The regulations to support the Overseas Investment Amendment Act 2018 have now been published. They will take effect on 22 October. We provide a quick guide to the main points.
We also highlight further changes to be made when the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) comes into force and comment on a bigger review to come.
New fees have been introduced for matters relating to residential land, forestry activities and regulated profits à prendre. The result is a substantially longer fee schedule reflecting different types of land and consent pathways (in particular, distinguishing residential land from otherwise sensitive land).
The treatment of residential land and profits à prendre
- As expected, the threshold for overseas persons buying units off the plans in large (20+ unit) apartment blocks without needing Overseas Investment Office consent is 60%. Conditions will apply as set out in the Amendment Act, including that the overseas person cannot reside in the apartment.
- Consistent with New Zealand's international obligations:
- Singaporean and Australian investors are exempt from the new consent requirements for residential land
- Australian investors are exempt from the new consent requirements for forestry rights and other profits à prendre, and
- Australian citizens and permanent residents and Singaporean nationals and permanent residents are "qualifying individuals" for the purposes of the commitment to reside in New Zealand consent pathway.
- Other minor exemptions have been added, including exemptions for the acquisition of residential land for diplomatic premises or by charities which focus their activities on New Zealand.
A separate but relevant change
A last minute change to the Amendment Act created a transitional exemption certificate regime allowing developers of existing large scale residential developments where sales had commenced before 22 August 2018 to sell to overseas persons without any restrictions on the number of overseas investors nor any rules about the overseas person occupying the dwelling. Applications for transitional exemption certificates can be made up until 21 February 2019.
- A wider "no increase in ultimate ownership and control by overseas persons" exemption allows a broader restructuring of assets than under existing regulations so long as overseas ownership either stays the same or is diluted.
- A new shareholding creep exemption allows overseas persons with existing consents to increase their shareholdings by up to 10% of the consented shareholding, within five years of consent, so long as the shareholding doesn't cross a key control threshold (25%, 50%, 75%, 90%). The current 5% test allows creep of 5% of the consented shares (e.g. 50% to 52.5%). The new, additional, 10% test allows creep of 10% of all shares in the same class (e.g. 51% to 61%).
- The good faith and ordinary course of business requirements for security arrangements and portfolio exemptions have been clarified and the $100 million cap in the security portfolio transfer exemption has been removed. But these transfers will now require consent to the extent they relate to the acquisition of significant business assets.
- Relationship property exemptions have been extended to allow a company wholly owned as relationship property by a mixed overseas person/non-overseas person couple to acquire land without consent.
General exemptions have also been added for technical matters, such as exemptions for owners of freehold interests taking a lesser interest within their freehold estates, and the replacement of profits à prendre or forestry rights with new rights.
Extra detail is also provided on various topics flagged by the Amendment Act, including:
- the new forestry special benefits test, which is fleshed out in the new regulations
- scenarios where consent or exemption conditions are transferred to a new acquirer who relies on an exemption, and
- the factors for considering whether a person granted consent under the commitment to reside test is still committed to living in New Zealand despite being absent and causing a trigger event.
Unfortunately some anomalies under the existing regulations were not addressed, mainly because the Government did not have time to undertake a targeted consultation. Some examples are:
- the fact that there is an exemption for underwriting new securities issued in an IPO or placement by listed issuers, but not for underwriting "block trades" in listed issuers, and
- the inappropriate position that some "New Zealand controlled" listed issuers such as Meridian, Genesis and Mercury, retirement majors Metlifecare and Ryman, and telcos Spark and Chorus, are treated as "overseas persons", merely because of offshore passive portfolio investments, has not yet been addressed.
Treasury recently sought comment on an Exposure Draft of further regulatory changes to be made once the CPTPP Agreement comes into force.
New Zealand is obliged to increase the monetary thresholds for business acquisitions in section 13 of the Act from $100 million to $200 million for investors from other CPTPP signatories.
The "most favoured nation" obligations that New Zealand has under the Korea FTA, ANZTEC, the Hong Kong CEP, and the China FTA will also be triggered. These oblige New Zealand to treat investors from the other parties to those agreements in a similar way to, investors from other parties to the CPTPP Agreement.
The big event is still to come
The Government has confirmed that it is planning a much more comprehensive review, and has agreed to explore a Greens proposal that stronger tests should be set for land sales involving bodies of water.
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.