Currently, in New Zealand's overseas investment regime, the only constant is change. The Select Committee's report on the Overseas Investment Amendment Bill (Amendment Bill) was released yesterday, providing more detail on what the new residential land changes might look like.
The Government introduced the Amendment Bill in December 2017. The main focus of the Amendment Bill is to bring "residential land" within the Act, with the purpose of creating a housing market with prices shaped by, and making homes more affordable for, New Zealand buyers.
Over 300 public submissions were received on the Amendment Bill, many expressing concern that the Amendment Bill would have negative impacts on the housing market, including from reduced investment in new housing developments, which would far outweigh any benefits from removing "foreign speculators" from the residential property market. The Select Committee released its report on the Amendment Bill on 18 June 2018.
As expected, the underlying ban on overseas persons buying residential properties remains. To give effect to this "residential land" will be added as a new category of sensitive land requiring OIO approval. The "residential land" definition will capture residential and lifestyle land (determined by rating status) and will include bare land, apartments, and some mixed use properties.
The Select Committee has proposed a number of amendments to address issues raised by the public submissions. However, in doing so the Select Committee has created a very complex piece of legislation, introducing rules that could result in two similar transactions receiving different treatment from the OIO. Also, where an overseas person wishes to acquire residential land, an application to the OIO will still be required in all cases. Applicants might benefit from the revised rules, but an application will still be necessary. Ultimately, it seems that developers are bearing the cost of the ban on foreign speculators. It also creates hurdles for overseas persons with a genuine connection to New Zealand, where the time and cost involved in obtaining OIO consent could be significant relative to the value of the residential investment.
To get OIO consent, the overseas person will generally need to show that:
- they will be developing the land and adding to New Zealand's housing supply; or
- they will convert the land to another use (e.g. a business) and are able to demonstrate this would have wider benefits to the country; or
- they have an appropriate visa status (to be defined through regulations) and intend to reside in the property being purchased; or
- the residential land is being used for a purpose associated with a business.
If an overseas person purchases residential land for development, they will be required to on-sell all of the new houses that they build within a specified period, unless the development includes at least 20 new houses. Below that threshold there is no allowance for the overseas person to retain and/or rent any of the new houses.
Applicants for OIO consent can apply for consent using a combination of the available tests, depending on their intentions for various parts of the land (for example an overseas person could now apply for consent to purchase land, develop, say, 6 new houses, and retain one for their own use while selling the rest – they would still not be permitted to hold any to lease).
The Amendment Bill continues to have potentially significant implications for commercial property developers. The amendments introduced by the Select Committee only go some way to addressing these issues. The new provisions include:
- The ability for developers to retain interests in new residential dwellings (e.g. as landlords or through shared-equity or lease-to-buy arrangements) if the development involves 20 or more new residential dwellings; and
- The ability for developers of large apartment blocks (20+ apartments per building) to apply for an "exemption certificate", allowing them to sell a certain percentage of the apartments to overseas buyers without those buyers requiring OIO consent. It is expected this percentage will initially be set at 60%. The overseas buyers will not be permitted to occupy the apartments.
However, the Amendment Bill still imposes restrictions on the ability of property developers to undertake new housing developments, particularly where they have a degree of overseas ownership (which is not uncommon). All developers with a degree of overseas ownership (generally 25%+) will still need to apply for consent to buy residential land for the purposes of new development. If the residential development incudes less than 20 new houses, the developer must sell of all of its interests within a specific period (to be set by the OIO).
It also reduces the potential purchaser pool for new property developments by imposing restrictions on overseas persons buying into these developments. As a consequence new developments may be less likely to proceed, or may need to be scaled down.
Progress of the Amendment Bill
The Finance and Expenditure Select Committee's Report on the Amendment Bill, including all proposed amendments, was released on 18 June 2018. The Bill will now progress through its second and third readings with Parliament. The Report includes a statement that the New Zealand National Party and ACT New Zealand oppose the Bill, so it is likely that there will be some further debate as the Bill progresses through the final stages.
The current proposal is that the new provisions will come into force no later than 2 months after the Amendment Act receives royal assent (which is when the Governor General signs off on the Bill – usually within a week of the third and final reading in Parliament). The new rules will not apply to any contracts that are entered before the Amendment Act comes into force.
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