The Overseas Investment Amendment Bill to reduce foreign competition in the residential property market was amended extensively through the submissions process and is now entering the final straight.
The Bill, which also changes the rules covering forestry acquisitions, is expected to begin the committee stages in the House this week, followed by the third reading and passage.
Given the Bill's controversial nature, the Opposition may seek further changes through Supplementary Order Paper (SOP), but this is unlikely to succeed.
We guide you through the Bill's provisions and what the new regime will look like.
The Overseas Investment Act requires overseas persons to receive consent before acquiring certain assets, including sensitive land. The Bill extends the definition of sensitive land to include "residential land", which will be any land designated residential or lifestyle on the relevant district valuation roll.
There are some notable exceptions to this. You are not an "overseas person" (and don't need to apply for consent) if you are a residence class visa holder who:
- has been living in New Zealand for at least 12 months before the purchase
- has been present in New Zealand for at least 183 days of that time, and
- are a New Zealand tax resident.
Other overseas investors buying residential land will still need to apply for consent, but may be able to avoid the counterfactual analysis 1 required by the "benefit to New Zealand test" in the existing legislation if they can access one of three new consent pathways:
- a demonstrated commitment to live in New Zealand
- developing the land to create "increased housing" (provided they on-sell once the development is completed), or
- using the land for non-residential purposes or for a residential purpose attached to a core business, e.g. accommodation for vineyard workers.
The Bill has been amended to reduce the risk that it will have a chilling effect on overseas investment in residential property development.
In relation to large apartment developments (multi-storey, more than 20 units):
- overseas developers can apply for exemption certificates to sell a percentage of units "off-the-plans" (i.e. as up-front investments) to overseas investors without those persons requiring consent. The buyers will not be required to on-sell their units but will not be able to live in them, creating an incentive to rent them out
- where the developer has an increased housing consent, there will be no requirement to on-sell so long as all units within the complex are made available on a shared equity, rent-to-buy, or rental basis (the owner will not be able to hold back a unit to live in)
- other overseas persons buying units "off-the-plans" under an increased housing consent will not have to meet the investor test.
Overseas persons will be able to buy rooms in large hotels (20 or more units) on residential land without consent provided they lease the room back to the hotel operator and don't occupy it for more than 30 days a year.
The Bill also:
- exempts electricity, gas and telecommunications network operators from the new requirements for consent in relation to residential land
- clarifies that genuine periodic leases (including periodic tenancies) over residential land are not caught even if they happen to roll on for three years or more (the lease length threshold in the Act), and
- allows residential tenancies of fewer than five years without triggering the need for consent (up from three years, as remains the case for other leases).
We welcome these changes, consistent with the view expressed in the Chapman Tripp submission.
Important change for conveyancers
The Bill now places the primary responsibility for ensuring that the purchase does not contravene the Act on the purchaser – rather than, as initially proposed, on the conveyancer.
Purchasers will need to make a statement of compliance related to the requirement for consent. Conveyancers will need to obtain and keep the statement.
Significant changes for forestry and profits à prondre
Buyers of forestry rights or interests in forest land will be able to apply for consent under two consent pathways, being:
- a "modified benefits test", which will require the purchaser to show a benefit to New Zealand above the status quo rather than compared to a hypothetical alternative owner, and
- a "special benefits test", which will simply impose a checklist of requirements, to be set out in regulations.
Overseas investors will be able to acquire without seeking consent:
- forestry rights over up to 1,000 hectares of land each calendar year, and/or
- other profits à prondre over less than five hectares.
This is a new concept under which consent may be sought for future acquisitions. Standing consents will be particularly important for forestry but will also be available for residential land.
Exceptions for certain overseas persons
To comply with New Zealand's international obligations, certain exemptions will be made by regulation for Australians and Singaporeans to acquire residential land.
In addition, the normal $100 million limit for significant business assets will be raised to $200 million:
- for other signatories to the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), and
- in relation to the Korea Free Trade Agreement (FTA), the China FTA, ANZTEC 2, and the Hong Kong Closer Economic Partnership.
A higher threshold is already in place for Australian investors.
Once passed, the Amendment Act will come into force two months after Royal assent or on an earlier date (or dates) to be determined by Order in Council.
Changes must be in place before CPTPP comes into effect, hence the mechanism in the Bill to bring forward commencement.
The Government has signalled that a further, deeper review of the screening regime will follow. Chapman Tripp considers that it is important that this proceed as there are many problems and unintended outcomes attached to the existing framework.
Our overview of the Bill as introduced is available here.
1 This requires an ability to demonstrate that the proposed investment will deliver a greater benefit to New Zealand than would be derived from a hypothetical New Zealand investor.
2 ANZTEC is the Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Cooperation.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.