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Overseas Investment Amendment Act – an attempt to make houses more affordable

Overseas Investment Amendment Act – an attempt to make houses more affordable

Published in December 2018

The Overseas Investment Amendment Act 2018 (“Act”) came into force on 22 October 2018, bringing with it significant changes for property buyers. The Act sees the Government’s anticipated ban on foreign buyers come to fruition, and can be seen as yet another tool for cooling the property market.

The Government’s intent behind the new regime is to ensure that houses in New Zealand are affordable and available for New Zealanders to purchase, while also seeking to redirect foreign investment in New Zealand into more productive areas. We are yet to fully see whether the regime has had the intended effect.

Residential Land

The Overseas Investment Act previously required overseas people and entities to obtain consent from the Overseas Investment Office (“OIO”) to invest in New Zealand’s sensitive land and assets.

Under the new Act, the definition of “sensitive land” has been expanded to include “residential land”. Residential land broadly means land that is categorised as “residential” or “lifestyle” in the relevant local authority’s District Valuation Roll.

An overseas person will now be required to obtain consent from the OIO to purchase residential land in New Zealand, subject to certain exemptions.

Overseas Person

Everyone that is not a New Zealand citizen or “ordinarily resident” in New Zealand, will be considered an overseas person, subject to some exemptions for Australian and Singaporean citizens.

To be considered “ordinarily resident” in New Zealand for the purposes of purchasing residential land, a purchaser must at the time of entering into an agreement for sale and purchase:

1. have a residence class visa;
2. have been living in New Zealand for at least 12 months;
3. have been physically present in New Zealand for 183 days in those previous 12 months; and
4. be a tax resident in New Zealand.

In summary:

  • New Zealand Citizens: will continue to be able to purchase residential land without consent, regardless of where they reside;
  • New Zealand Permanent Residents: and other residence class visa holders that are ‘ordinarily resident in New Zealand’ will continue to be able to purchase residential without requiring consent;
  • Australian and Singaporean Citizens and Permanent Residents: will be treated the same way as New Zealand citizens and permanent residents, provided that the residential land they are purchasing is not sensitive for any other reason; and
  • Other entities: if an entity (such as a trust or company) is 25% or more owned or controlled by an overseas person, then the entity itself will be considered an overseas person and consent will be required to purchase residential land.


Exemptions

If you are in a relationship and you and your partner wish to buy a home to live in but one of you is an overseas person and requires consent, you may be able to rely on the relationship property exemption. This allows couples to purchase a residential home if that home falls into the definition of ‘relationship property’.

There are also some exemptions for overseas persons requiring consent in respect of ‘off the plan’ multi-storey apartments of 20 units or more, periodic leases, residential tenancies, hotel units and network companies.

When do the changes take effect?

Sale and purchase agreements entered into from 22 October 2018 will be subject to the provisions of the Act. Importantly, the Act will not apply retrospectively to any agreements entered into before this date. This will bring comfort to purchasers that have entered into an off-the-plans agreement some years ago for which settlement has not yet taken place.

Compliance

All purchasers of residential land are now required to make a statement that they have OIO consent, or that OIO consent is not required. Purchasers’ lawyers must obtain this statement from their clients before settlement. It is an offence for a purchaser to make a false statement, and offenders could face hefty penalties.

How will this affect vendors (sellers)?

The changes may work to reduce the pool of buyers available to purchase your property, and lead to a reduction in the price that you are able to obtain.

If you are selling by auction, the Auckland District Law Society Particulars and Conditions of Sale of Real Estate by Auction now includes a warranty from purchasers that they do not require OIO consent or if they do, that OIO consent has been obtained.

What should you do if you are thinking about purchasing a property in New Zealand?

1. Call us. We will be able to assist in determining whether you need OIO consent.
2. Use this website to assess your eligibility. This website is a great starting point, however we urge you to contact us before you enter into any sale and purchase agreements; and
3. If you are unsure about whether you require OIO consent, ensure that any sale and purchase agreement that you enter into is conditional on obtaining OIO consent. If you are intending on purchasing at an auction and require consent, pre-approval from the OIO should be obtained before you bid.

4.The costs of the consent vary depending on the application type and the entity applying and can be viewed here.

For most New Zealanders, the Kiwi dream of buying a home is still on the cards and if the Government’s hope for the regime plays out, perhaps it will now become more of a reality. But for newcomers to New Zealand, the gates to homeownership may be considerably more challenging to get through for the foreseeable future.
 



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