Buy New Properties or develop properties?

Hi Sam,

I understand why some vendors are not happy to insert finance clauses and I guess the FIRB approval clause also increases the degree of uncertainty. Having purchased using finance clauses, I also consider inserting finance clauses on a sale if necessary to get over the line. For me, the amount of time alllowed for such a clause is the consideration. Do you know the time it would take to get approval from the FIRB?  I am surprised at the 5% penalty for not getting approval during a conditional period. If you do pull out of a contract during this time (finance, building inspecting etc) then there is a penalty which is 0.025% (correct me someone if I am incorrect – and this is also NSW). This sometimes just needs to be called the cost of buisness and due diligence.

I tried to send you an email but there isnt a contact. I am currently building duplexes in a resource town would not have a problem with finance and FIRB clauses. Shoot me an email if you would like further information. [email protected]

Kind Regards
Tammy

FIRB = Foreign Investment Review Board

Residential real estate means all Australian urban land other than commercial properties (that is offices, factories, warehouses, restaurants, shops). Acquisitions of 'hobby farms' and 'rural residential' blocks by foreign interests are included in the residential real estate category.

Foreign purchasers intending to acquire real estate in Australia must seek prior approval from the Government through the Foreign Investment Review Board unless specifically exempted by the Foreign Acquisitions and Takeovers Regulations.

Exemptions include:

• acquisitions by Australian citizens resident abroad;
• acquisitions of property zoned residential by foreign nationals who hold permanent resident visas or hold, or who are eligible to hold, a 'special category visa' (eg a New Zealand citizen); and
• foreign persons purchasing, as joint tenants, with their Australian citizen spouse property that is zoned residential.

Under the Act, a foreign person is:

• a natural person not ordinarily resident in Australia;
• a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds a controlling interest (that is, a holding of 15 percent or more);
• a corporation in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate controlling interest (that is, a total holding of 40 percent or more);
• the trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest; or
• the trustee of a trust estate in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest.

A substantial foreign interest (ie, a controlling interest) occurs when a single foreigner (and any associates) has 15 per cent or more of the ownership or several foreigners (and any associates) have 40 per cent or more in aggregate of the ownership of any corporation, business or trust.

The Government seeks to ensure that foreign investment in residential real estate increases the housing stock. The Government, therefore, seeks to channel foreign investment into activity that directly increases the supply of new housing (that is, new developments – house and land packages, home units, townhouses, etc) and brings benefits to the local building industry and their suppliers.

The policy on developed residential real estate is negative. The effect is twofold. First, it helps reduce the possibility of excess demand building up in the existing housing market and secondly, it aims to encourage the supply of new dwellings, many of which would become available to Australian residents, either for purchase or rent, therefore maintaining greater stability of house prices and the affordability of housing for Australians.

Hope this helps.