Weeks of speculation came to a close on 19 October 2017 when Winston Peters announced that New Zealand would soon see a change in Government. For better or for worse, the new Government has quite publically intended to implement tighter restrictions on overseas buyers. A lot is still not yet known about what these restrictions might entail. However as the year begins to wrap up we have a great opportunity to assess what we know so far.
Press releases by both major media outlets show two of the major Labour Party campaign policies to ban foreign speculators and tax (domestic) speculators are expected to pass into law early in the new year.
The planned ban on foreign speculators is expected to be accomplished by amending the definition of "sensitive" land as defined in the Overseas Investment Act to include existing residential housing. This would cause current overseas investors to have to obtain consent from the Overseas Investment Office for purchases of housing that is already constructed. The inclusion of standard residential housing could create a string of new requirements for overseas buyers. Caroline Mason of our office published a summary of the process required to obtain OIO consent here.
The other proposed change under Labour is to extend the bright-line test period from 2 years to 5 years. As a reminder, the bright-line test rule is that any gains from the disposal of residential land acquired and disposed of within 2 years will be taxable, subject to some exceptions (if you would like to read more about this click here).
It is unclear from what date this extension to the current policy would commence. Therefore clients not relying on main home or other exemptions for their land acquisitions and disposals should be made aware of this potential change. This could impact a number of property investors especially for acquisitions entered into from 2018 onwards. There is a possibility that owners may need to hold investment property for a longer period of time than they are currently required to do or be up for tax on any gain on a disposal within 5 years (or any other agreed time).
Other relevant policies included in the official Labour/New Zealand first coalition agreement include the creation of a comprehensive register of foreign-owned land and housing, as well as the establishment of a Housing Commission. It's unclear at this stage how or when any of these changes will be implemented.
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