Foreign Investment in Australia

Great news – finally; the threshold for unscrutinised purchases of land from non-Australians has been lowered, and the total is now cumulative.

The new limit is $15 million in total; down from a whopping $240 million per purchase (not cumulative!) So from 1st March 2015, anyone who intends purchasing land for $15 million or more, in a single transaction or several in total, will have to have the purchased approved by Australia’s Foreign Investment Review Board.

Ridiculously, Keith de Lacy has mentioned xenophobia; though almost 30% of Australians were born in another country, and a 2013 ABC survey concluded 75% of Australians want tighter restrictions on foreign ownership.  Keith de Lacy also says it will ‘send a signal that we don’t want foreign investment’.  Keith was a former Qld Labor Treasurer and Minister for Rural Development. And Chair of the controversial (now largely foreign-owned) Cubbie Station group.  And is now raising investment for more Queensland farmland. So is Keith speaking specifically for the interests he represents, or for the long-term good of Australia as a whole?  He may well think he is doing the latter; but there’s no way his comments could be construed as objective and independent.

There is mention in the ABC survey that reducing foreign ownership of land would be bad for sellers, as it would reduce prices. It is vital to also make the point that Australian farmland is actually very much overpriced, in respect to long-term ROI (return on investment).  Hence, large numbers (probably the majority) of foreign purchasers of farmland, seem to sell their investment within 5 years.  Farm land now has ‘real estate value’ rather than a realistic ‘business value’; and profits are made by selling the land and realising the capital gain, not so much by operating a business on it.  This makes it very difficult for even the most efficient Australian farmers to run a profitable enterprise, and almost impossible for young, aspiring farmers to become landowners.  Long-term, Australia would be better off with lower farm land values.  High farm values only benefit the individual seller, not society as a whole.  (Same applies to residential properties – Australia is overpriced.)

This change in foreign investment approval laws simply sends a message that Australia values its land, especially the very best of it – which is what is being bought by people from other countries.   The change is not a foreign ownership ban. It simply ensures sizeable land purchases are first approved and recorded. Which to date, basically hasn’t been happening (given that there are not many rural enterprises that sell for more than $240 million in the one transaction).

Which other countries let outsiders buy up as many parcels of land as they like, up to the value of $239 million per transaction, without any scrutiny?

Doubt there’s many, if any.  Those that do, are highly likely to have governments happy to repossess land, without warning.  IE very shaky land tenure.

Complaints regarding changes to the Foreign Investment Review Board rules invariably come from vested interests. I am yet to see any of these vested interests list examples of Australian farmland that has greatly benefited from overseas ownership.  The Kleberg family (from King Ranch, Texas) are the only example I know of. Cattlemen at heart, they weren’t just running a business for a short-term profit.  When they sold their cattle stations here, they left behind a permanent legacy of thousands of improved stock and substantial capital improvements.

No doubt there are some other examples of investors who have left the land better off than when they found it.  But given that foreign investment in Australia has continued unabated for more than 200 years, one would expect the list of farms that have benefited from foreign investment to be very long, if it were indeed the case that this is what occured.

Unfortunately, I have a list of properties that have actually been left worse off by investment companies (both Australian and overseas).  Often it’s simply a case of sucking the maximum out of a place then leaving a husk behind.

As distinct from a farming family who is farming with the life-long intention of passing on land to successors, in better shape than it was when they started.

Here’s the thing.

If Australian farming was hugely profitable, then the money would be invested by Australian residents. It’s a supply and demand no-brainer. Just how much cash is sitting in Australian superannuation funds right now, looking for a great investment target? How many Australian banks, insurance and superannuation companies, have invested in Australian farm land, and then sold it (usually within the typical 5 year window)?  Is anyone suggesting they sold because…what…the farms they owned were hugely profitable?

Australians know farming here is a tough gig, and many only make a profit when the sun and moon align (great season plus great prices).  It’s not a short-term money making prospect that suits the average investor; unless you happen to buy and sell during a period of rapid land price rises.

Scoffing that the land can’t be taken away by overseas owners, isn’t true. Because badly treated land can be mined of nutrients.  In addition, overall soil quality can be vastly diminished by poor management, and take many years to recover.  And multi-million dollar capital improvements can be run down.  These prospects are all the more likely, when land is owned by someone who doesn’t have their heart in it.

This is not to suggest that all family farmers are saints and all corporate investors are devils. But there is a pattern to what usually happens, and it’s frustrating to see basic human nature and standard business actions constantly ignored, whenever these issues are discussed.

Realistically, is someone who invests in one spot but lives elsewhere, going to plan to leave the land they buy, in a better state when they sell it?  Unfortunately, people who think like that, in the business world, are few and far between.  And anyone who suggests it’s likely are either fools or arguing the point due to vested interests.

It would be nice to think that the Lands Departments did a good job of keeping a beady eye on leasehold land. However that’s a big ask and I’ve seen too many examples of feralness (from sole proprietors up to large companies), to be confident that leasehold conditions offer soil and capital asset protection.

It is very disappointing to hear the foreign ownership registrar still has no implementation date because this is what Australia needs most of all.  As it is, the facts on ownership are embarrassingly sparse. However it will obviously be a challenge to ensure a foreign ownership register is accurate.  I’ve already encountered one person touting their services for ‘legally and cost effectively getting around the Australian foreign ownership restrictions’.

The NFF call for similar scrutiny of water purchases makes eminent sense, in the driest inhabited continent on earth.  Taxpayers handing John Kahlbetzer $300million for water, a few years ago, was one of the most outrageous handovers of cash to an overseas resident, ever.  Even more astonishing was that this gift went virtually unremarked.  During severe droughts, water is life.  Allowing profiteers (Australian and overseas) to buy up too large a slice is sheer madness.

The smartest thing the Australian Government can do, is help Australian family farmers to help themselves – ie make it easier for them to reinvest back in their own farms (eg via tax rebates for conservation-related measures, innovation etc).

PS: If anyone in another country wishes to buy land worth $15 million or more and would prefer to avoid FIRB scrutiny, I’m happy for the purchase to be put into my name. (I promise to look after it.)



Tags: , , , ,