The government reimposed tough rules relaxed in 2008 that say temporary residents need permission to buy homes and must sell when they leave, while foreigners investing from abroad can only buy new properties.
The rules are backed by stiff new penalties including compulsory sell orders, as well as expanded monitoring and a crackdown on real estate agents who help foreigners flout the rules.
They follow growing disquiet that ordinary Australians are being priced out of the market after a decade-long property boom that has accelerated over the past year.
"We want to make sure that Australian working families are not being priced out of their own family homes. That is why we have acted in the way in which we have done," said Prime Minister Kevin Rudd.
"We want to make sure that foreign speculators are not going to force up prices for Australians seeking to buy their own home, buy their first home and we think this is the right course of action."
House prices have been red-hot in Australia's major cities, especially Sydney and Melbourne and also Perth, centre of the country's booming minerals exports to Asia.
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