The Overseas Investment Amendment Bill is now an Act, having received Royal Assent on the 22nd of August, and is expected to come into force sometime in mid-October (but in any event no later than 22 October 2018).
- the Amendment Act will not apply to agreements for sale and purchase entered into before the Act comes into force. As such, overseas persons likely still have a few final weeks in which they can enter into an agreement to secure a residential property in New Zealand without having to worry about compliance with the new law.
- the Amendment Act doesn’t interfere with the rights of overseas persons in relation to residential property they already own.
We set out below a brief overview of the key aspects of the new law (as it applies to residential property only).
The key change – residential is now sensitive
The basic prohibition under the Overseas Investment Act 2005 (“OIA”) remains the same as it has always been – “overseas persons” cannot purchase “sensitive land” without first obtaining Overseas Investment Office (“OIO”) approval. The fundamental change made by the Amendment Act is to alter the definition of “sensitive land” so that it now includes all “residential land”. Thus, subject to a few limited exceptions discussed below, “overseas persons” will not be able to purchase “residential land” without first obtaining OIO approval.
“Residential land” for this purpose includes any property classified as residential or lifestyle in the relevant rating valuation roll. It will therefore capture almost all properties which you would generally think of as being residential – and some which you might not (such as retirement villages).
New definition of an “overseas person” for natural persons
The Amendment Act also introduced a very slightly amended definition of the term “overseas person”. In particular, a natural person (i.e.individual people as opposed to companies or trusts) is an “overseas person” if they are neither a New Zealand citizen nor ordinarily resident here. A natural person is now “ordinarily resident” in New Zealand for the purpose of a residential property purchase if they:
- hold a New Zealand residence class visa; and
- have been residing in New Zealand for at least 12 months; and
- are tax resident here; and
- have been present in New Zealand for at least 183 days or more in total in the immediately preceding 12 months (counting presence in New Zealand for part of a day as a presence for a whole day).
Importantly, this means that simply holding a New Zealand residence class visa will not alone be sufficient to enable individuals to purchase a residential property without first obtaining OIO approval.
The Amendment Act has not changed the definition of “overseas persons” in relation to companies and trusts. In short, the position remains that if a company or trust (or any other type of entity for that matter) is 25% or more owned or controlled by an “overseas person”, the company or trust will itself be an “overseas person” (and will therefore be caught by the new restriction).
As a result of the Government’s obligations under the Comprehensive and Progressive Trans-Pacific Partnership (CPTTP) Agreement, exemptions have also been made for Australians and Singaporeans in Part 4 of the Overseas Investment Amendment Regulations 2018 (provided the residential land they are looking to acquire is not sensitive for any other reason).
There are a handful of more generally available exemptions from the requirement to obtain OIO consent for a purchase of residential (but not otherwise sensitive) land. In particular, exemptions are available for:
- periodic leases of residential land or residential tenancies with a term (including renewal rights) of less than five years.
- apartments within multi-storey development of 20 or more apartments which are purchased ‘off the plan’ (provided the developer has themselves applied for and obtained an exemption).
- 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.
There is also an already existing (but often very helpful) exemption which often allows a married or long term couple, one of whom is an overseas person, to acquire residential property (or other sensitive land) in New Zealand.
Not a complete ban – applying for consent
The Amendment Act does not impose a complete ban on overseas persons acquiring residential property in New Zealand. Overseas persons remain free to apply to the OIO for consent to purchase.
In order to obtain consent to acquire residential land, an overseas person must demonstrate to the OIO:
- they are already permanent resident or resident visa class holders and they have a commitment to reside, and become tax resident, in New Zealand; or
- that they will increase the housing supply via their investment (and they will on-sell once the development is completed); or
- they will be acquiring residential land for conversion to a nonresidential use or a residential use incidental to a relevant business use; or
- the acquisition will be beneficial to New Zealand.
Our experience with the existing regime (where OIO application fees start at $22,500 and applications take months to process) suggest to us that in practice applying for consent will not be an option for most “mum and dad” would-be overseas residential property purchasers. This is presumably the exact outcome which the Government was hoping to achieve.
Get professional advice
Before embarking on an OIO application or signing any sale and purchase agreement sound legal advice is essential as mistakes can be costly.
Talk to us
For more information on this topic contact our Overseas Investment Team today.