Article by Maria Ho, Norman Waterhouse
Commercial real estate includes vacant and developed property which is not for residential purposes. A foreign person wishing to purchase commercial real estate in Australia needs to be aware that certain restrictions may apply.
Foreign Person
‘Foreign Person’ is defined under Section 5 of the Foreign Acquisitions and Takeover Act 1975 (Cth) to mean ‘a natural person not ordinarily resident in Australia’. However, the definition also includes:
- a corporation in which one or more ‘foreign persons’ or a foreign corporation hold a controlling interest;
- the trustee of a trust estate in which a ‘foreign person’ or a foreign corporation holds a substantial interest;
- the trustee of a trust estate in which two or more ‘foreign persons’ or a foreign corporation holds an aggregate substantial interest.
A person is considered to hold a ‘substantial interest’ if that person controls 15% or more of voting power or holds a 15% or more interest in a corporation. Two or more persons are taken to hold an ‘aggregate substantial interest’ if they together control 40% or more of the voting power or hold a 40% or more interest in a corporation. Either a substantial interest or an aggregate substantial interest is taken to be a ‘controlling interest’.
Developed Commercial Real Estate
Developed commercial real estate includes offices, warehouses, factories, restaurants, shops, hotels, motels, hostels, guesthouses and any individual dwellings within those properties. A foreign person is not required to seek approval from the Foreign Investment Review Board (FIRB) if the developed commercial property to be purchased is valued below the applicable monetary threshold set out in Australia’s Foreign Investment Policy (Policy).
Under the Policy, the monetary threshold for foreign persons acquiring developed commercial properties as at 1 January 2011 is A$50 million. The threshold is A$5 million if the property is heritage listed.
Monetary threshold for United States investors acquiring developed commercial properties as at 1 January 2011 is A$1005 million.
Foreign persons are permitted to purchase developed commercial properties valued above the monetary threshold if approved by FIRB. FIRB will normally grant approval for the purchase unless the approval is deemed to be contrary to the national interest.
Commercial Real Estate For Development
Foreign persons acquiring vacant properties for commercial development must obtain approval from FIRB regardless of the purchase value. FIRB will normally approve the development subject to the following conditions:
- continuous construction commencing within five years; and
- a minimum amount equivalent to 50% of the acquisition cost or current market value of the land (whichever is higher) being spent on development.
Exemptions
An Australian citizen or permanent resident living overseas is exempt from applying to FIRB for approval to purchase commercial real estate.
Regardless of the foreign person’s citizenship or residency, FIRB approval is not required if the person is acquiring property by will or by operation of law (such as a court order regarding the division of property in a divorce settlement).
No approval will be required for acquisition of property from the Commonwealth, State or Territory or a local government, or a statutory corporation formed for a public purpose.
A foreign person is not required to obtain approval for purchasing developed commercial real estate where the property is to be used immediately, in its present state, for industrial or non-residential purposes. The acquisition must be wholly incidental to purchaser’s proposed or existing business activities.
