A Private Lender Due Diligence Checklist for Foreign Buyer Finance and Non-Resident Loans in Australia17 min read

Introduction

A two-year ban on foreign persons purchasing established dwellings, which took effect on 1 April 2025, has significantly altered the landscape for private lenders financing property in Australia. For any lender providing a home loan to a non-resident, this policy shift heightens the importance of due diligence to manage liability and ensure compliance with foreign investment rules.

This article provides a due diligence framework for the application process used by private lenders, non-bank lenders, and mortgage brokers. It details essential steps for assessing non-resident loans, from identifying foreign persons and tracing complex ownership structures to verifying eligibility for specific exemptions.

Interactive Tool: See If You Can Finance This Foreign Buyer Property

Understanding the 2025 Ban on Established Dwellings for Private Lenders

The Impact of the Two-Year Ban on Loans in Australia

A federal policy implemented on 1 April 2025 introduced a two-year ban on foreign persons purchasing established residential properties. This ban is scheduled to remain in effect until 31 March 2027. Specifically, the policy prohibits the following from acquiring established dwellings during this period:

• Foreign individuals;
• Temporary residents; and
• Foreign-owned entities.

The stated objective of this measure is to reduce competition within the housing market. By restricting foreign investment in existing homes, the policy aims to prioritise homeownership opportunities for Australians. Consequently, this shift requires any private lender involved in property finance to be aware of the restrictions on loans in Australia.

How to Safely Lend & Assess Lender Liability for Non-Compliance

Private lenders must assess their due diligence procedures to avoid facilitating a home loan where the funds might be used for a prohibited purchase. It is important to identify any instance where a borrower could illegally use loan proceeds to acquire an established dwelling in contravention of the ban.

To discourage non-compliance, the government introduced stricter financial measures and increased enforcement. These changes highlight the potential liability for lenders who do not conduct sufficient checks during the application process. Key measures include:

• Tripled application fees: for foreign investors who seek to purchase established homes under the limited exceptional circumstances that may be permitted.
• Doubled vacancy fees: for foreign-owned properties that are left vacant for extended periods, encouraging their use in the housing supply.

Furthermore, the Australian Taxation Office (ATO) and Treasury received $5.7 million in funding over four years to enforce the ban and enhance compliance, making a clear compliance roadmap for private lenders more important than ever. This funding supports a stronger approach to monitoring foreign investment laws and targeting non-compliant activities.

A Trust & Company Ownership Tracing Workflow for Non-Bank Lenders

Identifying a Non-Resident or Foreign Person

A crucial first step in the legal due diligence for private lenders is to determine if a borrower is a foreign person. This classification extends beyond individuals to include companies and trusts. Therefore, lenders must conduct thorough checks on the residency status of every applicant before approving a home loan for an established dwelling.

Under Australian foreign investment rules, a foreign person is defined as:

• an individual who is not an Australian citizen or permanent resident; or
• a company or trust in which a foreign person holds a substantial interest, which is typically an interest of at least 20%.

As a result, a lender must investigate the ownership structure of corporate borrowers and the beneficiaries of trusts to ensure compliance.

Applying Corporate Group Tracing Rules

For complex borrowing structures involving multiple entities, lenders can apply corporate group tracing to identify ultimate ownership and control. This due diligence workflow helps determine if an entity is foreign-owned by examining its parent and subsidiary relationships.

The tracing process involves looking through corporate layers to find entities that hold significant control. A parent-subsidiary relationship is generally established when one entity:

• directly owns at least 90% of the issued shares in another entity; or
• holds voting control, meaning it can cast or control the casting of 90% or more of the maximum votes at a general meeting.

By applying these tracing rules, a private lender can map out a corporate group and assess whether any parent or controlling entity meets the definition of a foreign person, which would affect the borrower’s eligibility for the investment.

Permitted Exemptions & Mortgage Broker Due Diligence Document Request List

Redevelopment & Commercial Scale Housing Exemptions

Foreign investors may receive approval to purchase established dwellings if the investment is intended for specific development purposes. Consequently, a private lender must conduct due diligence to ensure a non-resident borrower’s proposed purchase meets the strict criteria for an exemption.

One key exemption applies to redevelopments that significantly increase housing supply. To qualify, the project must create at least 20 additional dwellings on the land. For example, a proposal to demolish three established houses to build a 23-unit complex would meet this requirement, as it adds 20 dwellings to the existing three.

Another exemption covers acquisitions that support housing availability on a commercial scale. This category includes investments in multi-unit developments such as:

• Retirement villages;
• Assisted living or aged care facilities; and
• Student accommodation.

During the application process, a lender or mortgage broker should request documentation verifying the project’s eligibility. This could include the following documents that clearly demonstrate the project will either result in at least 20 additional dwellings or operate as a commercial-scale housing facility:

• Development approvals;
• Architectural plans; and
• Business plans.

Build to Rent Developments & Required Mortgage Documentation

Foreign persons may be permitted to purchase established Build to Rent (BTR) developments, providing an important exception for institutional investment in Australia’s rental market. For a private lender financing such a transaction, it is essential to verify that the development meets all eligibility requirements during the home loan application process.

To qualify for the BTR exemption, a development must satisfy several conditions. A lender’s due diligence checklist should confirm that the project:

• Consists of 50 or more dwellings;
• Offers each dwelling for rent to the general public;
• Provides tenants with the option of a lease term of at least five years;
• Is owned entirely, including all dwellings and common areas, by a single entity; and
• Designates at least 10% of its dwellings as affordable housing.

To validate these points, a mortgage broker or non-bank lender should request specific documents from the borrower. This includes:

• Property development plans to confirm the number of units;
• Sample lease agreements to verify the five-year term option;
• Corporate ownership records to ensure single-entity control; and
• Evidence of the affordable housing component, which is also a necessary part of the due diligence.

Managing QLD AFAD & LTFS Surcharge Exemptions for Property Developers

Qualifying for the Large Developer Exemption in QLD

The Queensland Revenue Office introduced administrative arrangements on 15 December 2025 that provide exemptions from the Additional Foreign Acquirer Duty (AFAD) and Land Tax Foreign Surcharge (LTFS). For a private lender conducting due diligence, understanding these exemptions is important when assessing a non-resident borrower’s home loan application for a development project.

To be eligible for these surcharge exemptions, an entity must often qualify as a “large developer”. Under Public Ruling GEN012.1, an entity or its corporate group is considered a large developer if it undertakes the development or redevelopment of at least 20 residential lots in Queensland within a 12-month period. Furthermore, the ruling allows for flexibility, permitting the developer to meet this threshold by averaging its activity over five consecutive financial years.

Verifying Australian-Based Entity Requirements During the Application Process

A private lender must also verify that the borrowing entity satisfies the “Australian-based” requirements outlined in Public Ruling GEN012.1. These criteria are strict and must be confirmed during the application process to ensure the developer is eligible for an AFAD or LTFS exemption.

The key requirements a lender should confirm are that the entity:

• Has its head office or principal place of business in Australia.
• Maintains a significant management staff and office presence in the country.
• Employs Australian citizens or permanent residents.
• Conducts its business operations in Australia.
• Makes primary decisions regarding its Australian business and operations through management or employees located in Australia.

Preparing for the 2026 Foreign Investment Framework Reforms

Streamlined Requirements for Low-Risk Private Lending

On 19 May 2026, Treasury announced reforms to Australia’s foreign investment framework that will affect the due diligence process for any private lender. The changes categorise investments into low-risk and high-risk streams, creating a more streamlined pathway for certain transactions. As a result, foreign investments classified as low-risk are expected to benefit from faster 30-day review timeframes and simplified reporting obligations.

For an application to be considered low-risk, it must meet specific criteria related to both the applicant and the proposed transaction. Therefore, a private lender should be aware of these characteristics during the home loan application process, as follows:

• The Applicant: Must have a record of compliance, with no character concerns or history of non-compliance. They should also have received a foreign investment approval within the past 24 months.
• The Transaction: The investment must not be in a sensitive sector, such as critical infrastructure or national security. It should also have a transparent and straightforward corporate structure without raising national interest sensitivities.

Strengthened Scrutiny for High-Risk Property in Australia

The reforms introduce more stringent scrutiny for high-risk foreign investments, particularly those in sensitive sectors like critical minerals, technology, and national security. Consequently, a private lender involved in financing property in Australia within these areas must be prepared for an expanded due diligence scope.

Furthermore, the government has strengthened its powers under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (‘FATA’) to manage high-risk investment proposals. Key changes include:

• Stricter Notification: There will be greater mandatory notification requirements for investments in sensitive sectors.
• Lower Call-In Thresholds: The Treasurer’s ability to use call-in powers to review an investment will be subject to lower thresholds.
• Expanded Associate Definition: The definition of an “associate” will be broadened to include roles capable of exercising influence, such as certain creditors. This means some lending arrangements that grant a foreign person control without direct ownership could become subject to the foreign investment regime, a key area of regulatory compliance for private lenders.

Conclusion

Private lenders must conduct thorough due diligence when providing a home loan to a non-resident, from tracing corporate ownership to verifying exemptions under the 2025 foreign buyer ban. Understanding Queensland’s surcharge exemptions and preparing for the 2026 foreign investment framework reforms are also essential for managing liability and ensuring compliance.

To ensure your application process aligns with these requirements, contact the private lender and non-bank finance lawyers at GRM LAW today for guidance on your due diligence framework for non-resident investment.

Frequently Asked Questions