Australia cracks down on foreign property buyers with fines, jail terms

Tony Abbott, Australia's prime minister, speaks during a news conference at Parliament House in Canberra, Australia, on Monday, Feb 9, 2015. -- PHOTO: BLOOMBERG
Tony Abbott, Australia's prime minister, speaks during a news conference at Parliament House in Canberra, Australia, on Monday, Feb 9, 2015. -- PHOTO: BLOOMBERG

PERTH (REUTERS) - Foreign investors who illegally buy houses in Australia and agents that enable them face hefty fines and prison terms of up to three years under new penalties announced on Saturday aimed at cooling soaring property prices.

The new and expanded punishments come in the wake of rising foreign investment in Australian real estate and widespread evidence of abuse of current laws that prevent foreign buyers from purchasing existing homes.

"We want to ensure that illegal foreign investment is not unnecessarily driving up prices," Prime Minister Tony Abbott told reporters in Sydney, where house prices have risen by about a third in the past three years.

"We want to maximise the opportunities for Australians to buy a home at the best possible price."

Data this week showed house prices across Australia's capital cities rose further in April with gains broadening out from the red-hot Sydney market, a headache for policy makers considering whether to cut interest rates to new lows next week.

Earlier this year, Treasurer Joe Hockey ordered the Chinese owner of a A$39 million (S$40.6 million) Sydney harbourside mansion to sell it within 90 days, saying it was bought illegally via a string of shelf companies.

Hockey told Reuters on Friday that the home had been sold and more than 100 property purchases were under investigation.

Australian property has long been a popular choice for Chinese money but the flow of investment has accelerated. China overtook the United States to become the largest source of foreign investment in Australia last year, driven by a surge in real estate purchases.

Offshore investors will continue to be allowed to buy new homes and apartments in a bid to increase housing stock but will pay a A$A5,000 application fee for properties worth up to A$1 million, with higher fees for more expensive properties and agricultural and commercial real estate, the government said.

Foreign buyers who breach the laws will now face up to three years in jail or fines of A$127,500 for individuals and A$637,500 for companies, and third parties who knowingly assist foreign investors to breach the rules will also face civil and criminal penalties.

The Property Council of Australia said it welcomed the "long overdue" clampdown on illegal foreign buying.

"However, the government is undermining its own aim of making homes more affordable by simultaneously penalising legitimate foreign investment in new housing."

There will also be increased scrutiny over foreign investment in agriculture, amid concerns about a growing number of sales of farms and food processing businesses to overseas interests.

The A$55 million threshold for FIRB scrutiny of agricultural investments will be extended beyond farming to a wider range of agribusinesses such as seafood, meat, dairy and fruit and vegetable processors under the new proposals.