Overseas Investment Amendment ActPosted on August 27, 2018 in Property (Tags: Overseas Investment, legislation, Comprehensive and Progressive Trans-Pacific Partnership, Residential Land, Sensitive Land)
On 22 August, the Royal Assent was given to the Overseas Investment Amendment Bill which is expected to come into force by mid-October 2018. The Bill includes a number of changes to the Overseas Investment Act 2005 including the much-discussed inclusion of residential land within the consent regime. The government has pushed this legislation through as part of its response to the housing crisis although critics have suggested that the percentage of overseas persons buying residential properties in New Zealand is relatively low and that these changes will have minimal effect.
In the lower South Island, it seems likely that these changes will have some effect on the market for high end residential properties, particularly in areas like Queenstown and Wanaka which have typically seen a high level of overseas ownership.
Who is an overseas person?
This is easier to answer in the negative. You are not an overseas person (and therefore do not need to apply for consent under the OIA) if you are a residence class visa holder who:
- has been living in New Zealand for at least 12 months before the purchase
- has been present in New Zealand for at least 183 days in the last 12 months and
- are a New Zealand tax resident.
In the case of companies, the trigger is 25% or more foreign ownership or control. In some cases this includes companies which have their headquarters in New Zealand, are listed on the NZX, are managed by New Zealanders and provide services to New Zealanders. This has not changed with the new amendments.
As part of the Government’s obligations under the Comprehensive and Progressive Trans-Pacific Partnership (CPTTP) Agreement, exemptions will be made for Australians and Singaporeans wishing to acquire residential land. Signatories to the CPTTP will also enjoy a higher threshold before consent is required for purchasers of significant business assets. The usual threshold of $100 million will be raised to $200 million for signatories to the CPTTP and also in relation to the Korea Free Trade Agreement, the China Free Trade Agreement ANZTEC and the Hong Kong Closer Economic Partnership.
Existing exemptions which apply to the requirement for consent for the purchase of sensitive land will still be effective, such as where property will be relationship property and one spouse is an overseas person.
Which residential land is caught?
Most purchases of residential land will be caught by the new provisions. There are some exceptions for multi-storey apartment developments (more than 20 units) to enable developers to attract overseas funding, but the Overseas Investment is acquiring the units will not be able to live in them in order to create an incentive to rent them out. Overseas persons may also buy rooms in large hotels on residential land without consent provided they leave the room back to the hotel operator and don’t occupy it for more than 30 days a year.
Some leases are also caught by the new provisions, including fixed term leases which exceed 3 years (including rights of renewal) and residential tenancies for more than 5 years, as long as the only reason the land is sensitive is due to it being residential land.
Any purchaser of residential land will now have to sign a statement confirming that they do not require consent under the Act. This will require conveyancing lawyers to upskill on the requirements of the Act in order to provide appropriate advice to clients.
What other types of land are sensitive?
The categories of sensitive land which trigger the requirements for consent under the OIA are complex but in general terms the following types of land may be sensitive and therefore subject to the consent regime:
- residential land (on introduction of the new amendments)
- farm land, and land which is “non-urban” and exceeds 5 hectares in area
- foreshore or seabed this land which includes the bed of a lake
- conservation land
- land stipulated as being for a reserve or for recreation purposes
- historic places and wahi tapu
- land on certain islands
Usually the land is subject to a minimum size before the requirement for consent is triggered which in most cases is 0.4 hectares. However, proximity to sensitive land can also trigger the requirement for consent such as when land is on the other side of a road which is on the sea-front or lake front, or where the land adjoins an esplanade strip.
Another key change under the Amendment Act is the introduction of a consent regime for acquisition of forestry rights. Forestry rights were not previously captured by the OIA but will now require consent for acquisition unless the total area covered by forestry rights acquired in any calendar year is less than 1000 hectares. The calculation excludes any forestry rights held before the new laws come into force.
Where the acquisition of forestry rights is subject to consent, new tests have been introduced to determine whether consent should be given which looks at the proposed use of the land against the current use and whether it will result in benefit to New Zealand. Early suggestions are that the tests could be met by maintaining existing arrangements for supply of logs to New Zealand processors, maintaining existing environmental protections and a commitment to replant.
It is also possible for forestry investors to apply for standing consents that do not relate to a specific parcel of land. This will enable investors to make investments without requiring further OIA approval so that they can act quickly when land becomes available.
Horticulture and Viticulture
Other rights known as profits à prendre, which typically involve the right to enter onto another person’s land to take a natural resource such as minerals, crops or pasture, have also been brought into the consent regime. This may have implications for horticulture and viticulture.
Unlike forestry rights, the new rules regarding other profits à prendre include in the calculation of the area threshold (five hectares) rights held on the commencement of the new provisions, and this calculation does not reset every twelve months as it does for forestry rights. These will not be subject to the new standing consent regime which is available to forestry investors. However, acquisitions of profits à prendre will only be captured if the term of the profit exceeds three years.
Time will tell whether the new provisions have an effect on housing supply, but they certainly will create yet another layer of compliance for conveyancers and prospective purchasers of land in New Zealand.