Foreign investment trends in the July 2022 quarter, and their implications

Samy Mansour, David Landy, Andrew Hay, Danielle Crowe and Mariam Azzo
16 Dec 2022
Time to read: 2.5 minutes

Greater scrutiny of foreign investment applications is revealed by the latest Treasury report.

Treasury has released its first quarterly report (for the period 1 July 2022 to 30 September 2022) on foreign investment in Australia, providing a useful snapshot of recent trends in foreign investment.  Its next quarterly report, due in February 2023, will provide a comparison of quarterly data.

The report has been published because the evaluation of the 2021 foreign investment reforms found that enhanced public performance reporting, in addition to the FIRB Annual Report and reporting against regulator performance indicators, would improve the transparency of foreign investment regulation in Australia. Treasury will publish future quarterly reports 4-6 weeks after the end of the relevant quarter, including comparisons of quarterly data.

We examine the findings for commercial investment proposals, ie. all investments other than residential real estate.

Who’s investing in Australia?

The United States continued to be the top source of investments into Australia for the quarter ($11.5 billion), followed by Canada ($6.7 billion), Singapore ($4.8 billion) and China ($1.7 billion).  The top 10 countries investing in Australia were rounded out by Thailand, Sweden, Germany, UK, Japan and South Africa.

Total approved commercial investments for the quarter amounted to $48.6 billion compared to an average quarterly commercial investment of $82.6 billion for the 2021 / 2022 financial year and $56.8 billion in the 2020 / 2021 financial year.

What sectors are attracting foreign investment?

Over the quarter, commercial real estate was the most popular industry sector by value, followed by services, and mineral exploration and development.  The following sectors also featured: finance and insurance, manufacturing, electricity and gas, and agriculture.

Investments approved with conditions

Nearly half of the number of investment proposals approved in the quarter were approved with conditions (198 out of 404 proposals), which is slightly below the average for 2021 / 2022. However, by value, just over 73.4% of investment approvals ($35.5 billion out of $48.6 billion) had conditions imposed on them for the quarter (against 81.8% for 2021 / 2022).

Withdrawn applications

The proportion of withdrawn applications for the quarter was relatively low (about 10%). Proposals can be withdrawn for a number of reasons, including:

  • the transaction did not proceed (for example, the investor halted or deferred a purchase, or lost in a competitive tender process, or the proposed sale was withdrawn from market);
  • changes to investor consortium compositions; or
  • the proposal was incorrectly lodged.

National security applications

According to the report, there were 37 applications (out of 404 proposals) relating to national security actions which would not have been captured prior to January 2021 (which is when changes relating to notifiable national security actions took effect), with 30 mandatory and 7 voluntary notifications. 

Processing times

The median processing time for commercial investment proposals for the quarter was 44 days, a decrease from 52 days in 2021 / 2022. About a quarter of proposals were considered in 30 days or less, and about 42% in 31 to 60 days.

While the report attributes the decrease in median processing times to greater efficiencies within Treasury, the Chair of the Foreign Investment Review Board (FIRB) recently emphasised that:

“some applications will take longer to assess than others as they will attract more attention from Treasury and consultation partners because they require a more detailed assessment of whether they are in the national interest, including what risks exist and what mitigations might be possible. This takes time – usually because we are working to find a way to approve an application”.

Looking forward, FIRB has warned that applications received after 30 November 2022 may not be processed before the Christmas / New Year holiday period (with the Treasury and the Australian Taxation Office closed from 23 December 2022 to 3 January 2023) which will affect processing times.

Key takeaways for future foreign investment in Australia

While the sources of, and targets for, foreign investment in Australia remain stable, and the statistics reflect the particular circumstances over the last quarter, there are some general trends for investors to note:

  • higher value investment proposals are more likely to be subject to conditions; and
  • the bulk of processing times (while generally decreasing) exceed the statutory period for review.

Both of these are the result of greater scrutiny from Treasury and FIRB, including the new national security actions triggers. They can, however, be mitigated to some degree by careful anticipation of the regulator’s concerns, and an application that meets those concerns from the start.

If you’d like to know more about how your foreign investment application could be affected by these trends, please contact us.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.