cabinet needs to think holistically about the tax settings that can help or hinder investment in creating more homes for Australians,” Mr Zorbas said.
“Cutting against the investment grain are those outright deterrents to long term overseas investment in our cities and housing, such as looming Federal ThinCap changes and increasing Foreign Investment Review Board fees.
“The Productivity Commission has rightly characterised such fees as taxes on new investment.
“Despite improvements in the government’s drafting, federal ThinCap changes will still impact the genuine business activities of property trusts, make access to debt more difficult and reduce the allocation of global capital available to build new homes.
“That is before you account for thoughtless but popular state foreigner taxes on new homes and State Treasurers’ devil-may-care attitude to investment-stunting quarterly tax hikes on property.
“It is clear that changing property investment rules week in and week out, evident most recently in taxes rushed through by the Victorian and NSW governments, will prevent us reaching our 1.2 million homes target.
“We will continue to work with all levels of government to maximise the number of homes being built across the country in 2024,” Mr Zorbas said.
Foreign nationals are typically prohibited from purchasing pre-existing real estate, except in specific situations such as relocating for employment or education. If they depart the country without obtaining permanent residency, they must sell the property.
The government hopes the higher fees will encourage foreign buyers to invest in new housing developments.