ON 29 SEPTEMBER 1987 the then Treasurer, Paul Keating, announced that up 50% of all new developments could be sold to foreign buyers. At that time, foreign buyers had a $600,000 restriction on them and they could buy old or new properties. The law changed at that time to restrict them to only buying brand new.

This rule greatly helped the Australian property market.

SOME OF THE BENEFITS OF THE 50% RULE

  1. By allowing 50% of any development to be sold to foreign investors, it opened the door to providing rental accommodation for Australians as foreign buyers could only purchase new apartments, and it protected houses for Australians as old homes could not be bought.
  2. In addition, this rule helped ensure standards of development were met, as developers of apartments had to sell at least 50% locally, ensuring they designed apartments to suit the local Australian market.

This seemed to be the “perfect” scenario, protecting standards of apartments, mostly stopping poor quality developments, limiting foreign investment without having to tinker with Foreign Investors Taxes or lending guidelines. This worked very well for over  decade.

Then on 18 December 2008,  this 50% rule was abolished, allowing developers to sell 100% to foreign investors.

This change was probably the main reason foreign developers entered Australia, mainland chinese buyers started buying up big, and pockets of oversupply and poor quality, tiny apartments, designed to be sold into China started to appear, many with a lack of quality outlook, extending to poor natural light and ventilation due to bedrooms requiring borrowed light from other rooms or in some instances narrow light-wells, low ceiling heights and bulkheads, lack of storage space, etc. 

 Some used poor quality materials, had little insulative properties and no airflow. Some of these projects done especially by some overseas developers cut corners and used cheap materials in construction.

Then on 9 MAY 2017, THE 50% rule was re-enacted.

In addition, the individual foreign investor will not be required to seek their own foreign investment approval to purchase a new dwelling in an approved  development, saving the foreign buyer A$5,000.

<A project will be considered to be a ‘development’ where it comprises one or more multi-storey buildings that will, or have been built under one development approval. For the purposes of a New Dwelling Exemption Certificate, a ‘development’ does not include house and land packages.>

This will help ensure the integrity of future projects, as it means that at least 50% of any new projects MUST be sold locally to Australian buyers, meaning developers will have to design and price accordingly apartments that are attractive to the local Australian secondary sales market. Very good news for all investors. (Except perhaps some segments of property developers) 

How many foreign buyers are there in Australia?

DO YOU KNOW WHAT HAPPENED AFTER THE 1987 ANNOUNCEMENT? 

Back in 1987, on 29 September, after the dramatic announcement about Foreign investors buying in Australia, restricting them to no more than 50% of a project there was a far reaching impact  on the market in Australia, and particularly for apartment quality and values.

Supply dropped. Better quality apartments appeared. Only better quality projects appeared.