Overseas Investment Act
In late 2017 the Overseas Investment Amendment Bill was introduced to restrict the purchase of residential land in New Zealand by overseas persons. The intention of the Bill was to help more New Zealanders achieve the dream of home ownership and to ensure that residential property prices are set by New Zealanders, not overseas investors.
The Bill has now passed through Parliament with the new screening requirements in respect of residential land to commence on 22 October 2018. These changes will not affect new or existing Agreements which have been entered into by overseas persons prior to that date, nor will they affect the existing ownership of residential or lifestyle land by overseas persons.
Amended Definition of Sensitive Land
From 22 October, the definition of “Sensitive Land” under the Overseas Investment Act will be expanded to include any land that has a property category of “residential” or “lifestyle” for rating purposes. The extended definition of Sensitive Land will capture land that is bare, contains an existing dwelling, or existing units/apartments.
Pursuant to the above, overseas persons will be prohibited from purchasing residential or lifestyle land without the consent of the Overseas Investment Office (with some exceptions as discussed below).
Persons/Entities Not Affected
The changes to the Overseas Investment Act will not affect the following classes of exempt persons, and accordingly persons within those classes can purchase residential or lifestyle land without the consent of the Overseas Investment Office:
1. New Zealand Citizens (regardless of where they reside);
2. New Zealand permanent residents and other residence class visa holders that are “ordinarily resident” in New Zealand.
Note - in order to meet the ordinarily resident test, a person must:
a. be a New Zealand tax resident;
b. have resided in New Zealand for the preceding 12 months; and
c. have been present in New Zealand for at least 183 days during that 12 month period.
3. Australian and Singaporean citizens and permanent residents (both are treated the same way as New Zealand citizens and permanent residents respectively due to existing economic relations agreements between New Zealand and those countries).
Generally, New Zealand companies, trusts, and other legal entities will only be prohibited from purchasing residential or lifestyle land (without the consent of the Overseas Investment Office) where 25% or more of their beneficial ownership is held by overseas persons.
However, it is important to note that any company incorporated outside of New Zealand will be treated as an overseas person, and will require the consent of the Overseas Investment Office regardless of the composition of its beneficial ownership.
When can Overseas Persons purchase Sensitive Land?
Where a person/entity does not fall within one of the exempt classes above, they will be considered an overseas person, and will require the consent of the Overseas Investment Office to purchase residential or lifestyle land in New Zealand.
There are several pathways to consent in respect of the purchase of residential or lifestyle land, including:
1. The Commitment to Reside in New Zealand Test
This test is only available to New Zealand permanent residents and other residence class visa holders who do not yet meet the “ordinarily resident” threshold summarised above.
These persons can apply for consent to purchase a single dwelling/home to live in, provided they can demonstrate that they have a commitment to reside in New Zealand, and will use the property as their principal place of residence.
2. The Increased Housing Test
Overseas developers may apply for consent to purchase residential or lifestyle land where their proposed development will increase the housing supply and where a commitment is made to on-sell the property purchased once the development has been completed.
There are also additional rules which provide support to overseas developers in certain scenarios:
i. Developers of large apartment complexes which are multi-storey and contain at least 20 units may apply for an exemption certificate that allows them to sell a percentage of the units to overseas persons “off-the-plans” (i.e. prior to title and construction). Those overseas purchasers will not require any additional consent themselves, however, will not be able to reside in the units.
ii. Developers of large residential projects of at least 20 dwellings may apply to retain all of the units/dwellings, provided that the dwellings are leased on a residential basis, or made available for purchase under a rent-to-buy/shared-equity arrangement (Note - the developer and its associated overseas persons are not permitted to reside in the development).
iii. Developers of retirement/aged care facilities, or student accommodation facilities may retain the development upon completion (Note - the developer and its associated overseas persons are not permitted to reside in the development).
Overseas persons will also be able to purchase a unit in a hotel development which has been completed on residential land and contains at least 20 units. However, the purchaser will need to enter into a “lease-back” arrangement with the hotel operator and will not be permitted to personally occupy the unit for more than 30 days per year.
Similar to the provisions summarised in 2(i) above, there are transitional provisions in place for the benefit of overseas developers who commenced development of large apartment complexes (multi-storey containing at least 20 units) prior to the date on which the Bill received Royal Assent, being 22 August 2018. In such instances, a transitional exemption certificate may be obtained for those developments which will permit the sale of all units to overseas persons, and will permit those overseas persons to live in the units. In order to obtain the transitional exemption certificate, at least one unit must have been sold prior to 22 August 2018, and an application for the certificate must be submitted prior to 22 February 2019.
3. The Non-Residential Use Test and The Incidental Residential Use Test
Overseas investors may apply for consent to purchase residential or lifestyle land where that land is being purchased for non-residential purposes such as operating a business, or for residential purposes incidental to a relevant business purpose (e.g. worker accommodation in remote locations).
The factors taken into consideration by the Overseas Investment Office when determining consent under the Incidental Residential Use Test include matters such as the proximity of the land to the business, the reasonable alternatives available to the applicant, and whether the acquisition of land for such purposes was part of the applicant’s ordinary course of business.
4. The Benefit to New Zealand Test
Where overseas investors wish to purchase residential or lifestyle land but are not eligible for any of the above consent pathways, they may also apply for consent via the Benefit to New Zealand Test. This is the same test used by overseas investors to obtain consent for the purchase of other types of sensitive land in New Zealand.
Consent may be provided under this test if the overseas investment will, or is likely to benefit New Zealand (or any part of it or group of New Zealanders). The assessment is focussed on the benefits from the overseas investment which are over and above those that would occur without the overseas investment (the “counter-factual test”).
We strongly suggest that all clients who may be affected by the Overseas Investment Act take legal advice prior to entering any Agreement for Sale and Purchase. If you or your clients require advice, the team at AWS Legal are happy to discuss any questions you may have and provide tailored advice in respect of your individual requirements.