FIRB rules for foreign buyers and borrowers

What FIRB does

The Foreign Investment Review Board, usually shortened to FIRB, advises the Treasurer on Australia's foreign investment framework. The main law is the Foreign Acquisitions and Takeovers Act 1975, supported by regulations that set out fees, thresholds and exemptions. The ATO also has a role in administering and enforcing the residential rules.

When people talk about FIRB approval or foreign buyer rules, they usually mean the requirement for a foreign person to apply before acquiring an interest in Australian residential land. A successful application generally results in a notice that the Treasurer does not object, frequently with conditions attached. The FIRB glossary entry gives a short definition.

Who may need FIRB approval

The framework turns on whether you are a foreign person. In general terms, that can include:

• individuals who are not ordinarily resident in Australia;
• many temporary visa holders, even while they live here;
• companies, trusts and partnerships in which foreign persons hold substantial interests;
• foreign governments and their related entities.

Australian citizens are generally not foreign persons, wherever they live. Permanent residents who are ordinarily resident in Australia are generally not foreign persons either, and New Zealand citizens are treated differently from other foreign nationals. There are also specific exemptions, including for some purchases made jointly with an Australian citizen spouse. Because each of these depends on detailed tests, ask a lawyer to confirm your status rather than assuming it.

Approval is generally needed before you become bound to buy. Many buyers sign contracts that are conditional on FIRB approval, so they can withdraw if it is not given. Buying through a company or trust adds another layer, because the entity itself may be foreign. The lesson on borrower structures explains why the choice of entity matters for lending too.

Timing deserves attention. Processing periods vary with the volume of applications and the complexity of the purchase, and FIRB may ask for further information. Agree a realistic conditional period with the seller, and tell your lender when you expect a decision.

Established versus new dwellings

The framework is designed to direct foreign investment towards adding to the housing supply. In broad terms:

• New dwellings, including off-the-plan apartments and house-and-land packages, are generally open to foreign persons who apply. Developers of some new projects hold an exemption certificate that lets them sell new dwellings to foreign buyers without each buyer applying separately, so ask the developer whether one applies.
• Vacant residential land may be acquired with approval, usually on condition that construction is completed within a set period.
• Established dwellings are heavily restricted. The government has announced a temporary ban on foreign persons, including temporary residents and foreign-owned companies, buying established dwellings, subject to limited exceptions. Before that ban, temporary residents could generally seek approval for one established home to live in, with an obligation to sell when it was no longer their residence.

Commercial and agricultural land have separate rules and monetary thresholds that are outside the scope of this lesson. Treat every statement here as a starting point for questions, not as the current law.

Fees, conditions and penalties

Application fees are payable when you apply. They are set by regulation, generally depend on the type and value of the property, and are revised from time to time. The FIRB website publishes the current schedule; Privet does not reproduce the figures.

Approval often carries conditions. Typical examples are completing a building on vacant land within a deadline, selling an established home when you stop living in it, or meeting reporting obligations. Foreign owners of dwellings may also face an annual vacancy fee if a property is neither occupied nor genuinely available to rent for a sufficient part of the year.

Buying without required approval, or breaching a condition, can lead to civil penalties, criminal offences and orders to dispose of the property. Those consequences can be severe, so build approval and its conditions into your timetable from the start.

State surcharges sit on top

FIRB approval does not remove state taxes. Most states charge foreign purchasers an additional duty on residential land, and many add a land tax surcharge every year the property is held. Queensland's additional foreign acquirer duty on residential land is 8%^[1], and New South Wales charges its surcharge purchaser duty at 9%^[2], in each case on top of the standard scale.

Each state writes its own definition of a foreign person, which may not line up with the Commonwealth test. A buyer might need FIRB approval and pay a surcharge, or be caught by one regime only. Trustees of discretionary trusts are a common trap, because the trust deed can make the trust foreign for surcharge purposes. See the foreign purchaser surcharge entry, the stamp duty estimator, which does not apply surcharges, and the lesson on stamp duty and land tax by state.

How lenders treat foreign borrowers

Getting FIRB approval and getting a loan are separate hurdles. Lenders set their own policies for foreign borrowers, and these differ widely. Common features include:

• Restricted appetite. Some lenders do not lend to non-residents or temporary residents at all, while others do so only within a lower maximum LVR.
• Evidence of approval. Lenders generally make FIRB approval a condition of settlement and want to see the notice and any conditions.
• Foreign income. Income earned in another currency may be discounted to allow for exchange rate movements, and documents may need certified translation.
• Identity and source of funds. Expect detailed identity checks and questions about where the deposit comes from; the lesson on AML and KYC checks explains why.
• Visa and residency. Some lenders look at the type of visa and how long it has left to run.
• Enforcement concerns. A lender may ask for an Australian address for notices, or a guarantor based in Australia, because enforcing against someone overseas is harder.

Some non-bank and private lenders consider foreign borrowers that banks decline, generally at higher cost and with shorter terms. Read how private lending works before taking that route, and use the loan cost estimator on any offer.

A worked description in words

Imagine a hypothetical temporary resident who wants to buy an off-the-plan apartment with a loan. First, a lawyer confirms whether the buyer is a foreign person under the Commonwealth rules and under the state's surcharge law. Next, the buyer asks the developer whether it holds an exemption certificate; if not, the buyer applies to FIRB and makes the contract conditional on approval. The buyer then works out duty including any surcharge, because the lender will not fund it. Finally, the buyer asks several lenders whether they lend to temporary residents, on what LVR, and what documents they want, using the preparation checklist to gather them.

Common mistakes

• Signing an unconditional contract before confirming whether approval is needed.
• Assuming FIRB approval also settles the state surcharge question.
• Buying through a trust or company without checking whether it is a foreign person.
• Expecting a lender to accept a foreign borrower on the same terms as a resident.
• Relying on rules read months ago, when settings may since have changed.

What to ask

1. Am I, or is my company or trust, a foreign person under Commonwealth law and under this state's law?
2. Does this purchase need FIRB approval, and does the developer hold an exemption certificate?
3. What conditions might come with approval, and can I meet them?
4. Which state duty and land tax surcharges will apply?
5. Does this lender accept borrowers in my residency situation, and what LVR and documents does it require?