By the end of October, foreign buyers will face new restrictions on buying property in New Zealand.
One of the key election promises of the new Labour-led government, the Overseas Investment Amendment Bill was introduced just before Christmas last year, passing its third, and final, reading in mid August. The new rules will come into force on October 22.
A political hot potato, opinion remains sharply divided on whether the new legislation will achieve the Government’s objectives. These include reducing homelessness, cooling the property market, enabling more Kiwis to buy their own home, and ensuring investments by foreigners bring genuine benefits for the country.
Statistics around foreign ownership are about as polarised as the views. It has been said, anecdotally, that around 30 percent of the property market is made up of foreign buyers, but since statistics have been kept, they so far show it’s more like 3 percent. What is not clear is, of the 11 percent of properties that went to corporates, how many were under foreign ownership. That data is not recorded.
Of the submitters to the Bill, 90 percent contended the proposed legislation would have the opposite impact to that intended, and, as a result, some of the initial provisions have gone by the wayside or have been amended.
What we’re finding, not surprisingly, is that many people have been left confused about what the final upshot of this new legislation is, particularly given that what was initially proposed has changed throughout the seven-month parliamentary process.
The law as it stands
So, let’s look at the current legislation governing investment by overseas buyers in New Zealand: The Overseas Investment Act 2005.
As it stands – until the new law comes into force – foreigners must obtain consent from the Overseas Investment Office (the OIO), before they buy, or take an interest in, “sensitive land”.
What’s sensitive land? The most common form of sensitive land is non-urban land over five hectares, or land that adjoins a foreshore, lake bed, a reserve or Department of Conservation land.
Leases of, or other interests in, sensitive land lasting three or more years also require OIO approval (this has now been extended to five years under the new Bill).
Overseas buyers must further satisfy the OIO that they:
- Are ordinarily resident in New Zealand, or intend to live here indefinitely (known as the Commitment Test); or
- That the investment would result in a benefit to New Zealand (the Benefit Test) – and, in some cases, that benefit needs to be substantial and identifiable.
If the land isn’t deemed to be sensitive, OIO consent isn’t needed and a person from overseas can buy the property, as normal.
But …
… that’s all about to change, of course.
What’s important to note first is that the new rules will not apply to contracts entered into before the new law comes into force. Nor will it stop those “ordinarily resident in New Zealand” from buying residential property, provided that they can show they call New Zealand home, which means the person:
- Holds a resident class visa
- Has resided in New Zealand for the last 12 months
- Has been physically present in New Zealand for 183 days of that 12-month period
- Is a tax resident of New Zealand
Australians and Singaporeans will be exempt due to free-trade agreements, but will still face screening by the OIO. The new rules that will apply to Australians and Singaporeans have not yet been released.
Companies registered outside of New Zealand, and any that are at least 25 percent foreign owned, will still be treated as "overseas persons" and need OIO approval to buy residential land, if an individual would.
The biggest change to be aware of under the incoming rules is that the definition of “sensitive land” is extended to include “residential land”. This means that virtually all residential property purchases by non-resident buyers will require some form of OIO consent (and this is not a fast or low-cost process).
In order to obtain that consent, an overseas person will need to satisfy one of the following tests (which are less onerous than the Benefit Test under the current Act):
- Increased housing test: If the overseas buyer would be developing land and adding to New Zealand’s housing supply.
- Non-residential use test: If the overseas buyer intends to use the land for non-residential purposes.
- Incidental residential use test: If the overseas buyer intends to use the land for a residential purpose in the course of business (for example, retirement village, rest home, student hostel or similar – but not a hospital, hotel, motel, campground, etc).
- Commitment test: If the overseas buyer holds an appropriate visa and can show they have committed to reside in New Zealand.
Even if consent is granted, the OIO can place conditions on foreign owners requiring them to on-sell the property within a certain time period (i.e. once construction is complete) or allow them to continue owning the property on the basis that they do not occupy it. These points raised significant concern during the feedback stage as the conditions could hinder the very foreign investment many say is critical to increasing not only New Zealand’s housing stock, but also much-needed hotel developments.
As a result of the feedback received, the Bill was amended so that developers of large, multi-storey apartment buildings (20 or more residential dwellings) will be able to apply for an exemption to sell a percentage of the units to overseas buyers “off the plans” without the buyers needing to obtain consent or to on-sell once the unit is complete. The buyers will not be allowed to occupy the units themselves.
Another change means that foreigners can build, or invest in,large hotel developments (20 or more units) without needing to obtain consent or on-sell once complete. The buyer must lease the unit back to the hotel company and can only occupy the unit for 30 days in each year.
Greater powers for OIO
The powers of the OIO have also been expanded and, most significantly, it will have the power to force a land owner to dispose of property where there has been a contravention of the Act, an offence or failure to comply with an exemption or condition.
Until the new law comes into force, though, the current Act applies. Only time will tell whether or not the incoming legislation packs the positive punch that the Government hopes it will.