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Implications of the Overseas Investment Amendment Regulations 2018

By Alexandra Fink

Implications of the Overseas Investment Amendment Regulations 2018

The purpose of the amendments to the Overseas Investment Regulations is to greatly reduce overseas purchases of New Zealand property, which will hopefully make residential housing more available and affordable to New Zealanders.

Previously, the Overseas Investment Act only applied to 'sensitive land' which was normally rural properties. The amendments have extended the reach of the Act to include 'residential' and 'lifestyle' properties. This means every residential property bought in New Zealand will be effected by the Act.

Who can purchase property in New Zealand?

The following classes of people can purchase land in New Zealand without a consent:

  • New Zealand citizens
  • Australian citizens
  • Singaporean citizens
  • Permanent New Zealand residents
  • People with Australian or Singaporean Permanent Resident visas who have lived in New Zealand for 183 days in the last year

A permanent resident is someone who holds a resident class visa, lives in New Zealand, has New Zealand tax residency and has been in New Zealand for at least 183 days in the past year.

If the land is sensitive for a reason other than being residential land, then Australian, Singaporean and permanent residents will need to apply to the Overseas Investment Office for consent.

Who can apply for consent to purchase property in New Zealand?

The following classes of people can apply for consent from the Overseas Investment Office:

  • Residents who are not yet ordinary citizens of New Zealand
  • Australian and Singaporean permanent residents who don’t live in New Zealand

Consents can be applied for by overseas trusts and companies. The entity will be classified as an “overseas person” if it is at least 25% owned/controlled by an overseas person. In order to be granted consent all of the people who own/control the entity must be either a class of person that doesn’t require consent, or eligible to apply for consent.  All of the owners/controlling parties will be required to live in the house.

Who is unable to purchase property in New Zealand?

All overseas people unable to apply for consent and people in New Zealand on temporary visas (visitor, student, working holiday or work visas) are unable to buy a property to live in.

Exemptions to the Act

There are exemptions for apartment complexes and hotel lease-backs. However, the purchaser is unable to live in the property, in order to keep in line with the Act’s purpose of providing housing for New Zealanders. Consent will be required for these exemptions, the investor needs to prove one of the following:

  • committed to New Zealand
  • they will increase housing supply and meet the investor test (business experience relevant to the investment and have good character)
  • use the land for a non-residential use of for a purely incidental residential use

There is also an exemption for spouses and partners. If the house is being purchased as relationship property and one of the couple is exempt then neither need to apply for consent. If one of the couple is eligible to apply for consent, then they alone apply for consent, regardless of the other’s visa status.  If the couple goes on to separate, they are each allowed to keep their share in the property without getting consent.

Inheriting a home may be exempt, but it depends on if consent was needed for the original purchase.

Types of consents

There are nine different consents that purchases can apply for. They are as follows:

  • Commitment to reside: allows a person to buy one house to live in
  • Increased housing on residential land: allows a developer to build houses/apartments and then on-sell the land
  • Exemption Certificate for large apartment developers: allows developers of a large apartment development to sell up to 60% of apartments to overseas buyers without those buyers having to apply for consent, however the buyers can’t live in the apartment
  • Transitional Exemption Certificate for large apartment developers: this only applies to developments that commenced sale of apartments before 22 August 2018, it allows them to sell up to 100% of apartments to overseas buyers who are able to live in the apartment
  • Non-residential use: allows an investor to use the land for non-residential purposes, such as to build a supermarket
  • Incidental residential use: allows an investor to use the land for residential purposes incidental to its business, for example staff accommodation in a remote area
  • Forestry (special test): allows forestry investors to acquire freehold or leasehold land or forestry rights
  • Forestry (modified benefits): allows forestry investors to acquire freehold or leasehold land or forestry rights when the special test does not apply
  • Profits a prendre: allows an investor to acquire a profits a prendre if they meet the current benefits test

Each of these consents has different forms depending on if the purchaser is an individual or a trust/company. The Landonline website has copies of all of these forms.

For some of the consents pre-approval can be granted which could be useful for a client who is looking to buy a house in New Zealand, but hasn’t made an offer yet.

A simple consent should take approximately 10 working days to be granted and cost $2,040. If it is an application for an entity it will take longer and cost $3,900. 

Once the consent is granted, there are ongoing conditions that need to be met. These are that the consent holder must:

  • live in the property as their main home;
  • be in New Zealand for 183 days in each year after the consent is granted;
  • continue to hold a residence class visa, or continue to be an Australian or Singaporean or permanent resident.

If the conditions are not met, the consent holder may have to sell the land and / or face fines.

It is only once the consent holder becomes a New Zealand Citizen or Permanent Resident of New Zealand that these conditions no longer need to be met.

If you need to retrospectively apply for a consent due to incorrect legal advice, the application will incur an extra fee of $10,000.00 (depending on the value of the home).

The Residential Land Statement

From the 22nd October 2018 everyone buying residential land will need to fill in a Residential Land Statement stating why they are eligible to buy the land. This statement should  have been signed before entering the agreement for sale and purchase, otherwise the agreement needs to be conditional upon consent being granted. Signing an agreement for sale and purchase without this condition will result in you having to sell the house and potentially face fines.

In order to establish if the land is 'residential' or 'lifestyle' and thus subject to the Act, you can use the QV website to search for the property, which will provide information on its building type.

If a trust is purchasing the property, one trustee can complete the Residential Land Statement on behalf of all trustees. As long as that trustee knows whether consent is required, and they are authorised by the other trustees to make the statement.

If a purchaser decides to nominate someone else to complete the purchase then the nominee must complete the Residential Land Statement.

If an associate is acquiring an interest on behalf of an overseas person, both the associate and the overseas person will need to obtain consent and make separate Residential Land Statements. If the associate is a New Zealand agent acting on behalf of an overseas person, they will still need to get consent.

Ramifications for property lawyers

The act does not put an obligation on conveyancers to find out if a purchaser is an overseas person. However, in order to ensure the sale can proceed conveyancers will need to ask this at the start of any transaction.  There is no obligation to investigate your client's residential status unless you have reasonable grounds to believe they are making a false or misleading statement.

A transfer instrument cannot be lodged by a conveyancer until they receive a Residential Land Statement and it also can’t be lodged if the conveyancer thinks the statement is incorrect.

A conveyancer should contact the Overseas Investment Office if:

  • a client needs consent but has already entered into an unconditional agreement for sale and purchase without having obtained consent;
  • they have reasonable grounds to believe that your client is providing a statement that is false or misleading;
  • they have reasonable grounds for believing that your client is attempting to contravene the Overseas Investment Act or may have committed an offence.

The law firm must ensure a copy of the Residential Land Statement is kept for at least 7 years. There is a civil penalty of up to $20,000 for conveyancers who do not comply with this.

Aiding or assisting a person to commit any other serious offences under the Overseas Investment Act such as defeating, evading or circumventing the operation of the Overseas Investment Act, or resisting, obstructing or deceiving the OIO can be fined up to $300,000 or imprisoned for up to 1 year.

 

Topics: Property