FIRB approval process for buying Australian real estate quick, painless, and utterly useless The scope

e for foreigners to buy Australian real estate is a subject which can be sensitive for a range of reasons. Some people have concerns about foreigners buying Australian real estate on grounds of the morality of the processes by which foreigners get the money to buy Australian real estate, some have issues the extent to which foreigners buy Australian real estate and the concentrations of foreign real estate purchases, some, regrettably it needs to be acknowledged, have issues with the race of some buyers. At various times in recent years the issue has become politically sensitive. In 2010, in response to concerns which made their way into the media the then Rudd government announced a crackdown on foreign purchases of Australian real estate, announcing a dob in line for the public to report suspected instances of foreigners illegally buying Australian real estate and a crackdown on the process. Despite this a regular undercurrent of commentary about the real estate market in Australia has been about the extent and volume of international purchases. Unconventional Economist posted a thread at Macrobusiness, on Friday 22 March at about 14:00, about foreign buyers of Australian real estate (http://www.macrobusiness.com.au/2013/03/understanding-foreign-property-purchases/). There have been a few real estate related topics loaded up over the last year which have generated some comment about the level of foreign buying of Australian real estate, and in particular brought into question the relative lack of data about foreign real estate purchases, their impact on the market, the process applicants go through and verification, appeal and reporting processes. The thread outlined the policy position on who can and cannot buy Australian real estate, and outlined the role of the Foreign Investment Review Board (FIRB). FIRB includes broad general level data in its annual report each year (Table 2.8). This shows that between 2005/2006 and 2011/2012 there have been 45095 applications by foreigners to buy AUD $98.23 billion worth of Australian real estate. In the last year there have been claims that the volumes of international purchases which average roughly AUD $2.15 million per application over the 6 years in question (reflecting that some applications are for multiple properties, presumably) are a significant factor in the resilience of Australian real estate prices, following what is generally seen as a property bubble leading up to a nearly 20% increase in 2010 widely attributed to the increased first home owners grant made available as part of the Federal governments fiscal stimulus package to ward off the impact of the GFC in Australia. If there is any substance to the assertion then foreign purchases of Australian real estate could be a factor in real estate prices remaining higher than they may otherwise be, then they are a factor in Australians who do not own their own houses being forced to pay more, and going further into debt to do so. The FIRB process To revisit the FIRB page upon seeing the thread by Unconventional Economist was the work of an instant. This real estate approval process begins by clicking a button marked Residential real estate apply online and then on the next page clicking on Start your first application.

In the interests of finding out about the process I have made 2 applications one last Friday to see what happens, and one today to go through and take screenshots of every page. Both have featured fictional names and addresses from foreign nations, with fictional mobile phone numbers After this the first effective page of the process take applicants out of the process by outlining those who have no need to notify FIRB

In the interests of exploring the process further I clicked no to all of the exemptions. That took me to the next page asking me whether I was buying as an individual company or trust, and asking if I had signed a contract. I went for individual and no signed contract.

Next up was another click and flick about the type of place I was buying. I indicated I was buying an existing dwelling.

At this point I needed to provide an email address and register a password, secret question and answer, and pass a system check. I twice provided a false name, false address (in two different foreign countries), and false mobile phone number

The next screen confirms that an account has been created

The next screen confirms the details you enter, and asks if you have a visa to travel to/stay in Australia. It doesnt ask if the applicant has a visa to reside in Australia. After I initially indicated I didnt have a visa to travel to or stay in Australia the system held me up until I changed the click to indicate I did have such a visa but the visa clearly encompasses a travel visa which shouldnt allow me to purchase property.

The next page asks an applicant to provide passport and visa subclass details. I provided passport numbers made in my head on the spur of the moment, and an expiry date nebulously off in the future at some point. Obligingly the page provides a guide as the likely visa subclass numbers - I chose one of those (878) to go with a visa grant date some time ago and an expiry date in a couple of years.

The next page confirmed the name and birthdate I had indicated as the sole purchaser.

The next page asks for details of the property an applicant intends to buy. I put down (on both occasions) an address in the eastern suburbs of Melbourne which I know exists, and indicated a price of the sale (in both cases circa AUD $600K).

The next page asks if I own any other properties. I indicated no both times.

The next page is of declarations which anyone would know to click yes to.

The next page is of general declarations indicating that I am who I say I am, I am a naughty boy if I put false or misleading declarations in, and that the FIRB can share my details around.

I click that and I have a page with a submitted application

They sent me an email confirming the details I had given them.

The outcome I put in an application on Friday assuming someone in at FIRB may take 4 weeks to determine that there was no me (as I had indicated in their online form) that I had no passport or visa (as indicated in their online form). I thought there was even the vague chance that someone may even look to see if the properties I had indicated I would buy were for sale, or even if they were worth the indicated price. But no. On Monday 25 March at 13:45 I received a response from FIRB indicating that I was exempt.

Implications of the FIRB process The FIRB process for notifying foreign real estate purchases is feeble to say the least. It is the skimpiest of skimpy notification systems without the faintest shred of verifying anything. The integrity of the process is so weak as to make anyone wonder what it is effectively for. It certainly isnt to establish any bona fides of foreign buyers of Australian real estate. It simply requires that these can enter a moderately plausible visa and passport number, can back that up with moderately plausible dates and accord with some very very basic declarations that an applicant isnt naughty. Given that less than a full working day had elapsed between the submission of the application and the notification it would have to be questioned if they had actually checked anything. In the last year I have been told more than once by real estate agents, and more than once by foreign purchasers of Australian residential property, that the system is a joke and that in some areas foreign purchases of residential real estate are a significant factor in local prices. I have been

told that the system has a 99.9% self-compliance rate and as one Macrobusiness commentator asked last week how credible is that? I have been told that no party in the real estate process (certainly not real estate agents or property vendors) would ask to see permission or approval or evidence that a foreign buyer or potential buyer of Australian real estate had entered into the process such as it is, and that there is no review process. So it currently appears that the issue of foreign purchases of Australian residential real estate is one which the relevant regulatory authority does not treat particularly seriously, and one where for wider political reasons there needs to be seen to be a process, but for other reason there needs to be a process so feeble as to be barely a process at all. Pursuing this issue is not about race or pro or anti-immigration or population policy, although no doubt they will be factors for some. Pursuing the issue is about clearly identifying the impact that foreign purchases of Australian residential real estate has on existing Australians looking to enter the market, the function of price in that market as a balance between supply and demand, and the extent to which a greater or lesser degree of foreign purchases of Australian residential real estate discriminates against their interests in favour of those who have mortgages or already own Australian residential real estate, particularly in terms of the very significant numbers of market participants who own more than one property and have accrued significant debt to do so. When you consider that foreign buyers have unquestioned access to the market without even being asked about the provenance of their funds, their right to actually buy Australian residential real estate, their visas, and consider that property investors have negative gearing, easier access to credit (and in 1/3 of cases are not paying any principal Q4 2012 according to Credit Suisse) then it is difficult to escape the conclusion that the property market is gamed against younger buyers and has been for some time. It would seem that we have a political/administrative system that has decided that we arent mature enough to discuss the issue, and that some fibs about the existence of a process, what that process does, and the accountability of that process, are preferable. At the moment this would appear to be a AUD $20 billion per year regulatory black hole.

At this point some questions need to be asked.

First of FIRB

What is the purpose of the foreign purchase notification/application process? The front page of the FIRB website refer to apply what are applicants applying for? (are they applying for permission or are they simply notifying?) What are the criteria against which they are considered What steps does FIRB take to verify the integrity of information provided by applicants?

Then of the wider Departments of Treasury and Housing

What steps are taken to monitor the impact of foreign purchases of Australian real estate:On existing buyers and potential buyers of Australian residential real estate? On Australian residential real estate prices? On locales with a significant number of foreign purchases of Australian residential real estate?

Then of the real estate industry

What role (if any) do you believe real estate practitioners should have in monitoring foreign purchases of Australian residential real estate? Do you believe that foreign purchases of Australian residential real estate should be notified and monitored? And that this monitoring should be made available to Australian residential real estate participants?

Then of Australian political parties

To what extent should Australians have confidence that the process for notifying foreign purchases of residential real estate has procedural integrity and a clearly stated purpose? To what extent do you think the existing process meets this expectation?

To what extent do you think that Australians should have confidence that the process for notifying foreign purchases of residential real estate verifies that potential purchasers do actually have a visa

appropriate to purchasing Australian residential real estate? To what extent do you think the existing process meets this expectation?

To what extent do you think that Australians should have confidence that the process for notifying foreign purchases of residential real estate verifies that funds used by foreigners to purchase Australian residential real estate have not been acquired illegally or corruptly and have been accrued in a manner broadly compatible with the values, customs and beliefs of Australians? To what extent do you think the existing process meets this expectation?

To what extent should Australians have confidence that their government and regulatory bodies will be able to clearly articulate the impact of foreign purchases of Australian residential real estate both in terms of local socio demographics and real estate prices to Australians? To what extent do you think the existing process meets this expectation?

What policies and processes regarding foreign purchases of Australian residential real estate do you propose?