Australian real estate prices, particularly in Sydney and Melbourne, have soared in recent years.

AFP/Sydney

Australia is cracking down on foreigners who unlawfully own residential properties, investigating hundreds of cases ahead of the introduction of tougher penalties, Treasurer Joe Hockey said on Saturday.

The government announced in May it would increase penalties for illegal purchases to rigorously enforce rules under which foreigners are only allowed to buy new dwellings, and not existing residential property.

Hockey said he had ordered the sale of six properties illegally owned by foreigners who had so far come forward on their own, but officials were working on hundreds more cases.

"Through the information provided by the public together with our own inquiries, we now have 462 cases under investigation for breaches of the law by foreign nationals in the purchase of residential real estate," he said.

"I expect more divestment orders will be announced in the not-too-distant future," he told a press conference in Sydney.

Australian real estate prices, particularly in Sydney and Melbourne, have soared in recent years, with concerns growing that cashed-up foreigners, particularly from China, have helped inflate the market.

Hockey said the majority of cases being investigated came from New South Wales and Victoria, the states of which Sydney and Melbourne are the respective capitals, as well as Western Australia.

"There is significant foreign investment in residential real estate. It has certainly increased over the last few years," the minister said.

"Australia wants foreign investment, we need foreign investment, but we need to make sure that foreign investors comply with the laws."

Hockey said he would introduce legislation into parliament in the coming weeks to ensure that the reporting requirements, enforcement and penalty regimes for foreign investors who broke the rules were tougher.

As already announced, foreigners who illegally buy Australian real estate will face up to three years in jail or fines of Aus$127,500 (US$95,000) for individuals and Aus$637,500 for companies.

In relation to civil penalties, investors will lose whichever is the greatest of the capital gain made on the property, 25% of the purchase price or 25% of its market value.