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Insights

Corporate & Commercial Alert

Australia Still Attracting Foreign Investment

| Published by Rory Maguire, Rohan Harris

On 29 May 2018, the Foreign Investment Review Board (FIRB) released its Annual Report for the year ending 30 June 2017, finding that Australia remains an attractive destination for foreign investment despite a significant reduction in the number and value of residential real estate applications.

Rationale

Each year, FIRB prepares an Annual Report (Report) in accordance with its responsibility to advise the Australian Government on foreign investment matters.  The Report serves as a mechanism to publicise recent developments in the level and type of foreign investment into Australian, together with current areas of sensitivity or concern.  The Report also assists with helping raise awareness and understanding of Australia’s policy on foreign investment, both locally and abroad.

2016-17 Report Highlights

A copy of FIRB’s Report can be accessed here.  Some of the key findings of the Report were:

Continued high levels of foreign investment
  • Australia continues to be an attractive destination for foreign investment.  In 2016–17 the total number of applications approved was 14,357 representing $193 billion of proposed investment.  However, this represents a drop from the 41,445 approvals for proposed investment of $247.9 billion in 2015–16.
  • Despite the decline in residential real estate approvals (see below), the value of business related approvals was relatively stable, with $168 billion of business related approvals given, only four per cent below the 2015–16 level.
Focus on services and infrastructure
  • The services sector had the highest value of approved investment, totalling $54 billion, reflecting an increase in value of $31 billion (or more than twice the value) from 2015–16.
  • There were a number of significant infrastructure proposals, again focusing on ports and electricity network assets.  Major infrastructure proposals included the acquisition of the fifty year lease for the Port of Melbourne, the Asciano ports and rail group transaction and the lease of a majority stake in Ausgrid.
  • A key development in the infrastructure space was the establishment of the Critical Infrastructure Centre, designed to better manage risks to critical infrastructure assets by facilitating early and comprehensive advice on national security risks and potential improvements to support decision making.
China and the US still on top
  • China and the United States continue to be the top two sources of proposed investment, although the total value approved fell in comparison to 2015–16 levels by $8.4 billion and $4.5 billion respectively.
  •  Chinese investors were again the largest source by both value ($38.9 billion) and number (9,714).  US investors were the second largest, totalling 323 applications worth $26.5 billion (including Boeing’s investment of over $1 billion in its Australian operations), with Canada, Hong Kong, Singapore and Japan the next in line.
Three rejections and greater conditional approvals
  • There were three applications prohibited in 2016–17.  One of these was in the residential real estate sector and the other two related to the long term lease of Ausgrid, being the bids from State Grid Corporation (China) and Cheung Kong Infrastructure Holdings (Hong Kong) which were both rejected on national security grounds.
  • The number of approvals made subject to conditions increased in both total number (up by 5%) and value (up by 10%) of applications, highlighting the increasing use of conditions to manage national interest issues.
Decline in residential real estate approvals
  • The number of residential real estate approvals dropped significantly.  In 2016–17, a total of 13,198 residential real estate applications were approved worth $25.2 billion, representing a decrease in the number of approvals of 26,951 and $47.2 billion from 2015–16.
  • The Report attributes this decline to the introduction of application fees, indicating that investors are only applying for properties they actually intend to acquire, as well as other external factors such as market conditions, tighter Chinese capital controls and additional taxes in some states.
Key takeaways

Foreign investment is a key part of Australia’s economy.  However, FIRB and the Government continue to be sensitive of the risks to Australia’s national security and national interests that are inherent with foreign investment.  As such, regulation and compliance measures are being constantly reviewed to balance the benefits to the economy and challenges for Australian individuals and companies when competing with foreign investors.

Please contact Rohan Harris or Rory Maguire from our Corporate & Commercial team should you require further information or advice in relation to foreign investment or other corporate advisory matters.

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