Current investigations into breaches of foreign property investment rules are just "the tip of the iceberg", Treasurer Joe Hockey says.

The Australian Tax Office (ATO) is investigating nearly 200 cases where restrictions on foreign investment in real estate may have been breached.

It is part of the Federal Government's move to reassure home buyers that residential property prices are not being driven up by overseas buyers.

Foreigners are prohibited from buying existing residential properties but are allowed, and encouraged, to invest in new residential development.

Mr Hockey revealed the properties under investigation range in value from $300,000 to $40 million.

"Unless you have permission, as a foreigner you are not allowed to buy existing residential property in Australia," he said.

"There is a moratorium until the 1st of December to come forward if you believe you may have unlawfully purchased residential property in Australia."

Mr Hockey said of the 195 cases under investigation, 24 are foreign investors who voluntarily came forward to the Foreign Investment Review Board (FIRB).

FIRB is currently negotiating a "voluntary divestment" with a British investor who came forward about a $700,000 property purchased in Western Australia.

If that divestment succeeds, it would be the second such case since March.

Hockey warns anyone breaching rules to come forward

In another case, one foreigner has 10 properties across two states.

"This is the tip of the iceberg," Mr Hockey said.

"We have put very significant additional resources into the investigations, building up to 60 people by the 1st of July.

Sorry, this video has expired Explained: Foreign buyers in Australia's property market

"The Australian Taxation Office is finding increasingly that there is the likelihood of taxation fraud as well as unlawful purchase of real estate by foreign entities.

"Foreign investors have been using trusts and... the bigger [the] property value, the more sophisticated the arrangements seem to be in relation to hiding the true nationality of the individual who owns the property."

Mr Hockey warned anyone knowingly breaching the rules to come forward before they are found out.

"The data-matching powers of the Australian Tax Office are formidable," he said.

The Federal Government is putting in place tougher criminal and civil sanctions through legislation to come before Parliament later this year.

The changes, including the new penalties, will apply from the December 1.

Foreigners breaching the rules will face up to $127,500 or three years in prison for individuals and up to $637,500 for companies.

Anyone knowingly assisting foreign investors to break the rules will face fines of up to $45,000 for individuals and up to $225,000 for companies.

'We welcome foreign investment in new real estate'

Some Sydney and Melbourne residents are concerned foreign investment is contributing to a housing price bubble.

But the Federal Government has made it clear it is more worried about the lack of housing supply.

"We welcome foreign investment in new real estate because it adds to the stock and importantly we want to continue to encourage the construction of new housing," Mr Hockey said.

"Build, build, build. That's what we want to see.

"That is going to address any concerns there might be exaggerated prices in parts of Australia."

He conceded the crackdown on foreign investors would have little impact on high prices in Sydney and parts of Melbourne.

"I'm not suggesting this is going to represent thousands and thousands of homes," Mr Hockey said.

"But what it is going to do is provide reassurance that people are complying with the law."

Foreign investment rules explained

Australia's foreign investment rules for residential property are intended to increase the overall housing stock.

Non-residents can, with FIRB approval, buy:

Newly built dwellings from the developer (must not have been occupied for more than 12 months)

Newly built dwellings from the developer (must not have been occupied for more than 12 months) Dwellings off the plan

Dwellings off the plan Vacant land, provided construction commences within two years

Vacant land, provided construction commences within two years Redevelopments, but must either add to dwelling stock (i.e. build duplex) or replace a derelict building

In addition, foreign temporary residents of Australia, with FIRB approval, can buy one established dwelling that is their primary residence in Australia.

But no part of the dwelling can be rented out, and the property must be sold when no longer the primary residence (ie when the owner leaves Australia).