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Foreigners illegally buying trophy homes in Sydney and Melbourne, sidestepping FIRB approval
Topic Started: 2 Sep 2014, 07:43 PM (940 Views)
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Foreigners illegally buy trophy homes in Sydney and Melbourne

Larry Schlesinger

Real estate agents and property lawyers are willingly helping foreign investors to illegally buy prestige homes in Melbourne and Sydney, says buyers’ agent David Morrell.

Mr Morrell said foreign buyers without the Australian residency requirement to own existing property and who did not speak English were buying up big land banks in blue-chip suburbs such as Toorak and Hawthorn while the Foreign Investment Review Board took no action.

Mr Morrell likened the powers of the FIRB to “a slap in the face with a wet lettuce”. He said estate agents, whom the FIRB relied upon to report foreign buyers flouting the rules, were looking the other way in return for higher commissions.

“The lawyers are also getting something out of it, so they’re not going to dob in their clients,” he said.

In his submission to the FIRB, Mr Morrell said the problem was most severe at the top end of the market (homes priced above $10 million) and those priced between $1.5 million and $3.5 million in the inner cities.

He said Chinese nationals were buying homes at 20 per cent to 30 per cent premiums to the local marketplace, causing a domino effect where other vendors believe their properties are worth more, meaning local buyers cannot compete.

“At a recent Toorak auction, where the reserve was exceeded by 30 per cent, there were three Chinese nationals competing, neither spoke English or understood the process and literally just kept their hands in the air.”

But he said a proposal to impose extra stamp duty charges on foreign buyers of real estate, which was reported in AFR Weekend, being considered by a parliamentary committee examining housing affordability would have no impact on the activity. “Foreign buyers will just wear it as a cost. It won’t sway them.”
Harsher penalties

Rather, he said, FIRB rules needed to be enforced and there needed to be much harsher penalties for those that break the law. He also called for agents and lawyers to be disqualified and banned if they facilitated illegal deals.

Read more: http://www.afr.com/p/business/property/foreigners_illegally_buy_trophy_IttwNqhaCStBBNvSUod5OK
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Foreign buyers sidestepping FIRB approval

September 2, 2014 - 9:21AM
Lucy Macken

Sydney estate agents say many property purchases by offshore interests are taking place without Foreign Investment Review Board approval, but have dismissed suggestions that those sales are driving up the broader prestige market.

Claims that foreign buyers are illegally buying established property have been made by Melbourne buyer's agent David Morrell before a parliamentary inquiry into foreign ownership.

Mr Morrell said agents were looking the other way when foreign nationals bought real estate in Australia in return for higher commissions.

But the president of the Real Estate Institute of NSW, Malcolm Gunning, said agents were not required to check whether a buyer's visa had been approved.

"It is good practice for agents to check a buyer's visa is approved to ensure there are no problems with settlement, but we don't think agents are the ones to be policing this on behalf of the government because they are acting on behalf of the vendor," Mr Gunning said.

"It's certainly common practice on large commercial transactions to check these things, but it's harder at the residential level where a buyer can turn up at an auction and buy property just by registering."

Lower north shore and eastern suburbs agents said many big-ticket sales to overseas buyers are purchased in the name of a family member, such as a child or parent.

"It's not illegal," said Tim Foote, of Belle Property Mosman. "These buyers are simply working within the system, just as Australian buyers do, too," "It's the same as a professional director might do when they buy property in the name of their spouse."

Craig Pontey, of Ray White Double Bay, said there was nothing unusual about buyers hoping to protect their assets by putting it in a family member's name.

"We recently sold a house worth multimillions of dollars to a couple from Shanghai in the name of their 20-something child who lives in the property now while they are at university here," Mr Pontey said.

The high-profile Point Piper mansion Altona was bought last March for $52 million in the company name Chaimovich Investments, of which the sole director is Xiuzhen Ding, a Melbourne-based man born in Shandong, China. The firm is widely regarded among property experts as a shelf company fronting for a Chinese family.

But Monika Tu, of Black Diamondz Property Concierge, said her clients preferred to buy property in a personal name and not in a company name. "Almost all my overseas clients are SIV [significant investor visa] holders," Ms Tu said.

"But what is happening is there is a lot more activity this year among buyers from the Chinese community and they don't need any approval to buy anything."

In Mr Morrell's submission to the parliamentary inquiry into foreign ownership, he said Chinese nationals were buying homes at 20 per cent to 30 per cent more than the local market, making it harder for local buyers to compete.

Read more: http://smh.domain.com.au/real-estate-news/foreign-buyers-sidestepping-firb-approval-20140901-10b1gd.html
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The Chinese should not be our rising FHB price scapegoat: Shane Oliver

Jonathan Chancellor | 2 September 2014

Chinese interest in Sydney seems to be concentrated away from first home buyer suburbs, says Shane Oliver, head of investment strategy and chief economist, AMP Capital.

"Whenever house prices take off and affordability deteriorates, there is a tendency to look for scapegoats," Shane Oliver wrote on the SMSF Adviser website.

"Fingers have been pointed at foreign buyers (from China), SMSFs and, as always, negative gearing.

"However, none explain the relative strength in Australian house prices," he said.

Shane Oliver suggested:

Foreign and SMSF buying is no doubt playing a role in some areas but looks to be relatively small overall.
Such simplistic explanations ignore the fact that when interest rates go down, Australians borrow to buy houses and prices go up; and
Negative gearing has been around for a long time.

"The fundamental problem is a lack of supply.

"Vacancy rates remain low and there has been a cumulative construction shortfall since 2001 of more than 200,000 dwellings.

"The reality is that until we make it easier for builders and developers to bring dwellings to market – and hopefully decentralise our population in the longer term – the issue of poor affordability will remain," he said.

Oliver's comments along with those of UBS economist Scott Haslem who told the parliamentary inquiry into foreign ownership that FHBs are unlikely to be being 'priced-out' of the market because they buy cheaper, established homes outside the inner city.

The Treasurer Joe Hockey has asked for an inquiry into Australia's foreign investment policy as it applies to residential real estate.

Scott Haslem's submission noted average purchase price by foreign citizens and temporary residents for an established dwelling has trended around $1 million in the last five years.

For new dwellings, it has been a bit below $700,000.

"FHBs have typically bought established, rather than new, dwellings, and FHBs average purchase price of $328,000k is far below that for foreign purchases.

"This should limit the impact on FHBs.

"But such an assessment must be judged against the increased FHB demand for new dwellings more recently and the likely greater concentration of foreign demand in inner city Sydney and Melbourne where there must be some quantum of FHB demand facing greater competitive pressures than in the past," he added.

Read more: http://www.propertyobserver.com.au/forward-planning/advice-and-hot-topics/china/35173-the-chinese-should-not-be-our-rising-fhb-price-scapegoat-shane-oliver.html
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van
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economist Scott Haslem who told the parliamentary inquiry into foreign ownership that FHBs are unlikely to be being 'priced-out' of the market because they buy cheaper, established homes outside the inner city.


Lol, makes it sound like FHBs are just scummy trash.
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FIRB is just one link in the foreign investment chain

Peter Cai

A high-level Australian delegation has left for Beijing for the 21st round (and hopefully the last round) of free trade negotiations with China. The Abbott government hopes to seal the final part of its trifecta of East Asian trade deals.

The government is reportedly ready to offer the $1 billion investment screening threshold for private investors it gave to Japan, Korea, New Zealand and the US. This means private Chinese enterprises are exempted from submitting their proposals below $1bn to the Foreign Investment Review Board.

It is still unclear what Canberra is prepared to offer the Chinese in terms of an investment threshold for state-owned enterprises, which is by far one of the most contentious issues in the protracted negotiations that started more than a decade ago under the prime ministership of John Howard.

The current policy dictates that foreign state-owned enterprises and sovereign wealth funds need to submit their investment proposals to FIRB for vetting regardless of the values of their proposals. If China Investment Corporation wants to buy a corner store in Sydney, it has to run the gauntlet of the screening process.

The fear is if Canberra lifts the investment threshold for state-owned enterprises, many of them could invest in Australia without the necessary oversight, which could present a threat to the country’s national interest.

Is this fear justified?

We have to understand that the Foreign Investment Review Board is part of a broader regulatory network that oversees foreign company investments. It is arguably one of the weaker bodies among regulators such as the Australian Taxation Office, the Australian Competition and Consumer Commission or even the much-criticised Australian Securities and Investment Commission.

Under Australia’s overarching national interest policy, which considers issues such as competition, national security, taxation, corporate governance structure and the impact on the economy and the community, other regulators are heavily involved in the decision-making process.

For example, the ACCC will consider whether a particular investment deal would be against Australian competition law. The Australian Taxation Office will also examine the tax structure of deals to make sure that foreign companies pay an appropriate amount of tax to the government’s coffers.

Let’s assume Canberra offers Beijing the $248 million investment threshold that applies to foreign private enterprises. That means investments below the threshold could go ahead without FIRB approval, but it does not mean these investors are exempted from other regulatory hurdles.

The competition watchdog, taxation office and other regulators can still scrutinise foreign investors regardless of the foreign investment screening process. The taxation office regularly takes foreign companies to court over transfer pricing issues as well as other tax avoidance problems. It seems that multinationals like Google, Apple and Amazon present far bigger challenges than state-owned investors in natural resources.

The debate around the threshold is based on a flawed understanding of how the system works. A better approach to strengthen Australia’s overall regulatory system would be to provide the tax office, securities regulator and competition watchdog with more resources to exercise proper oversight over foreign investors.

Australian would do China a favour by subjecting Chinese companies, whether state-owned or private, to the rigour of the Australian regulatory system as well as market discipline. The securities regulator, Australian stock exchanges as well as local business press can also impose an additional layer of scrutiny on foreign companies.

For example, state-owned enterprises should be asked to adopt ASX’s world-class corporate governance principles and appoint Australian independent directors to sit on their local boards to ensure companies operate as commercial enterprises rather than state agents.

FIRB’s enforcement power should be enhanced to allow it go after foreign companies that breach the Foreign Acquisitions and Takeovers Act. At the moment, the board rarely gets involved in litigation due to lack of resources and enforcement expertise. If the government were to lift the investment threshold for Chinese state-owned enterprises, it could consider a US-style retrospective power for FIRB to unwind transactions if they were found to act against Australia’s national interest.

The investment threshold is not a terribly difficult barrier to cross but it has political and psychological significance for the Australian population. In reality, it is much more important to rely on Australia’s broader corporate regulatory system to deal with foreign investors and subject them to market discipline.

Canberra can afford to lift the investment threshold without compromising the overall integrity of the foreign investment regulatory system. The government and the population should have more faith in the robustness of the Australian regulatory system. If that is not the case, we will have a bigger problem in hands than the investment threshold.

Read more: http://www.businessspectator.com.au/article/2014/9/3/china/firb-just-one-link-foreign-investment-chain
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van
2 Sep 2014, 11:07 PM
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economist Scott Haslem who told the parliamentary inquiry into foreign ownership that FHBs are unlikely to be being 'priced-out' of the market because they buy cheaper, established homes outside the inner city.


Lol, makes it sound like FHBs are just scummy trash.
It's inherent in all the propaganda. Get on the housing ladder. Where? The bottom rung of course, you worthless dirtbag renter.
Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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Ollie
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Since 2010, FIRB has failed to prosecute any foreign buyer for breaching the foreign ownership rules. FIRB has also admitted that it is incapable of monitoring/enforcing whether a foreign temporary resident has sold their home within three months of departing Australia.

Young Australians have a right to expect the government to implement measures to make housing more accessible by increasing supply, as well as clamping down on excess demand, whether from foreigners or local tax-advantaged speculators.

This includes adequate enforcement of the rules in place to prevent foreigners from purchasing pre-existing homes, as well as ensuring that homes purchased by temporary residents are sold upon exiting Australia.

As it stands, the foreign ownership requirements in Australia are nothing more than window dressing, and are not being adequately monitored or enforced by FIRB. The integrity and confidence in the system is being undermined, in turn breeding opposition and cynicism towards foreigners.

Real estate agents, lawyers, and the like also appear to be complicit in assisting foreigners to flout the rules, which is why all buyers of pre-existing housing in Australia should be required to provide proof of citizenship/residency, with real estate agents also required to highlight the FIRB rules at the point-of-sale and conveyancers required to check-off and report any breaches at settlement.
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Fear of Chinese buyers is now a part of agents' scripts

Mal James, 3 September 2014

There has been an underlying strength in the Melbourne market since October 2012, but right now it looks like it has gone up a notch again.

Over the last year or so we have talked about the staircase market in the inner Melbourne auction scene; meaning for a month or so it seems to go hot, go incredibly strong and then it flattens out for a while, before giving another burst again. There is no doubt that in late August 2014 we are in another rise.

And at James Buyer Advocates we think it has little to do with the lack of stock (in fact we don’t even think there is a serious lack of good stock right now, remember the stock drought of 2012, today is nothing like 2012). No, we think the current market is all about the strong waves of demand on the right homes.

As we said last week, it’s not so much about the bidders who bought, but the ones who didn’t. What will they do next week or next month when they return to the fray on the next property they choose to compete on?

Chinese Nationals – Scripts, Dialogues and Fear

Where is this strong demand coming from? In our opinion it’s coming right across the board and it is the Chinese nationals who are squeezing the hardest.

But it is not just their actual bidding that is creating the near frenzied bidding response that we are seeing out there right now.

Since 2007 and the FIRB law changes, Chinese nationals bidding have been the single most dominant reason why the Melbourne market has done what it has done (basically outperformed almost everywhere else in the world) and right now in 2014 their influence as a bidding group remains unabated.

However even when no Chinese nationals are bidding, it’s the fear of Chinese nationals bidding that is also pushing prices up. Ask any agent on an inner east home coming to auction and they will tell you we have some “Chinese interest” – it is something firmly implanted in many agents’ “buyer scripts”.

In other words, buyers not only bid as they do against Chinese national bidders but also on the fear that Chinese nationals may bid. The fear issue is also pronounced in expressions of interest and private sales.

Unless the overall bidding of Chinese nationals is affected by something, we feel the market will continue to be strong for some time.

My last 10 purchases I have been directly involved in (Kew, Camberwell, East Melbourne, Elwood, Camberwell, Glen Iris, Camberwell, Kew, Camberwell and Kew) saw Chinese nationals as the direct underbidder on five, used in the selling agents negotiating scripts twice and no mention of Chinese bidders by agents on the other three.

Please note we act for a number of Chinese nationals and they also are affected by the bidding or fear the bidding of other Chinese nationals.

Read more: http://www.propertyobserver.com.au/forward-planning/advice-and-hot-topics/35284-fear-of-chinese-buyers-is-now-a-part-of-agents-scripts.html
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Shock horror, FIRB permitting illegal acquisition of Australian real estate....who would've thought!
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
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