On Wednesday last week (15 August 2018), the Overseas Investment Amendment Bill (Amendment Bill) was passed by Parliament. The new laws are expected to come into force by mid-October 2018.
The main focus of the Amendment Bill is to bring "residential land" within the Overseas Investment Act, with the purpose of create a housing market with prices shaped by, and making homes more affordable for, New Zealand buyers. However, it also brings in changes for the forestry and horticulture sectors, and enhances the enforcement and information gathering powers of the Overseas Investment Office (OIO).
This update provides a general overview of the new residential land provisions. Additional, more detailed updates are available for:
Residential and lifestyle land
The Government's "ban on foreign speculators" is implemented by adding "residential land" as a new category of sensitive land requiring OIO approval. The "residential land" definition captures residential and lifestyle land (determined by rating status) and includes bare land, apartments, and some mixed use properties.
This means that any overseas person who wishes to buy residential or lifestyle land (of any size), or lease it for 3 years or more, will in almost all cases need to apply to the OIO for consent. An "overseas person" includes:
- individuals who are not:
- New Zealand citizens;
- New Zealand residency visa holders who have physically lived in New Zealand for the last year and obtained "tax resident" status;
- Australian citizens and permanent residents; or
- Singaporean citizens and permanent residents;
- family trusts where at least one of the settlors, trustees or fixed beneficiaries is an "overseas person"; and
- companies that have a degree of overseas ownership (generally 25%+, subject to control rights).
An overseas person investing in an entity that already holds residential land in New Zealand may also require consent, particularly if they are acquiring a 25% or more ownership interest in that entity.
All purchasers of residential land (including New Zealanders) will need to complete a statement confirming whether the Act applies, and solicitors/conveyancers cannot lodge land transfer documents without that statement.
Consent will not be required for any contracts that are entered before the new laws come into force, even if those contracts are subject to conditions.
New consent tests
To get OIO consent to acquire residential land, the overseas person will generally need to show that:
- they will be developing the land and adding to New Zealand's housing supply (for more information please see our additional update on Property Development);
- 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;
- they have an appropriate visa status (to be defined through regulations) and intend to reside in the property being purchased (the "commitment to reside" test); or
- the residential land is being used for a purpose associated with a business.
Applicants for OIO consent can apply using a combination of the available tests, depending on their intentions for various parts of the land. Generally, an overseas person will not be able to purchase residential land solely for the purpose of holding it as an investment property.
A new "standing consent" regime allows overseas persons to apply for a consent that does not relate to a specific parcel of land. This allows those persons to be more competitive in the market for new land acquisitions, as once they hold a standing consent their offers will not need to be conditional on obtaining OIO consent. The standing consent regime is available for persons relying on most of the new residential land tests (other than "benefit to New Zealand").
Fees, timeframes and other matters
Regulations that are yet to be released will:
- prescribe the fee schedule for the new OIO applications required by the Amendment Bill (current application fees range between $22,500 and $49,000);
- confirm the classes of people who can, alongside NZ residency visa holders, apply under the "commitment to New Zealand" test;
- confirm the exemptions for Australian and Singaporean citizens and permanent residents, and the requirements to qualify for the exemption;
- prescribe any classes of "dwellings" that cannot be relied on for the "increased housing" tests;
- prescribe the maximum percentage of dwellings in new apartment developments that can be purchased by overseas persons in reliance on an exemption certificate;
- set out the details of the new "benefit to New Zealand test" for forestry investments; and
- contain the details of any profits à prendre that are exempt from the new rules.
The Overseas Investment Act does not prescribe timeframes within which the OIO must make a decision on any consent applications. Current processing times regularly exceed six months, and there has been very little comment from the OIO as to how it proposes to deal with the increased number of applications resulting from the Amendment Bill.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.