In a joint statement, Federal Treasurer Jim Chalmers and Housing Minister Clare O'Neil said the government intends to restrict foreign purchases of established dwellings from 1 April 2025 until 31 March 2027.
The policy will then be reviewed to assess whether an extension is necessary.
"The ban will mean Australians will be able to buy homes that would have otherwise been bought by foreign investors," Ms O'Neil said.
The Housing Minister earlier acknowledged that the housing market is "not fair", particularly for young Aussies who are increasingly outpriced from the market as property prices rise faster than wages.
Currently, foreign investors are barred from buying existing properties unless they come here to work or study.
However, temporary residents, including international students and foreign-owned companies will be totally barred once the policy takes effect "unless an exception applies".
"These limited exceptions will include investments that significantly increase housing supply or support the availability of housing supply, and for the Pacific Australia Labour Mobility (PALM) scheme," Ms O'Neil said.
This means foreign investments will be more focused on building new homes and apartments.
"It's pleasing that both major parties have recognised that building new homes is the most important way our nation will address its housing affordability challenge," said Matthew Kandelaars, Property Council Group Executive of Policy and Advocacy.
Expected impact of restriction
Competition in the Australian market, particularly from investors, has been a contentious issue regarding housing affordability.
Public sentiment often attributes rising housing prices to foreign buyers.
However, the effects of the policy might be marginal.
The latest data from the Australian Taxation Office (ATO) shows foreign buyers accounted for 5,360 or $4.9 billion worth of property purchases in 2022-23; only one-third of which were established dwellings.
"It's a minor change, but a meaningful one because we know that every effort helps in addressing the housing challenge we've inherited," Ms O'Neil admitted.
Ms O'Neill emphasised that the policy's primary goal is to ease pressure on the housing market while supporting the construction of new homes.
The Property Council agreed that the policy offers a sensible carve-out to help close the housing supply gap.
"We need to double-down on the delivery of new greenfield homes, apartments, build-to-rent developments, retirement villages and purpose-built student accommodation by ensuring investment and tax settings are right and boosting productivity and cutting red tape," Mr Kandelaars said.
How does the government intend to ensure the success of this policy?
According to Treasurer Jim Chalmers, the government intends to pump the ATO's foreign investment compliance team with $5.7 million over four years from 2025-26 to enforce the ban and enhance screening processes.
"This will ensure that the ban and exemptions are complied with and tough enforcement action is taken for any non‑compliance," Dr Chalmers said.
The government will also tighten regulations on land banking, requiring foreign buyers to develop vacant land within "reasonable timeframes", not when prices rise.
An additional $8.9 million over four years from 2025-25 and $1.9 million ongoing from 2029-30 will be allocated to the ATO and Treasury to implement an audit program and enhance compliance approach to target land banking by foreign investors.
Foreign investors who have already acquired or are proposing to acquire vacant land will be subject to heightened scrutiny.
Dr Chalmers said these initiatives - which are part of the government's $32 billion Homes for Australia Plan - will help ensure that every foreign investment in housing is "in our national interest".
Image by Raul Petri on Unsplash
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