Overseas Investment Amendment Act restricts foreign buyers of residential land - Legalwise Seminars

Christina Lefever, Special Counsel at Duncan Cotterill, discusses the new Overseas Investment Amendment Act 2018. In addition to bringing “residential land” under the Overseas Investment Act, the amendment includes changes for the forestry and horticulture sectors, and boosts the enforcement and information-gathering powers of the Overseas Investment Office, she writes. 

On 22 August, the Overseas Investment Amendment Act 2018 (Amendment Act) became law. The new laws will come into force on or before 22 October 2018.

The main focus of the Amendment Act is to bring “residential land” within the Overseas Investment Act, with the purpose of creating 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 for property development, forestry and horticulture are available on Duncan Cotterill’s website.

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).

This “overseas person” definition differs from the test for other sensitive land acquisitions, adding further complexity to the overseas investment regime and its application to specific transactions.

Couples buying property together will generally not require OIO consent if only one of them is an overseas person.

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. The form of this statement will be prescribed by the OIO, and for practical reasons should be completed when an Agreement for Sale and Purchase is entered. Advisors will also need to anticipate another purchaser being nominated to settle the Agreement, and ensure that nominated purchaser also completes a 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. Many people were expecting a flurry of Agreements for Sale and Purchase to be signed up by overseas buyers following the Bill’s introduction in December 2017. While we have had a few enquiries, this surge in transactions does not appear to have eventuated. It seems that while overseas buyers still have a limited period to buy without restriction, they are not rushing to purchase as theAmendment Act will be in force when they are looking to later sell that property, limiting their own purchaser pool.

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 (the “increased housing” test);
• 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.

Standing Consents

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”).

For overseas people serious about buying a home in New Zealand, we would expect that (subject to costs) the standing consent regime will be favoured route. The delays associated with obtaining OIO consent will make it unlikely that an overseas purchaser will be a preferred bidder for vendors looking to achieve a timely sale of their house, if the offer is subject to obtaining OIO consent. Also, if an overseas person made an OIO application for a specific property, and that purchase did not proceed for any reason, a new OIO application would need to be made (with a further application fee) for the next property.

Once an overseas person holds a standing consent they can bid much more competitively on any property in the market, including at auctions.

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 Act (current application fees range between $22,500 and $49,000). Based on the need to resource the OIO to process new applications, and fees payable under the equivalent laws in Australia, we do not anticipate significantly lower fees being introduced for residential OIO applications;
• 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, the requirements to qualify for the exemption, and how these exemptions will tie in with other tests and exemptions (e.g. trusts and couples);
• 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 Act, and whether a separate residential land team will be established within the OIO.

Christina Lefever specialises in corporate and commercial law and acts for clients in a broad range of industries, with a particular focus on overseas investment, structuring, acquisitions and corporate finance. Christina’s experience in advising on the Overseas Investment Act consent process, means that along with a comprehensive knowledge of the Overseas Investment Act and Regulations, she understands the practicalities associated with the application process (including applications for variations and exemptions) and the key issues that clients face.

Christina’s expertise includes business start-ups, acquisitions and disposals, corporate structuring, employee share schemes, joint venture arrangements, service arrangements, and franchising and licensing. She has significant experience in negotiating and drafting an extensive range of commercial contracts. Christina has an interest in governance, is a member of the Institute of Directors and has completed the Institute of Directors’ Governance Development Programme.

Contact Christina at christina.lefever@duncancotterill.com. You can also connect with Duncan Cotterill via Facebook and LinkedIn