Australia will jail foreigners who purchase homes illegally as the government seeks to slow a surge in house prices, Prime Minister Tony Abbott said. Sentences may stretch to three years and fines to A$637,500 ($500,500) for illicit buyers, with penalties also on third parties knowingly complicit in violations. The steps are needed to give the public confidence that foreign-investment rules on property purchases are being enforced, he said.
The penalties will tighten scrutiny on overseas buyers at a time when record-low interest rates are driving up Sydney property prices five times faster than wages. A company owned by Chinese billionaire Hui Ka Yan's Evergrande Real Estate Group - which illegally bought a A$39 million mansion overlooking Sydney Harbour - has sold the site to an Australian citizen.
"We want to ensure that illegal foreign investment is not unnecessarily driving up prices," Abbott said. "If you don't play by the rules there will be a tough penalty regime in place, and those penalties will be enforced."
Overseas buyers are only allowed to purchase newly-built homes in Australia and need the permission of the Foreign Investment Review Board. Approved overseas purchases of Australian homes more than doubled to A$34.7 billion in the year ended June, with China overtaking the US as the biggest source of capital, the board said in its annual report Thursday.
Sydney ranked third among the least-affordable major metropolitan housing markets worldwide, after Hong Kong and Vancouver, according to a report in January by Demographia. Melbourne placed sixth in the report, ahead of London in seventh place.
Risks to Australia's economy from property speculation and household debt will be one of the main issues studied by an International Monetary Fund team visiting the country next month, the Australian Financial Review quoted the fund's local mission chief as saying today. They'll also consider whether the issue should be dealt with using monetary policy or government regulation of loan-to-value ratios, bank capital requirements or risk weightings, the paper quoted the IMF's James Daniel as saying.
House prices increased 15 per cent in Sydney and 11 per cent in Melbourne over the 12 months to April 30, according to data from CoreLogic RP Data. The median dwelling price in Sydney was A$732,500, the data showed.
Under the new law, individual buyers found guilty of breaching foreign investment rules will face penalties of A$127,500 or three years imprisonment. A higher A$637,500 fine will apply to companies. Third parties who assist investors in breaching the rules will face fines of A$42,500 for individuals and A$212,500 for companies, according to an e-mailed statement from the prime minister's office.
The government plans to introduce legislation on the measures later this year and ensure the changes are enacted on December 1.
"What we want to do is to maximise the opportunities for Australians to buy a home at the best possible price," Abbott said. "We want people to be absolutely confident that local people are getting a fair go."
