Proposed cap on foreign ownership in New Dwelling Exemption Certificates aimed at reducing pressure on housing affordability.

In the 2017-2018 Federal Budget the Government announced several changes aimed at reducing pressure on housing affordability, some of which affect foreign ownership of Australian residential property. The biggest change is the introduction of a cap on foreign ownership in new developments, through a condition on New Dwelling Exemption Certificates applied for after 7:30PM (AEST) on 9 May 2017.

New Dwelling Exemption Certificates may, if applied for by property developers, be granted on new developments for the sale of new dwellings. The certificate then acts as a pre-approval allowing the sale of new dwellings in a specified development to foreign persons, without each foreign purchaser having to seek their own foreign investment approval. Previously, there was no cap on the percentage of sales to foreign purchasers. The new condition will cap foreign purchasers at 50 per cent of the dwellings in the new development. The intention behind this change is to ensure that a minimum proportion of new developments are available for Australians to purchase. However, it is worth noting that some developers have already adopted their own prudential caps on sales to foreign purchasers resident in China and banks have imposed restrictions on sales to foreign purchasers as part of their project financing arrangements. This is due to increasing restrictions by the Chinese government on the flow of money out of China, which may limit the ability of some purchasers to complete their contracts. Further, the 50 per cent cap will not apply to new developments where no application is made for a New Dwelling Exemption Certificate. For these reasons, the change in the Budget may have less impact on housing affordability than intended. The Budget also included other changes aimed at streamlining and enhancing the foreign investment framework.Cap on Foreign Ownership