In this podcast, Director and Accredited Property Law Specialist, Tony Randall discusses the recent changes announced that impact on foreign investment in Australian agricultural land.
New changes in federal laws will now require farmers and rural land holders to publicly advertise that their properties are for sale with the primary objective to make foreign farm acquisitions more transparent and give local Australians a better chance of acquiring prime farmland.
Well to discuss the matter further, I’m with Tony Randall, an accredited property law specialist at Murdoch’s.
Tony, the Federal Treasurer has just announced these changes related to agricultural sales. What’s happened?
Dan, there have been two separate sets of relatively recent changes. The most recent change was announced on the 1st of February, 2018, by the Treasurer and it took effect immediately. What the treasurer was doing with that change was responding to some perceived concerns around the ability of Australians to participate in the sale process of prime agricultural land. The real driver for that is probably in the sale of the extensive holdings of S. Kidman and Co, and the controversy that surrounded the attempts by various buyers to acquire that property.
What the Treasurer announced on the 1st of February, which took effect immediately, was that with only a couple of exceptional circumstances foreign investors will need to demonstrate that agricultural land that they intend to acquire has been part of a public sales process. There’s some quite specific obligations that the potential buyers will have to demonstrate. They’ll have to show that the property was marketed widely to potential Australian bidders for a minimum of 30 days, and also that Australian bidders had an opportunity to participate in the sale process.
Now, the other recent change that happened was back in July of 2017, when the Treasurer introduced the requirement to register both foreign ownership of water and agricultural land. That replaced a 2015 obligation to notify of just simply foreign ownership interests in agricultural land. Although it was announced in July, 2017, it really only started to take effect from the end of November in 2017. What that did was that the Treasury/Tax Office is required to keep two separate registers of foreign interests in agricultural-type investments. One is a register of foreign interests in agricultural land, and on that register foreign interests have to register any interest that they have and whether that’s an interest in ownership of the land, or whether it’s simply a right to occupy agricultural land that exceeds five years. That register has been running effectively since the 1st of July.
Then from the end of November, 2017, there is a new separate register of foreign ownership of certain water interests. Effectively those water interests are everything other than stock or domestic type water interests.
Tony, what will these changes mean for owners and agents wanting to target potential foreign buyers for their properties?
Agricultural land is a bit of a sort of unique animal, in that by far and away the majority of ownership transfers or transactions that happen take place usually involving neighbours. There’s a great deal of property isn’t widely marketed, it’s more a direct approach. This is going to really be a game changer, I think, because if you’re targeting a foreign owner or a foreign investment for your property, you will need to market widely the property for sale for a minimum of 30 days before you can effectively commit to a sale to a body that’s a foreign national, or has a substantial foreign interest involved in it.
Marketed widely means that the property must be listed or advertised on a widely used real estate listing website, or in regional or national media. It’s going to be very obvious that properties have been placed on the market. The reason behind this in the guidance note that’s been issued by the Foreign Investment Review Board, is that they want to see an open and transparent sale process.
Now, we talked earlier about there being some exceptions to these requirements to demonstrate open transparent sales process. The FIRB have published three specific exceptions that they will allow a property to be acquired by a foreign interest where it hasn’t been marketed widely for a period of 30 days. Those exceptions are if they are acquiring via a private sale where the property was marketed widely for 30 days in the previous six months, but did not sell, or where the sale had fallen through. The second exception or exemption is where the entity that’s acquiring the land has substantial Australian ownership as well as an element of foreign ownership. That is, where Australian ownership is at least 50%. So the FIRB takes the view that’s a sufficient opportunity for Australian bidders to participate. The third relatively unlikely exception is where a foreign interest is required to make the acquisition to comply with some state or Commonwealth law. The examples they give are including a mining buffer zone around a mine that they’re currently working.
So Tony, what does this mean conversely for foreign buyers?
Okay, so if you’re a foreign buyer, then there are really three things that you need to consider. Firstly, all foreign buyers need to notify all acquisitions of interest in agricultural land, regardless of whether or not their current holdings exceed the threshold values. So if you’re a foreign interest, you must notify of your interest in agricultural land.
Secondly, if you’re a foreign person that’s not a foreign government investor, there is a cumulative value threshold that you’ll need to consider. When you reach that threshold, you then need to apply for approval. In broad terms, any foreign government investor has to apply for approval regardless of the value. Foreign investors that aren’t from our trade partners have got a cumulative value of $15 million, at which point they need to start to seek approval. Our foreign investors from our approved trade partners, which are Chile, New Zealand, Thailand, and the United States, have a threshold of $57 million.
Then, any acquisition that is taking place or is proposed to take place from the 1st of February will now need to demonstrate how they became aware that the property was being advertised for sale. They’ll have to investigate whether the seller has advertised the property in a way that will allow the foreign buyer to qualify for approval. In other words, that the property has been widely advertised and it’s been on the market for at least 30 days, and that there has been an opportunity and a real opportunity for Australian interests to participate in the bidding for the property.
So Tony, what really are the practical implications of this latest change?
Firstly, if you’re a foreign interest you’re going to have to look at how the property has been advertised, where it is in the marketing cycle. This recent change that took effect on the 1st of February has caught some of the current applications that have been processed are being told you need to withdraw your current application, resubmit your application, to show that the property has been widely advertised. If they can’t demonstrate that, then they’re not going to get their approval. That’s caught a few foreign buyers on the hop, from what I understand.
As I mentioned before, in a practical sense agricultural sales and leases are very often transactions between neighbours. That’s really going to put foreign owners at a practical disadvantage, because they’re really effectively prevented from buying or leasing neighbouring properties until there has been some kind of marketing campaign that has been an extensive campaign, and offering all potentially interested parties the opportunity to participate.
That’s going to see, I think, a practical change in the dynamics. Like, in Queensland, we’ve got about 12% of all agricultural land has some degree of foreign interest in it. That’s really effectively 12% of your properties and your potential buyers are going to be removed from the market unless the property has been advertised widely-
Which is significant.
Yeah. It will be something that agents will have to get their head around when they’re putting their propositions together, because the usual thing is that when they get a listing is the first thing they do is they ring the neighbours in the area and ask whether they’re interested. Now effectively 12% of those neighbours are going to be excluded from that kind of a process.
The other thing that’s really sort of happened … That it’s going to make difficult, is there are some large foreign buyers that have already got approved acquisition programmes, where they can invest up to $100 million in agricultural land without having to get that property individually qualified for the purchase. Now, I think with this change, they are likely to have to demonstrate that whatever property they are looking to acquire has been widely advertised. I think that may well mess up some of the proposed programmes that are out there at the moment.
There’s a lot to it. Tony, thanks for joining me.
Thank you very much, Dan.