Investors and potential investors watching developments in Australia of late could be forgiven for getting jittery about just how welcome and safe their off-shore investment might be.
News that the Australian Government has forced the sale of over AUD100 million worth of residential properties sends a strong message to investors.
But that’s the point – the Australian Government is sending a message – not to scare investors, but to be quite clear with them that the rules governing foreign investment will be enforced.
For those with some experience investing in Australia, they would know that regulatory regimes are often quite prescriptive and taken seriously. Loopholes may be found, and some investors will try and ‘game’ the system from time to time, but as a general rule, laws will be enforced by Australian authorities.
There ought not be too many surprises when investing in Australia. Sovereign risk courtesy of changes in public policy are invariably well sign-posted in advance.
The State Government in Victoria changed the planning policy around height limits imposed for density restrictions for buildings in the Melbourne CBD. Many property developers, including foreign investors, were disappointed by the Government’s changes, and a number of developers claimed they were caught by surprise by the changes – these investors should be thinking carefully about the advice they didn’t receive!
These changes had been signalled well in advance, through longstanding public debate around the concerns and issues, commissioning of government reports and a review process, and ongoing media and industry commentaries.
Policy development and rule enforcement follow similar lines at a state and national level in Australia.
The recent establishment by the Australian Government of the Critical Infrastructure Centre may be interpreted by some as signaling a change of sentiment and policy toward foreign investment. Our view is that such a take is an overreaction.
The truth lies more closely with the Australian Government trying to get its own regulatory house in order.
With the enormous increase in the volume and value of foreign investment in Australia over the past decade, there was always going to be a need to clarify the boundaries of what assets were appropriate to offer up to an open market, and what form of assets may have inherent sensitivities or strategic considerations that may require a more regulated approach.
The sale (actually a 99-year lease) of the Port of Darwin to Chinese interests in October 2015 sparked debate within Australia about how well the Federal Government could oversee privatisation of state government-owned assets, and just how comprehensively performed by authorities are reviews of security considerations around these transactions.
More recently the sale process for the New South Wales Government-owned electricity distributor, Ausgrid, played to the same issues of concern about just how well security and strategic control issues have been vetted in approving foreign ownership of such an asset.
Although the Foreign Investment Review Board had given the greenlight to a bid by a Chinese consortium to take control of Ausgrid, advice provided to the Federal Government by various security agencies flagged concern about the role the Ausgrid system played in Sydney’s telecommunications network.
Certainly, the belated response by the Federal Government in ruling out the foreign acquisition of Ausgrid, raised issues about how just how clearly Australia’s foreign investment framework operates.
This is why the Critical Infrastructure Centre has been established – to more effectively advise Government on potential security concerns posed by such asset sales in a timely way. This should give more certainty to potential investors that decisions will be based on technical grounds, rather than being driven by domestic political considerations and pressures.
Policy debate in Australia is robust, and as we are seeing with many other western democracies, government and politics are becoming more complex and less predictable. Having said that, policy change in Australia is still well sign-posted and based on reasoned argument. You may disagree with the change, but the drivers behind it are generally visible.
Investors should proceed on the basis that rules will be enforced, and if they’re changed by Government, you should be able to see it coming well in advance, and if you are not confident in your ability to identify the triggers that might influence government policy settings – get some good advice on the ground from those who can.