FOR IMMEDIATE RELEASE
26 June 2018
Proposed Changes to the Overseas Investment Act Amendment Bill – Clarity or Confusion?
The Select Committee has completed its deliberations on the Overseas Investment Act Amendment Bill (Bill) with the publishing of its report on 18 June. The report proposes a number of changes to the draft legislation in an
attempt to address issues with the Bill that were raised in public submissions received during the Select Committee
hearing process. To recap on the first draft of the Bill refer to our article here.
The issues with the Bill raised by submitters were diverse and significant. These ranged from the Bill having the
consequence of reducing the number of new homes available for purchase by New Zealanders as a result of offshore capital
disappearing from our development market, the inability for overseas persons holding a residence class visa through one
the investment visa programs to purchase a residential property, through to our largest infrastructure corporates
requiring consent each time they acquired residential land necessary for delivering their essential services.
As the Government has acknowledged the Bill was prepared in haste, and it showed. The question is now whether the
changes recommended by the Select Committee have resolved these issues and updated the law to provide clarity and
certainty to overseas investors.
Whilst we consider that the amendments address some of the significant issues contained in the first draft of the Bill,
there are other important issues that were raised during the Select Committee process that have been ignored. These have
implications for some industries and regions. Therefore, the approach taken to incorporating amendments to the Bill
appears to be somewhat ad hoc. An example being a one off exclusion offered to the Te Arai development north of
Auckland. Perhaps realising that retaining this exclusion in the Bill would not be appropriate, we understand the
Government has now withdrawn it.
Below is a summary of the key proposed changes recommended by the Select Committee on the residential ban aspects:
1. The class of persons who will be considered a ordinarily resident in New Zealand, and therefore not require
consent to purchase residential land, has been expanded from permanent resident visa holders to resident visa holders.
There have been no material changes to the Commitment to Reside in New Zealand test, meaning that persons who hold a
residence class visa, but who are not ordinarily resident in New Zealand, will still be required to commit to living in
New Zealand for at least 183 days per year and become a tax resident in order to obtain consent to purchase residential
land.
2. The Bill previously required an overseas person who obtained consent to purchase residential land under the
increased housing test to sell the land within a certain period of completing the development. Recognising that this
condition would be a strong deterrent to offshore capital investing in new housing developments (thus affecting the
financial viability of such developments), the Select Committee proposes the following amendments:
a. Overseas persons building or investing in large residential developments of at least 20 dwellings are not
required to on-sell once construction is complete, if the dwellings are maintained as rental properties or a shared
equity development; or sold under a rent-to-buy model; and
b. Developers of large multi-storey apartment buildings of 20 or more units can apply for an exemption to sell a
percentage of the units to overseas buyers “off the plans”, without the need for consent or the requirement to on-sell
once the unit is complete. However, buyers would not be allowed to occupy the units themselves. The Select Committee
understands that the percentage will initially be set at 60, but this can be adjusted through the regulations to be set
anywhere between 0 and 100 percent to respond to market conditions.
3. Recognising that New Zealand has a shortage of hotel accommodation, a recommendation has been made to allow
overseas persons to purchase and continue to own any number of units in hotels with 20 or more units, provided they
enter into a lease-back arrangement with the hotel’s developer or operator on the conditions that the room must be used
for the general purpose of operating the hotel, and that the overseas person may not reside in or reserve the unit for
more than 30 days in a year.
4. Allowing residential land to be acquired without consent for business purposes by electricity and gas
distributors, telecommunication companies, and transmission network operators for the purposes of the relevant utility
services.
5. Allowing overseas persons to take leases of up to five years over residential land, compared to the existing
three-year limit for sensitive land, without requiring consent and clarifying that periodic leases of residential land
are not covered by the Overseas Investment Act.
6. A streamlined approval path for businesses to purchase residential land for non-residential purposes, or for
residential purposes to support a business is recommended. Such purchases would not be subject to a counterfactual
analysis, but would be subject to conditions imposed by the relevant Minister to ensure that the land was being used for
the purposes for which it was purchased
7. Allowing overseas persons to obtain a standing consent (pre approval) prior to entering into a transaction to
purchase residential land under one of the qualifying consent tests, which in summary are the commitment to reside in
New Zealand test, increased housing test, non-residential use test or incidental residential use test. A standing
consent will be issued subject to conditions, including specifying a use-by date.
The Government has confirmed that both Australian and Singaporean citizens and permanent residents will be exempt from
requiring consent to acquire sensitive residential land. They have also confirmed that the legislation will only apply
to transactions entered into on or after the commencement of the new legislation, which is expected to become law at
some point during the third quarter of 2018. The Bill also incorporates new easier consent pathways for overseas persons
who wish to invest in forestry in New Zealand. We will review those changes in a separate article.
We consider the proposed amendments contain positive changes, particularly the ability for overseas persons to purchase
a unit and rent it to a New Zealander rather than being required to sell, and for a developer to be able to obtain an
exemption certificate allowing it to sell up to 60 percent of the units in a new development to overseas persons.
However, the exemptions are reasonably limited in that they only apply to new residential developments where the
overseas person is buying “off the plans”, the development comprises 20 units or more, and in the case of the exemption
to sell a percentage of the units to overseas buyers the development must comprise one or more multi-storey buildings.
This change therefore is, in reality, Auckland centric.
The threshold levels and building types contained in these rules appear to be somewhat arbitrary, and the financial
viability of new smaller residential developments will likely be affected. If the purpose of the Bill is to make housing
in New Zealand more affordable and accessible for New Zealanders, it would be logical for the exemptions described above
to also extend to smaller residential developments throughout the country.
There are also areas where the Select Committee has not responded to submissions received, which in our view, will have
an impact on certain markets and industries. For example, submissions from Queenstown regarding the importance and value
to the local economy of the luxury home building industry, which is significantly funded by overseas buyers, for an
offshore market. The Bill will likely result in this sector contracting, and therefore depreciation of high end property
values may follow as there will likely be a reduced market for these properties.
The Select Committee has also not proposed any changes to exempt overseas persons who have obtained an investment visa,
but who are not ordinarily resident in New Zealand. We consider that removing the ability for this class of visa holder
to acquire residential property will have an impact on the numbers applying, particularly in the Investor Plus visa
category which requires an investment of $10,000,000 and a requirement to spend 88 days in New Zealand over the three
year investment period. Many of our current clients in this category have been snapping up property to live in during
their conditional residency period to beat this new legislation. As noted in our previous article, it is often not
possible for these visa holders to become ordinarily resident in New Zealand due to their offshore business/investment
interests, and the structure of their tax affairs. Therefore, an inability to own a personal property to reside in when
onshore will make the migrant investor categories less attractive in an environment where many countries around the
world are actively competing to attract the same investors.
In summary, there are some positives to the Bill which are a pragmatic attempt by the Government to address some of the
issues in the first poorly drafted version. However, as a consequence of the Bill starting life as a prohibition on the
purchase of residential and lifestyle properties by overseas persons (other than cases which fell within a narrow range
of clearly defined exemptions), it has now morphed into legislation that contains a wider number of exemptions, in each
case with different conditions, to address the concerns of some of the sector groups who submitted to the Select
Committee. As a consequence, it is not an easy piece of legislation to interpret, and overseas buyers/investors will
need to ensure they are properly advised when considering whether they are able to make an investment in residential
property in New Zealand.
ENDS