Is your lender from another country?
If you are borrowing funds from overseas lenders to purchase property, and they are not in the business of lending money, you will most likely need to
seek approval from the Foreign Investment Review Board (FIRB).
FIRB is an Australian government advisory board that reviews the purchase of, or investment in, residential or commercial real estate by someone who is not an Australia citizen or permanent resident.
Generally FIRB approval for a foreign lender is required where:
- The foreign person/entity obtains an interest in residential real estate – The lender usually obtains an “interest in residential real estate” when lending money in the form of security over the property by way of a mortgage, to secure repayment of the loan.
- The purchasers are borrowing a portion of the purchase funds from a foreign lender;
- The foreign lender is not an authorised deposit-taking institution (or subsidiary of one) as listed on the Register of authorised deposit-taking institutions maintained by APRA (www.apra.gov.au/register-authorised-deposit-taking-institutions)
Conditions on the FIRB approval are dependent on the case itself, and the case officer assessing the application will advise the applicable conditions.
However conditions generally include that the foreign lender must:
- advise the Australian Taxation Office within 30 days if they gain possession of the residential property;
- divest of their interest in any property within six months if it comes into their possession; and
- not earn any income from the property by way of capital gain, rent or lease returns.
Generally, in order for the foreign entity to obtain FIRB approval to the purchase, the foreign purchaser will have to either:
- Use the property for staff accommodation;
- Use the property as their principal place of residence; or
- Redevelop the property to create additional dwellings.
This is due to the broad anti-avoidance provisions which provide penalties for persons who undertake a transaction on behalf of, or for the benefit of a foreign person who has not received approval or who would generally be ineligible to obtain an interest in the property.
McKays’ expert Commercial Property team can provide
advice on property investment and FIRB approval.