Foreign buyer crackdown misses many property deals, says audit

A crackdown on foreign property investors has missed many deals and is only just beginning to work, an audit shows.

Sydney’s eastern suburbs. Pic: John Appleyard

Analysis undertaken by the Australian National Audit Office has found the federal government’s crackdown on foreign investors in residential property is only just starting to become effective, with numerous transactions potentially slipping through the cracks.

The ANAO looked at the effectiveness of measures introduced in 2015-16 to maximise foreign investment flows and protect national interests.

They included a stricter fee regime, stricter penalties and a register of foreign residential investment.

In addition, the Australian Taxation Office (ATO) was given responsibility to track foreign residential ownership from Treasury.

The ANAO report said the ATO had “partially effective processes to detect noncompliance with foreign investment obligations for residential real estate”.

Although some 4300 cases of potential noncompliance were detected in the period from mid-2015 to January 2018, the report said most of those were the result of self-referrals and there was “likely under-reporting”.

It revealed that of more than 37,000 foreign investment approvals granted from July 2016 to December 2017, only 7.1 per cent had self-registered.

“While it is not known how many approvals have resulted in a purchase … the 7.1 per cent recorded provides some basis for considering there may be significant non-registration by foreign investors in residential real estate,” the report said.

At the root of the problem was poor and inconsistent data collection by the states and territories, with only New South Wales collecting the identity of foreign buyers.

The report noted that Western Australia and South Australia were still to pass laws to enable the collection of such data.

Although the Northern Territory introduced laws last year, it was yet to provide any foreign identity data.

“The ANAO’s analysis identified serious deficiencies in populating the (foreign residential investment) register with reliable data,” the report said.

“Consequently the ATO will need to undertake extensive manual verification processes in coming years to enable the register to provide accurate information about the nature and extent of foreign investment in residential real estate and produce reliable intelligence for compliance purposes.”

Since taking responsibility for compliance, the ATO had investigated 3940 cases, finding 1158 breaches and imposing 1067 penalties totalling $5.5 million, the report found.

It forced the sale of 231 properties valued at $284.9 million and was continuing to investigate 318 cases.

The report said the key challenge for the ATO going forward would be to address “more serious instances of noncompliance — namely wilful noncompliance with obligations and applying criminal and civil penalties.

“There is also scope for the ATO to improve processes for escalating cases for investigation,” the report said.

The ATO welcomed the findings of the report, and “agreed with the two recommendations”.

They included developing a residential foreign investment compliance and enforcement strategy, and prioritising data matching rules to address key compliance risks.