Overseas Investment Amendment Act now a reality
The controversial Overseas Investment Amendment Bill is now an Act, having been given Royal Assent last week. Other than a particular provision dealing with exemptions relating to large apartment developments (which will come into force on 5 September 2018), the rest of the Act will come into force no later than 22 October 2018.
We have summarised what you need to know about the key changes from a residential property perspective.
Not a total ban
The Act does not impose a total ban on overseas persons acquiring residential property in New Zealand. However, subject to certain exemptions, it does bring “residential land” into the definition of “sensitive land” for the purposes of the Overseas Investment Act 2005 (OIA). This means that the acquisition of residential land by overseas persons will now require the consent of the Overseas Investment Office (OIO).
In relation to natural persons, overseas persons are those who are neither New Zealand citizens nor ordinarily resident here. A person is ‘ordinarily resident’ in New Zealand if at the time the person enters into an unconditional contract for sale and purchase they:
- hold a residence-class visa; and
- have been residing in New Zealand for at least a year; and
- are tax resident here; and
- have been present here for at least 183 days in the preceding year.
Australian and Singaporean citizens will not need to obtain consent to acquire residential land provided that the residential land is not sensitive for any other reason.
The Act does not change the definition of overseas persons in relation to corporate entities and trusts. If the entity or trust is 25% or more owned or controlled by an overseas person, the entity/trust itself will be an overseas person.
“Residential land” is generally any property classified as residential or lifestyle in the relevant rating valuation roll. The definition generally covers retirement villages.
In relation to the new residential land category, there are certain exemptions from the requirement to obtain OIO consent. Most of these apply only if the land is not sensitive in any way other than being “residential”. An overseas person may be exempted if it is acquiring:
- a periodic lease of residential land. A periodic lease is a lease that can be terminated at any time by either the landlord or the tenant (including a periodic tenancy under the Residential Tenancies Act 1986) and where the term (including renewal rights) is for less than three years.
- a residential tenancy of residential land with a term (including renewal rights) of less than five years. A residential tenancy is a tenancy under the Residential Tenancies Act 1986.
- an apartment ‘off the plan’ within a multi-storey development of 20 or more apartments. Developers of those properties can apply for an exemption to sell up to a set percentage of the properties to overseas persons without those overseas persons having to obtain OIO consent. The appropriate percentage will be determined by regulations under the OIA, but expectations are that it will initially be set at or around 60%. An overseas person acquiring such an apartment cannot live in the property, but they can rent it out as part of an arms-length leasing arrangement, a shared equity development, or a rent-to-buy model.
- a hotel of more than 20 units or land to build a hotel of more than 20 units, provided the overseas person enters into a lease-back arrangement with the hotel operator/developer (and that lease-back arrangement is subject to various conditions – one of which is that the owner cannot occupy the hotel room for more than 30 days per year).
There is also an exemption for certain utility companies that acquire residential land for utility purposes. This applies to electricity operators or distributors, gas distributors or producers, and telecommunication services network operators.
To obtain consent
In order to obtain consent to acquire residential land, an overseas person must demonstrate to the OIO:
- a commitment to reside, and become tax resident, in New Zealand (commitment to reside in New Zealand test); or
- that they will increase the housing supply via their investment; or
- they will be acquiring residential land for conversion to a non-residential use or a residential use incidental to a relevant business use; or
- the acquisition will be beneficial to New Zealand.
Permanent Resident and Resident Visa holders that are not ordinarily resident, but are committed to reside in New Zealand, can apply for consent to acquire a home in New Zealand for use as their principal place of residence. They will be required to sell that property if they leave New Zealand and sever their commitment to reside here.
Student Visa and Temporary Visa holders will not be able to use the commitment to reside in New Zealand ‘pathway’, but can use the periodic lease/residential tenancy exemptions above in order to rent.
To obtain consent, the overseas person must make an application to the OIO – and pay the application fee. The OIO has not advised whether the application fee for residential acquisitions will differ from the current sensitive land application fee, which starts at $22,500.
An overseas person who applies for consent under the commitment to reside in New Zealand test can apply for consent in advance of a transaction/contract being entered into. Such a consent can relate to one or more residential land properties.
Overseas persons who already own residential property in New Zealand
The Act/OIA will not interfere with the rights of overseas persons in relation to residential property in New Zealand already owned by them in advance of the Act coming into force. However, those persons will require OIO consent to acquire any other residential land in New Zealand after the Act is in force.
Transactions entered into before the Act comes into force
The Act will not apply to transactions entered into before the Act comes into force – it does not have retrospective effect.
Compliance and enforcement
As part of the acquisition process, anyone acquiring residential land is required to make a statement to the conveyancer who is handling the acquisition that, to the best of the knowledge and belief of the overseas person, OIO consent has been obtained.
Where the OIO believes on reasonable grounds that the person who acquired the residential land has contravened the OIA, committed an offence under the OIA, or failed to comply with a condition imposed by any consent under the OIA, the OIO can issue a disposal notice. The notice must set out the basis and grounds for the OIO’s belief that a contravention, offence, or failure has occurred. If the recipient of the notice disposes of the property within the specified time (not less than 90 days), they may not be liable for such contravention, offence, or failure. However, simply disposing of the property within the requisite timeframe will not of itself avoid penalty for breaching the OIA – the OIO can take further action where the overseas person has made any materially false or misleading statement or provided the OIO with a document that is materially false or misleading.
The Act brings in changes in a number of other areas, including forestry – click here to view our previous alert on the forestry aspects. If you would like more information on any of the residential land or forestry changes, please contact one of our experts who will be happy to help.