Proposed changes to the Overseas Investment Act – Government takes steps against overseas speculators
The Government has introduced a Bill to Parliament containing changes to the Overseas Investment Act 2005 (Act) to implement the Government’s proposed ban on overseas speculators from buying New Zealand homes.
The Government hopes that the Bill will ensure that overseas persons who are not resident in New Zealand will generally not be able to buy existing houses or other pieces of residential land, leading to a housing market with prices shaped by New Zealand-based buyers.
Summary of the proposed changes
The Bill is primarily focused on ‘residential land’, which it generally defines as being all properties classified as either ‘residential’ or ‘lifestyle’ for rating valuation purposes under the Rating Valuations Rules issued by the Valuer-General. The Bill categorises residential land as ‘sensitive land’ under the Act, meaning that overseas persons are required to obtain consent to purchase the land.
Under the Act, ‘overseas persons’ are (in relation to natural persons), individuals who are neither a New Zealand citizen nor ordinarily resident in New Zealand. The Bill modifies the definition of ‘ordinarily resident in New Zealand’ for the purposes of the new residential land provisions, such that a person will be ordinarily resident in New Zealand if they hold a permanent resident visa, have been residing in New Zealand for at least a year, and have been present in New Zealand for at least 183 days in the past year. The ‘overseas persons’ definition in relation to corporate entities has not changed. The Government previously signalled that the residential housing restrictions would not apply to Australian citizens, however this exclusion has not been included in the Bill.
Although the Bill does not introduce a total ban on overseas persons acquiring residential land, in general consent will only be granted if the overseas person:
- will be developing the land and adding to New Zealand’s housing supply; or
- will convert the land to another use and is able to demonstrate this would have wider benefits to the country; or
- holds an appropriate visa and can show they have committed to reside in New Zealand.
The Bill also allows overseas persons to apply for ‘standing consent’ in advance of a future transaction in respect of residential land if they meet certain criteria.
The Bill requires that conditions be imposed if an overseas person purchases residential land utilising one of the above criteria. For example, if an overseas person purchases residential land to build houses on it, they will be required to sell the land when the houses are built and, until it is sold, will not be permitted to occupy the land for residential purposes.
The Bill also makes more general changes to the Act, which include enhancing the information-gathering and enforcement powers of the Overseas Investment Office, including by providing for civil liability for those involved in contravention of the Act. The Bill also introduces some changes to the way non-residential sensitive land applications are made under the Act.
It is intended that the amendments introduced by the Bill will not apply to any application for consent that is made before the amendments come into force, or to any application for consent that is made after the amendments but which relates to a transaction entered into prior to the amendments.
The Bill will not amount to a total ban on foreign investment of residential land, as an overseas person can still be granted consent on the basis that they fulfil the requirements of the Act. However, there will now be a significant threshold for applicants to meet in relation to purchasing residential land, and significant costs incurred in the process. In effect, the changes in the Bill (if and when they become law) will likely fulfil the Government’s purpose of ensuring that overseas persons who are not resident in New Zealand will generally not be able to buy existing houses or other pieces of residential land.
The Bill was prepared relatively quickly, and adds a layer of complexity to the Act. The proposed changes will need to be worked through carefully to ensure there are no unintended consequences.
The Bill had its first reading in the House yesterday and will then be sent to a Select Committee, giving the opportunity to comment on the details of the Bill.
If you have any questions on the Bill or would like our assistance in developing a submission to the Select Committee, please contact one of our experts.