Treasurer Joe Hockey announced yesterday that a company has 90 days to sell the Point Piper property that it “illegally” purchased last November.
The agents who sold a Sydney mansion to a company in a deal that the government claims was "illegal" have not been contacted by the Foreign Investment Review Board or any other government agency, and had no knowledge that the government was planning to force a sale before Treasurer Joe Hockey made the announcement in parliament yesterday. Ken Jacobs, Exclusive Affiliate of Christie's International Real Estate, told The Real Estate Conversation he was confused by the government's decision to order a company registered in Australia to sell Villa del Mare at 63 Wolseley Road in Sydney’s prestigious eastern suburb of Point Piper. Golden Fast Foods now had 90 days to sell the property that it “illegally” purchased last November, the first such crackdown on foreign investment in residential real estate since 2006.
"What's happened is sort of unprecedented. Due process was followed all the way through. We followed the steps we should," said Jacobs. The property was purchased by a company registered in Australia, and the transaction was overseen by lawyers and a major accounting firm, he added. "That really ticks all the boxes," said Jacobs. "For this to happen is sort of left field. It's unchartered waters."
Bill Malouf of LJ Hooker Double Bay, who worked with Jacobs on the deal, said he was also confused by the government's announcement. "It's all news to me, no-one spoke to me about it and the first I heard was when journalists called and said it was mentioned in parliament," Malouf said. "There were lawyers involved, and a heavy accounting firm, and we don't believe that anything that has happened is wrong. We're looking to see how government proceeds. We always ask, 'Are you FIRB approved? Are you under the 888 [The Business Innovation and Investment (Permanent)] visa?' We do check. We haven't had a problem with any other sales and we do a lot of the top end sales."
Malouf said he was unsure how the government could force the sale of the mansion—which features six bedrooms, eight bathrooms and was previously owned by recruitment queen Julia Ross—within three months, as "properties of this nature take time" to sell. "Our responsibility is to act for the vendor, and we ask the lawyers their advice, and we don't question the lawyers, and then we proceed with the exchange."
Yesterday, Hockey issued a statement saying the property was bought illegally by Golden Fast Foods – which is ultimately owned by Evergrande Real Estate Group, a large company listed on the Hong Kong Stock Exchange – via a string of shell companies, including in Australia, Hong Kong and the British Virgin Islands. “Under the Foreign Acquisitions and Takeovers Act 1975, foreign investors must notify the treasurer through the Foreign Investment Review Board (FIRB) before purchasing residential real estate," Hockey's statement read. "Golden Fast Foods is a foreign-owned company which failed to notify FIRB of its intended purchase.”
Both Jacobs and Malouf said they were unsure if the government intended to place greater onus on agents in future to track the corporate ownership structure of companies registered in Australia when it came to real estate purchases. The debate about the use of shell companies by foreigners purchasing real estate is also an issue in the U.S., following a recent expose by The New York Times which examined the influx of global cash fueling New York City's high-end real estate boom.
Hockey said he made the divestment order following advice from the Australian government solicitor. He told parliament yesterday, “We are very serious about integrity in our foreign investment system. We welcome foreign investment. It is hugely important. But it is vitally important that every Australian knows that the rules relating to foreign investment are going to be enforced. They were not enforced by the Labor Party, they are being emphatically forced by the coalition.”
Last week, Hockey announced plans to change the rules and fees around foreign investment. Under the proposed changes, agents could in future be fined or imprisoned if they help overseas buyers flout investment rules.
Also yesterday, Property Council of Australia’s chief executive Ken Morrison criticised the federal government’s plans to introduce fees on foreign property investors. “What is Australia’s policy on foreign investment? The federal government can’t seem to make up its mind,” Morrison said in a statement before Hockey's announcement. “They are saying that Australia is open for business and welcomes investment in new housing construction, while at the same time slapping a new tax on foreign investment on the housing supply they want to encourage.”
Malouf said he thinks this announcement will have a negative impact on the high-end residential real estate market. "I don't think it looks good and it will affect the top end," he said. Of the Abbott government's push to crack down on foreigners buying residential real estate when they are allowed to purchase commercial real estate, Malouf said, "I don't understand it."