March 2018. . . One of the key issues of the 2017 election campaign was the affordable housing crisis facing New Zealand. During the new Labour Government’s first 100 days, the Overseas Investment Amendment Bill (the Bill) was introduced and has progressed through to Select Committee stage. The headline of the Bill being to “ensure that investments made by overseas persons in New Zealand will have genuine benefits for the country”.
In it's proposed format the Bill will have the effect of ensuring that overseas persons who are not residents in New Zealand will generally not be able to buy residential or lifestyle land. In theory, this will lead to a housing market shaped largely by New Zealand buyers which it is anticipated will have a positive effect on affordability. However, the Bill may have unintended implications on overall housing stock as well as larger follow on effects for the economy. In particular, it is anticipated the proposed changes will lead to a significant reduction in apartment complexes where offshore investors often rely on an initial sell-down of about 15-20% of the project to fellow overseas persons/contacts to make the project viable.
Definition of sensitive land to be expanded
The definition of sensitive land under the Overseas Investment Act is to be extended to include residential and lifestyle land. Whether land is residential or lifestyle will be determined by reference to the basis on which land has been categorised by the relevant local authority under the Rating Valuations Rules. This means that the Bill would currently include vacant land on which it is likely that a single dwelling house will be built, and bare land which is likely to be subdivided into dwelling house sites. This is at odds with the stated policy position of Labour and New Zealand First prior to last year’s election which referred to “existing housing stock”.
Who is an overseas person?
For the purposes of the Act you’re an overseas person if you are neither a New Zealand citizen nor ordinarily resident in New Zealand. A person will be ordinarily resident in New Zealand if they hold a permanent resident visa and have been residing in New Zealand for at least a year and have been present in New Zealand for at least 183 days of the past year. Australians will be exempt from the restriction on residential and lifestyle land. Although this hasn’t been specifically addressed in the Bill it has been acknowledged that this will be picked up in regulations.
When can an overseas person buy sensitive land that is residential land?
Under the current Act, consent to acquire sensitive land is granted if one of two criteria are met. In relation to residential and lifestyle land, the Bill proposes to replace those with three criteria and consent will be granted if one or more of the criteria are met:
However, note that none of the above criteria allow overseas persons to remain as an owner-occupier of the land.
When will these changes take effect?
The Bill will come into effect 10 working days after it receives Royal Assent. The initial timetable anticipated the Bill becoming law by March or April. However, the Select Committee has now been given until 31 May 2018 to report back to Parliament which is likely to lead to a June implementation date. This means transactions involving overseas persons purchasing residential and lifestyle land that does not trigger any of the existing sensitive land tests can continue until then.
If you are an overseas person considering purchasing residential or lifestyle property in New Zealand we would recommend you bring those plans forward. We invite you to contact us to discuss your situation prior to entering into an Agreement for Sale and Purchase.