The Federal Government has announced its intention to pass legislation under the foreign investment framework to allow foreign buyers to purchase an off-the-plan dwelling when another foreign buyer has failed to reach settlement and the contract has been rescinded or terminated.
The main legislative issue for developers is what currently constitutes a new dwelling. Under section 4 of the Foreign Acquisitions and Takeovers Act 1975 (CTH) (“FATA”), a “new dwelling” means:
“a dwelling (except commercial residential premises) that will be, is being or has been built on residential land and that:
(a) has not been previously sold as a dwelling; and
has not been previously occupied; or
if the dwelling is contained in a development and the dwelling was sold by the developer of the development–has not been previously occupied for more than 12 months in total.”
Further, under sections 15(4) and (5) of the FATA, a dwelling is considered to be ‘established’ – and therefore a prohibited purchase for foreign buyers – when an agreement becomes binding.
The issue raised with the Federal Government is that because under FATA the sale of a property takes place when the contracts are entered into (that is, exchanged) the current legislation has an unfair effect on the developer preventing the resale of the property to another foreign buyer.
The Federal Government has announced that the policy change will be implemented immediately. Individual applications of foreign buyers who apply to purchase a dwelling which is considered to be ‘established’ only due to a failed settlement, will be assessed as though it is a new dwelling. The policy changes will also apply to New Dwelling Exemption Certificates. Foreign buyers who would have otherwise been covered by the New Dwelling Exemption Certificate, if not for a failed settlement preceding their purchase, will now be covered by the New Dwelling Exemption Certificate.
Implications for Developers
The rationale behind the policy change is so that developers are not “left in the lurch” when a foreign buyer fails to complete the contract on their purchase.
Developers should also keep in mind that if the initial sale was before 21 June 2016 and the property sold to another foreign buyer after that date, the new foreign buyer will be subject to the Surcharge Purchaser Duty.
If you would like any further information about the policy change and how it may affect you or your development, please contact Mike Ellis or Danny Papadimatos on +61 2 9261 5900.