New Zealand's Property Foreign Buyer Ban
Statistics NZ reveal that in the year ending June 2018, a mere 0.6% of houses sold in the Napier /Hastings area were sold to non NZ residents (27 houses in total). Our observation is that foreign investors tend to operate in the top end of our market where the numbers of sales are constrained (in July and August this year, only one house sold in Napier for more than $1 million).
The amendment to the Overseas Investment Act 2005 that will prevent non-NZ residents buying residential property comes into force on 22 October 2018. How exactly the Act will affect the market remains to be seen. Whereas its impact on first home buyers may be minimal, those trying to sell a top end property may face some headwinds as the ban takes effect, both directly and from the trickle-down as the Auckland market (in which 6% of sales are to non-residents) cools.
Here is some of the detail behind the Act, courtesy of fellow Law link firm Anderson Lloyd.
An “overseas person” (OP) requires Overseas Investment Office consent (OIO consent) to purchase “sensitive land”. An OP is:
Sensitive land includes, various types of land, including residential land (being land which is rated “residential” or “lifestyle” on the district valuation roll), non-urban land over 5 hectares, land which has frontage to foreshore and seabed, land on certain islands and land which has certain special characteristics.
Now, to obtain OIO consent for investment in sensitive land, all of the following tests must be satisfied (unless a specific exemption applies), and if required, satisfied on an ongoing basis for a specified period. Conditions will be imposed in each OIO consent to ensure ongoing compliance with the required tests.
To satisfy this test, the OP (or the individual(s) with control of it) must:
Commitment to reside in New Zealand test
This test is met if the OP (or each individual with control of it):
Anyone granted consent under this test who is not a New Zealand citizen or ordinarily resident in New Zealand must reside in the property as their main home and satisfy (b) and (c) until:
Increased housing test
This test is met if the investment will, or is likely to result in one or more of the following on residential land:
Non-residential use test
This test is met if the residential land will, or is likely to:
Incidental residential use test
This test is met where the residential land will, or is likely to be:
In considering whether the test is met, the Ministers may consider all or any of the following:
Benefit to New Zealand test
This test is met if:
Regulations may provide for separate “benefits to New Zealand” tests in relation to forestry activities.
The following exemptions are provided by the Act in respect of residential land that is not otherwise sensitive land. However, if an OP is purchasing land under an exemption from someone who acquired the land under an OIO consent, then the OP may be treated as being subject to any conditions of the original OIO consent. The Minister may also, after considering the relevant provisions, grant an individual exemption. This will provide greater flexibility under the Act.
The amended Act provides for a “standing” OIO consent to purchases of residential (but not otherwise sensitive) land to be granted. This will allow an OP to be granted OIO consent for multiple future transactions. Applications for such standing consents must be made under one of the commitment to reside in New Zealand, increased housing, non-residential use or incidental residential use tests. The OIO may impose a “use-by” date for standing consents. Standing OIO consents are also available in relation to forestry applications.
Compliance statement by OP
An OP acquiring a freehold interest or any other interest for 3 years or more in residential land must provide their lawyer with a statement as to whether the transaction requires consent under the Act. A lawyer may not transfer the property without such a statement, or if they have reasonable grounds to doubt the accuracy of the statement. A lawyer must take reasonable steps to retain the statement for at least 7 years.
Profits-à-prendre (Profits) are rights to take something (e.g. minerals) from land, and are commonly used in agricultural, viticultural and mining industries. Before the Bill, OIO consent was not required for the grant of a Profit over sensitive land. Now, the rules for Profits can be summarised as follows:
As noted above, forestry rights are no longer exempted interests and therefore consent under the Act will be required for an OP to acquire a forestry right. However, the Amendment Act contemplates that regulations may be issued which provide that the benefit to New Zealand test may be satisfied for forestry investments if the requirements set out in these regulations are, or likely to be, met. We understand new regulations are currently being finalised and should be available soon. We will be commenting on these once they are issued, as they should set out the promised streamlined consenting approach for forestry transactions. The Amendment Act is otherwise generally consistent in terms of how it approaches forestry rights with the March 2018 SOP.
If you have any questions at all regarding Overseas Investment or Property Law, please get in touch with our team.
Langley Twigg's team of Hawke's Bay lawyers keeps you up to date on all the latest legal news.
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