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Rural and Regional Affairs and Transport References Committee
10/08/2012
Foreign Investment Review Board national interest test

COLE, Mr Darren, Chief Executive Officer, Landmark Harcourts Pty Ltd

[12:01]

   Evidence was taken via teleconference—

CHAIR: Welcome.

Mr Cole : Apologies for not being there in person. We have a baby due fairly soon.

CHAIR: Would you like to make an opening statement?

Mr Cole : Thank you. Landmark Harcourts is Australia's leading regional rural real estate agency. We have a residential and rural sales and property management business with—

CHAIR: You are not allowed to do advertorials.

Mr Cole : Contextually, ultimately we represent sellers in a billion bucks worth of property transactions. That is our name, rank and serial number. As an agency business, a significant portion of our role is to maximise the transaction for sellers. In a global economy, Landmark Harcourts has the view that direct foreign investment in rural land, agriculture and agri-business plays an important role both in the prosperity of regional and rural communities and in assisting with infrastructure and productivity capacity growth. With the strong competition for capital both domestically and internationally, anything we can do responsibly to encourage—not to discourage—continued capital flow should be taken into consideration in assessing the national interest test of the Foreign Investment Review Board.

In discussions with a broad range of peers on the issue, with private property holders, staff and other people in the our sphere and through influences within the agricultural space, if any suggestion has come forward it is the potential to increase transparency of ownership or better quality measurement of ownership. Devoting federal government resources to investigating a national measurement mechanism similar to that currently operating in Queensland may be an option, as opposed to significantly adjusting the national interest test. This move may assist the committee, both sides of the government and the general public particularly to base decisions on more clear facts and perhaps on less emotively driven argument.

CHAIR: I realise you have an important job to do and the more you sell the better you are. What is your understanding of the national interest test?

Mr Cole : I have read the policy statements on foreign investment into agriculture and Australia's foreign investment policy and the test. There are obviously a few areas where the public and the media are asking some questions about it, but my understanding is not as deep as the specialists' understanding of the test.

CHAIR: Would you like me to clarify it for you?

Mr Cole : Sure.

CHAIR: There is no such thing. The national interest test is a political decision on advice to the Foreign Investment Review Board from the Secretary to the Treasury and there is a security consideration. The Foreign Investment Review Board said that in assessing the national interest they make a few phone calls. Treasury has told me the same thing. Then it is passed on for a decision to the Treasurer of the day and it is a political decision based on—

Mr Cole : Are you suggesting it is a political decision?

CHAIR: Of course it is. We have got the Department of Foreign Affairs and Trade to own up to that at this committee. It is a political decision and most political decisions are based on the next election. So I would not get too carried away with the present conditions of the national interest tests. The compliance regime was described to us by the Foreign Investment Review Board, its chairman and Mr Di Giorgio. When they said there is a compliance test, we asked for the details and they said there were four things. Bear in mind this has been going on for years, but a few months prior to that they had had a meeting with a group of lawyers in Sydney to talk to them about their requirements. They were intending to have a meeting with a group of lawyers in Melbourne. They do have a phone line you can ring and they watch the advertisements in the paper. And what are the penalties for non-compliance? Zero.

We are trying to define, in the national interest, preventing leakage of our revenue base, the non-distortion of the capital market by people who are not looking for a return on their money, the non-distortion of the supply and demand market by people who want to deal direct. You have an instance of that in Western Australia now where some people are still locked in commercial-in-confidence arrangements to buy ten 25,000 acre blocks of land between Broome and Geraldton to set up a series of fish farms for direct supply of fish to China. Ad be aware that a lot of the Chinese fish farming is completely contaminated, including their prawn farming, to the point where the antibiotics they are using are now affecting humans because of the low intake of the antibiotic in the food chain, giving people bacterial resistance—all of those sorts of things. We are concerned about the bigger issues. Are you concerned about defining the real national interest, the long-term national interest, rather than the next election? I have had it described to me, and I will not dob the person in, but a member of the government said, 'Bill, the one thing you need to understand about this is we don't want to own the problem.'

Have you taken the time to think through what really would be the national interest test and should we be concerned about the generosity, as described adequately by David Farley this morning, to foreign capital coming in through the tax concessions they get and certainly the tax concessions that are available through all manner of means as the production goes out and the effects that it would have on distorting the market for people who are just ordinary, honest citizens who are making a living in the commercial market and have to explain to the bank how they are going to pay their loan back?

Mr Cole : There are a number of elements to that question. Ultimately our position is to act in the interests of the seller. Have I thought through the national interest over a long period as to how the use of land is governed, whether they are in international purchaser or not—certainly it is a decision for the government to mandate how properties should not be used ultimately. Is that in direct correlation with whether the buyer is foreign or domestic, I am not certain.

CHAIR: By the sound of it, it is not something you have thought about. Obviously, this committee and most thinking Australians realise the importance of foreign capital. The ABS, in their generosity, at the first hearing— we had another hearing this morning— acknowledged that we as a nation really have not come to terms with the potential consequences of foreign investment and the distortions that can occur, especially if you are a country which has an on-market currency and are prepared to lend investors from your country, in some sort of joint venture, 30-year interest-free loans in return for the total surrender of the asset in 30 years time, all those sorts of things. I do not blame you. You are happy to know that you look after the interests of the seller but we have to make a judgment larger than that—and I am a farmer, by the way. So what is your message for us here today?

Mr Cole : I think ultimately, if there is any there is any message, it is probably a mild message around the measurement of who owns the property. Queensland has some legislation in place and a process in measuring who owns the property. I think the waters are murky in times in the media.

CHAIR: Fair enough. You think it would be useful to have a register. Do you think there should be a threshold?

Mr Cole : Yes, the current threshold. At that number, I am not certain who determines why that should be the number, but I know we have not sold any farms or properties for a long time around the $244 million mark.

CHAIR: Have you ever been pulled up by the highway to patrol? I have—I will own up. Have you?

Mr Cole : Yes.

CHAIR: They take your licence, they go over the car and bung the number in and tell you your driving record—correct?

Mr Cole : Yes.

CHAIR: And if you go to the quack with your wife in recent times—and we all wish you and your wife the very best—you take your Medicare card in and they can give you your PBS history. You give your ABN number to the tax office and hopefully they can tell you your business. So why would you need a register? Why, in a modern age, would you not be able to press a button and see every sale? Why the register? And by the way, when you do register, nothing happens anyhow. And to make it worse, the Foreign Acquisitions and Takeovers Act describes all the country you have in the desert over there, the more marginal country, as urban land, the same as Bondi Beach. That is how out of date it is.

Senator NASH: Thank you, Mr Cole, and all the best for your impending arrival. If you would not mind, concerning the $244 million threshold we were just talking about and you said from your memory it had been quite some time since you had sold a property at that level, of course we do not need to know names or pack drill but can you let the committee know on notice when that was with as much detail as you can, without breaching any confidentiality? You are obviously in a joint venture with New Zealand. What is the makeup of the joint venture?

Mr Cole : The joint venture of Landmark Harcourts is 50 per cent each: Landmark is the agri-services business and Harcourts International has its international operations here in Brisbane.

Senator NASH: I assume when you say, quite rightly, that you work in the interests of the seller that you have foreign investors as well as domestic investors?

Mr Cole : Yes, we do.

Senator NASH: Do you keep any kind of record of which of those are foreign and which are domestic purchasers?

Mr Cole : Specifically where the investor or the purchaser is from is not something in our database by policy. We do have records of the sellers' and buyers' addresses but we do not have anything such as the Queensland department which handles land titles does. I think they keep forms 24 and 25 of the Queensland Land Registry, specifically asked for at the time of transfer. We do not keep that record as stringently by policy, no.

Senator NASH: Could you give us an idea how many of the sales you have made over the last 12 months? How many would have gone to a foreign entity and how many to a domestic entity?

Mr Cole : Not absolutely, no.

Senator NASH: Could you take that on notice—anecdotally is fine—perhaps over the last 24 months insofar as you can. Do not go to too much detail. If you could provide that to the committee, that would be useful. You raised the issue of transparency and measurement. I will place on record I completely agree with the chair in his precis of the national interest test and we do need to consider whether or not it is appropriate. Obviously that is not a particular area of interest for you. In your view, if we have greater transparency and measurement—I think there is a broad cross-section of agreement that we should have—and if we determine that the foreign ownership is at a certain level be it 30, 40 or 50 per cent, what then? What is the point of knowing what the level is if there is not an action following the understanding of the level? Otherwise, why do it in the first place?

Mr Cole : What is the point of knowing? That is another good question. I think Australia has a magnificent opportunity in our agricultural sector over the next 50 years. We have all heard the points around the growing population and the demand for food. It is all very well to say we can take advantage of that but without development we cannot take as much advantage as we possibly could. Capital flows to investment and infrastructure to produce more are not what they could or should be regardless of whether that is from an internal or external investor. I am not 100 per cent certain what the right volume of land should be or whether there should be a volume of land that is or is not allocated to foreigners.

Senator NASH: My question was not so much about the amount of land. There seems to be on occasions at the moment people falling to, 'We will just get the transparency, we will get the measurement and that will be fine.' If you are not going to do something with that measurement, if there is not an action as a result of understanding that or of having that knowledge then I do not see there is any point in doing it in the first place. There has to be a reason to it. That is where a lot of people do not have their head around the next step that has to go with that.

You are absolutely right about the next 50 years and the opportunity. There has been some discussion this morning and you did say in your opening remarks about encouraging continued capital. It was made very clear to us this morning the taxation arrangements are far more weighted towards foreign investors and far more attractive to foreign investment than they are to domestic investment. Is that something that you are aware of, the current taxation arrangements benefiting foreign investment rather than domestic?

Mr Cole : Not as detailed as I would like would be the answer in a parliamentary hearing. I would like to understand a lot more in that field are making a judgment of whether that is weighted correctly or not.

Senator NASH: it seems, as we were discussing earlier today that you were not privy to, that it is something that is becoming increasingly obvious but has not been to date. In your view, does seem strange that it is more attractive for a foreign investor to purchase agricultural land or invest in a business in Australia than it is for an Australian investor? To me, that seems completely wrong.

Mr Cole : There are taxation structures that will exist. I would like to think that regional and rural Australians get a good lick at those tax situations as much as the next person. There would be some reasoning behind why those tax situations exist. I am not 100 per cent certain what they are and why.

Senator NASH: We will have the ATO in again next week so we will have even clearer picture by that stage. Again, I am not after any detailed information that might compromise confidentiality, but would you be in a position where you will get a foreign investor coming to buy a property that will come back at a later date or they might buy several properties but not at the one time. Does that happen at all?

Mr Cole : Yes.

Senator NASH: Talking about the national interest test, the government's policy says the government determines national interest concerns case by case. Is that something we should look at as being inappropriate because of the issue of the accumulation? If the FIRB was to look at the national interest of each of those purchases—as you say, you can sell separately—but the accumulation of those properties may not be in the national interest, do you think it is appropriate they do look at it on a case-by-case basis?

Mr Cole : Would the FIRB take into account, while doing a case-by-case basis, other holdings?

Senator NASH: No, at this stage of my understanding, they do not. This is what we are trying to get down to.

CHAIR: They do not have the accumulative impact. It is the same with coal seam gas mining.

Senator NASH: Is that something that you are aware of or you think should be taken into consideration? I am asking you as somebody whose responsibility is to the seller. You are selling, as you say, often individual parcels of land over a period of time to the one purchaser. Therefore, do you think having it on a case-by-case basis only is appropriate?

CHAIR: You do not have to answer.

Senator NASH: That is okay. If it is not something you are comfortable answering, that is absolutely fine.

CHAIR: We do not want you to lose your job.

Senator NASH: Perhaps you could give it some thought and if you would like to provide the answer on notice then that would be fine.

CHAIR: I presume, if you sit at the top of the table, you have made many foreign sales to foreign purchasers. Is that correct?

Mr Cole : Yes, a number. I am not 100 per cent certain on the exact number.

CHAIR: In making those foreign sales, how do you know whether there is any sovereign involvement? Answer honestly. I do not think you do know.

Mr Cole : Personally, I physically do not sight contracts or the purchases. We may need to do some work there to answer that 100 per cent correctly.

CHAIR: We will let you off the hook there.

Senator GALLACHER: I just read your submission and you have $20 billion worth of turnover, 100 years of experience and I think you said you did not recall any recent sales over $244 million. How do the ABS stats that say 96 per cent or the high-90 percentile of Australian agricultural land remains in Australian hands fit with your selling farms through your organisation? I have not met a real estate agent yet that did not have a good record from whoever he sold to or from whoever he bought from. Is 90 per cent or 95 per cent of your business Australians buying the farm for Australians?

Mr Cole : I would have to think around that number. At least 70 per cent of our sales are 40 hectares or 100 acres plus for Landmark Harcourts. The biggest sale this year has been in excess of $40 million to an Australian family. I would have thought that the vast majority and up around that 80 to 90 per cent at least would be to Australian people.

Senator GALLACHER: That is 100 acres and up.

Senator NASH: Following on from Senator Gallacher, would it be possible for you to have a look in the last 12 or 24 months the top 10 per cent by valuation of your agricultural property sales? As you say, you can only do it anecdotally but perhaps you give could us a breakdown of which were domestic and which were foreign purchases?

Mr Cole : I can have a look for you.

Senator NASH: That would be really appreciated.

Committee adjourned at 12:24