Real estate agents enter FIRB 'grey area'
Real estate agents could find themselves liable for breaches of foreign investment laws on residential property when new rules kick in next month, property lawyer John Turnbull says.
While strengthened Foreign Investment Review Board rules - which come into effect from December 1 - specify civil penalties of up to $45,000 for individuals and $225,000 for companies that "knowingly" permit foreign investors to breach rules, the definition of "knowingly" was unclear, said Mr Turnbull, a Mills Oakley partner.
If a purchaser stated they were not a resident and did not have permission to buy an established property, it was clear an agent who then sold that property had knowingly assisted them. But how far an estate agent had to go to ask a purchaser about their legality when they did not volunteer that information was unclear, Mr Turnbull said.
"If someone doesn't tell you that, do you have to start asking personal questions?" he told The Australian Financial Review. "That's going to be the hard bit. Just sitting back and not asking too many questions, maybe that's not 'knowingly'. It's still going to be a grey area until there's a prosecution of somebody."
Treasurer Scott Morrison on Wednesday said he had issued forced divestment orders on over $9.7 million-worth of residential real estate, including a $5.2-million mansion in Melbourne's Hawthorn East purchased by Chinese businessman Li Jian Guo in March last year. While an amnesty until the end of this month permits owners of properties bought in contravention of Foreign Investment Review Board (FIRB) rules to sell them and avoid prosecution, the enforcement of laws and prosecution under them is about to become tougher.
Gerald Delany, the chairman of Melbourne estate agency Kay & Burton and the person who last year conducted the auction in which Mr Li bought the 6 Higham Road property, said his agency had "always assumed" Mr Li was entitled to acquire it. Nothing the agency had done assisted Mr Li to break the law, Mr Delany said.
"A gentleman attends an auction, bids, signs a contract and pays a deposit," Mr Delany said. "The deposit gets cleared within the prescribed time and he settles. There are no obligations over and above that. There is no assistance being given to that person to flaunt the laws."
Lawyers and financiers acting for buyers had the responsibility to ensure their clients were qualified to make a purchase, but real estate agents couldn't demand that information, he said.
"As agents we can't… ask for passports or delve into qualifications of who they are," Mr Delany said. "That's something that is a personal issue."
Mr Delany said, however, he would be happy to comply with the rules if they changed.
Malcolm Gunning, president of the Real Estate Institute of NSW, took a different line and said the industry already had a role to play. Real estate agents should ensure buyers were entitled to acquire a property, even at auctions, he said.
"I don't think that's unreasonable," Mr Gunning said. "If they're knowingly doing it, they deserve to get fined. Pleading ignorance when you're being paid a $30000 fee doesn't wash very well."
Responsibility was spread across the chain, Mr Gunning said.
"A lot of the misinformation or misguided information is coming from lawyers, financial planners, migration agents and, in some cases, the real estate agents and property spruikers," he said.
Mr Delany said Mr Li had requested Kay & Burton to sell the Higham Road property six weeks ago. It was passed in at auction on Saturday for $5,525,000 but they had since received a higher offer and hoped to sell it soon.
"He didn't give us instructions to sell because of this issue," Mr Delany said.
Mr Turnbull said regulators were likely to bide their time before prosecuting any real estate agents for knowingly helping a buyer evade the law.
"They'll pick out a high-profile person," he said. "It's done by finding someone fairly high profile, prosecuting them and sending a message to the industry."