Be wary if you are borrowing from an overseas lender to purchase an investment property which is not in the usual business of lending money.

If you are an Australian citizen or resident of Australia for tax purposes and you are purchasing an investment property (which is not a new dwelling) and are borrowing a substantial proportion of the purchase price from a foreign entity or foreign source which is not ADI (i.e. authorised deposit-taking institution) or a subsidiary of an ADI, you may have issues with the Foreign Investment Review Board (FIRB).

You would be purchasing what is referred to as "second-hand property" and not a new dwelling and in order for the overseas entity lending the money to obtain FIRB approval for a mortgage securing the loan, one of the following options needs to apply:

  1. The Purchaser will use the Property as their principal place of residence;
  2. The Purchaser will re-develop the Property;
  3. The Purchaser will use the Property for staff accommodation.

The FIRB will not give approval if you are buying second-hand property which you intend to use as an investment property.

The situation would be different if you were buying a new dwelling.

Borrowing From An Overseas Lender

If you are intending to buy the second-hand property with overseas funding you would need to obtain FIRB approval and you would ideally include a clause in your purchase contract, your proposed purchase would need to have a conditional clause so that your obligation to purchase the Property would be subject to obtaining the FIRB approval.

Lenders taking security over residential land

There are specific additional tests for a foreign lender which is not a foreign government investor nor an ADI (i.e. authorised deposit-taking institution) (or a subsidiary of an ADI) when taking security over residential land. If a non-ADI foreign lender, which is not a foreign government investor, wishes to take a security interest (i.e. mortgage) over residential land the moneylending exemption will only apply if the lender (or its holding entity) is otherwise licensed as a financial institution (whether or not in Australia) and either has at least 100 holders of its securities or is listed on a stock exchange (whether or not in Australia). The exemption is meant to apply to a moneylender which is in effectively in the business of lending money.


Under Australia's foreign investment framework, Australian citizens, permanent residents, exempt foreign persons, and foreign persons who are eligible for approval may be subject to strict penalties if purchasing a dwelling on behalf of, or for the benefit of, a foreign person (including family members) who has either:

  • not received approval to purchase the dwelling or the interest in the dwelling; or
  • would generally be ineligible to purchase the dwelling or the interest in the dwelling.

The foreign person on behalf of who an interest is acquired may also have breached the rules and be subject to penalties. An interest in residential real estate is defined broadly to include any legal or equitable interest in the land, including when a person has any right to have the interest transferred to himself or herself, and despite the manner in which the interest arose.

If a proposed Mortgagee for a purchase is a foreign person for the purposes of the Foreign Acquisitions and Takeovers Act 1975 (Cth) and as there is a security interest under real property mortgage to the foreign person, you are required to obtain FIRB approval notwithstanding that you, as an Australian citizen, are requiring the legal and equitable interest in the property.

Strict penalties (including civil and criminal penalties) may apply for breaches of Australia's foreign investment framework.

Cases of non-compliance with Australia's foreign investment framework may also be brought to the attention of law enforcement agencies and other Commonwealth departments such as the Department of Immigration and Border Protection.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.