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Overseas investors will face a sixfold increase in property fees for homes they buy and then leave vacant, under a plan by the Albanese government to tighten foreign investment laws to free up rental stock and encourage the construction of new housing developments.

The changes, which Labor will seek to legislate next year, propose to triple the application fees that foreign investors pay when purchasing established homes. Vacancy fees will be charged at twice the tripled application fee if the property is left vacant and not put on the rental market.

Currently, foreign investors are charged an application fee for purchasing established homes linked to the price of the property, with homes between $1 million to $2 million attracting a fee of $28,200 and the same amount in vacancy fees.

Property fees for foreign investors will be tripled and financial penalties for leaving homes vacant will double, under a federal government plan to tighten foreign investment rules. Credit: Anna Kucera

Under the new measures, which will only apply to existing dwellings purchased after May 2017, a foreign investor would pay $84,600 in application fees when buying an existing property worth $1.1 million and would face an annual vacancy fee of $169,200.

While those looking to buy new dwellings will still have to pay an application fee, it won’t be tripled, meaning their vacancy fees will remain substantially lower.

In a bid to drive investment in new housing stock, the federal government will from Thursday cut fees for investing in Build-to-Rent projects to keep them at the lowest commercial level – a change from the current arrangements where higher fees can be imposed on projects built on residential land.

In a statement announcing the changes, Treasurer Jim Chalmers and Housing Minister Julie Collins said the changes would be complemented with stronger enforcement action to ensure compliance with the rules.

“These changes further encourage foreign nationals to buy new property instead and help to ensure that those who do get approval follow the rules,” they said in the statement.

“The higher fees for established dwellings will encourage foreign buyers to invest in new housing developments. This creates additional housing stock, jobs in the construction industry, and supports economic growth.

“The increased vacancy fees will encourage foreign investors to make their unused properties available to renters.”

While higher fees may encourage more foreigners to make their homes available for rent, this alone will have little impact on supply and rent prices. Foreigners already face extensive barriers to buying existing property and those that do buy are required to sell the property once they leave the country if they are not permanent residents.

The latest Australian Taxation Office data showed that foreign investors purchased just 1339 established homes in 2021-22, a small fraction of the more than half a million properties sold annually in Australia. The ATO raised about $5 million in vacancy fees last financial year and issued 23 penalty notices totalling $511,836 for breach of foreign investment rules, according to the Treasury’s most recent annual report.

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