From 1 July, under the planned new rules investors would be unable to invest more than 10 per cent in residential property. I agree the SIV investment guidelines should restrict the direct purchase of existing residential property – however, investing in residential real estate projects should be encouraged.
The additional residential housing investment generated from the SIV program provides significant benefits to the real estate sector and country, including creating jobs, increasing housing supply and generating revenue from stamp duty. The residential property industry is one of the largest employers in this country.
Under the proposed rules, Ausin’s immigration consultants expect investors to shun Australia’s SIV program and start to look for more viable alternatives such as business visas or the Investor Stream Visa. They also expect increased interest for comparable visa programs run by Canada and the United States, as their programs are more affordable compared with Australia’s visas.
According to the latest statistics from the Department of Immigration and Border Protection, 1,497 SIV applications were received between 24 November 2012 and 30 June 2014. Of those, 1,224 were invited to proceed to interview stage. Ninety-one per cent of the applications came from China.
The proposed new rules also prohibit the direct purchase of government bonds from complying investment visa guidelines. Government bonds and residential property are investments Chinese investors feel very comfortable investing in because they understand these investment types. To date, the majority of funds from the SIV program have been invested in NSW and Victorian government bonds.
The Department of Immigration and Border Protection statistics highlight that $3.26 billion has been invested in complying investments and investments worth $2.85 billion are proposed. The figures are from November 2012 until January 2015.
Another change in the rules is that the government is seeking allocations of up to 50 per cent in venture capital and micro-cap companies, which are considered high-risk investments. The Australian venture capital and micro-cap sectors are very small. It would be difficult to find investment opportunities and the expertise to significantly increase this allocation in the short term.
According to Australian Private Equity & Venture Capital Association Limited’s 2014 Year Book, over the past five years about $150 million per year was raised for venture capital funds in Australia by, on average, three or four managers.
The proposed changes to the complying investment visa requirements for SIVs has the potential to significantly impact on foreign investment in this country. Limiting the venture capital and mico-cap allocations to 10-20 per cent will deliver a manageable increase in capital for these investment sectors.
Eliminating the small-cap requirement and allowing clients to balance their remaining portfolio with assets of their choice would ensure SIVs remain a viable alternative. These amendments to the rules would also ensure Australia maintains its competitiveness as an international investment option, which is threatened under the proposed changes.