You will have seen media reports of expected changes to the Overseas Investment Act. They implement the government’s plans to restrict the sale of houses to people who are not New Zealanders.
The submission period has been extended and submissions close 16 February 2018, so there’s time to have your say if you would like to.
These are consequences of the draft bill:
- The restrictions will relate to existing and new residential property. Sections and apartments being sold off-the-plan will be caught.
- NZ citizens can continue to purchase residential property in New Zealand, whether existing or new.
- NZ permanent residents that are ordinarily resident in NZ will be able to purchase residential property (i.e. the buyer has permanent residency on the date an unconditional contract is signed or the buyer has been residing in NZ for at least 183 days in the previous 12 months). The test for this will likely create additional transaction costs and mean transactions take longer as proper investigations are completed, particularly for those without NZ passports. Lawyers have issues with the certifications they are being asked to give on all transactions under the draft rules.
- Australian citizens and permanent residents will be treated the same way as New Zealanders.
- All others will need to be screened by the OIO before purchasing residential land. To be entitled to purchase they will need to show the OIO:
– They are committed to residing in NZ; or
– They will increase the housing supply and on-sell the property; or
– They are developing long term accommodation (retirement villages, student accommodation) which might be retained and operated by the developer but not for residing in; or
– The residential land is being changed to non-residential use and this is beneficial to NZ.
On-sale requirement
The on-sale requirement when newly developed sections and apartments are being purchased off the plan adds a further risk for an overseas person committing to purchase. They cannot simply treat the acquisition as an investment and hold the property – they must commit to on-sell (if not committed to residing in NZ). There are of course tax consequences with on-sales via the bright line rules and residential land withholding tax rules.
- We can expect that overseas persons that are companies or other entities will be those with more than 25% ownership or control by an overseas person. The “developer” might itself be subject to these further rules when developing land that previously was not “sensitive” and not subject to OIO restrictions.
- That will necessitate the OIO screening of the developer and conditions imposed as to timing of on sales. The meeting of those conditions obviously depends on market conditions and is a further risk to assess during due diligence.
- For trusts, where overseas persons control 25% or more of the decisions of the trust or more than 25% of beneficiaries are overseas persons, the same will apply. Family trusts with part of the family abroad will need to take care not to fall foul of the rules.
The Select Committee report is due May 2018. Changes are not expected to apply to contracts entered before the rules become law.
Next steps
You can make a submission here. Do let us know if you would like help to do this.
