The Australian National Audit Office (ANAO) selected foreign investment in residential real estate for audit because of the extent of parliamentary and public interest in the issue, including concerns that foreign investors were not complying with foreign investment obligations and purchasing properties they were not entitled to own. The audit would also indicate the impact on compliance with foreign investment in residential real estate arising from the change in administrative arrangements.
The Government’s policy for foreign investment in residential property is to channel foreign investment into new dwellings to support additional jobs in the construction industry as well as economic growth. Foreign investment applications are considered in light of that policy and the overarching principle that the proposed investment should increase Australia’s housing stock.
Foreign investors are required to receive approval before acquiring an interest in residential real estate. Taking an interest in residential real estate prior to receiving approval is a breach of the Foreign Acquisitions and Takeovers Act 1975. Australia attracts a large volume of foreign investment applications for residential real estate, with 40 149 applications in 2015–16, and approvals that year totalling $72.4 billion in proposed investments.
The audit objective was to assess the effectiveness of the ATO’s and Treasury’s management of compliance with foreign investment obligations for residential real estate.
To form a conclusion against this objective, the ANAO adopted three high level criteria:
compliance and enforcement strategies and detection arrangements were in place to support compliance activities;
activities were undertaken to promote voluntary compliance and effectively address identified instances of potential non-compliance; and
the effectiveness of compliance arrangements was monitored and reported.