Legislation to ban foreigners from purchasing certain residential homes was introduced into the House yesterday. The ban was one of the hallmark policies of the new Labour/NZF/Greens coalition Government, and more details on how the ban will be imposed have been revealed.
In this article, we outline the proposed changes, and illustrate how the legislation will affect a number of parties who deal with residential property in New Zealand.
The details of the Bill
What land it applies to
The Overseas Investment Act now brings residential land within the definition of sensitive land in the Act. Sensitive land that is residential land will be all properties classified as either “residential" or “lifestyle” for rating valuation purposes. Overseas persons seeking to buy sensitive land that is residential land will be subject to the special restrictions in the Act.
Who it applies to
A person is an overseas person under the Act if they are neither a New Zealand citizen nor “ordinarily resident in New Zealand”. For the purposes of the new residential land provisions, a person who is “ordinarily resident in New Zealand” will be someone who holds a permanent resident visa and has been residing in New Zealand for at least a year, and has been present in New Zealand for at least 183 days in the past year. There is no sign of the widely touted exemption for Australian citizens.
Overseas persons purporting to acquire sensitive land in New Zealand will have to apply to the Overseas Investment Office (OIO) for consent. In the application process, applicants must nominate which of the following tests they wish to be screened under.
What land may overseas persons buy?
Overseas persons would only be able to buy sensitive land that is residential land in certain situations:
- If they will be developing the land and adding to New Zealand’s housing supply (“increased housing test”); or
- If they will convert the land to another use and are able to demonstrate this would have wider benefits to the country (“benefit to New Zealand test”); or
- If they hold an appropriate visa and can show they have committed to reside in New Zealand (“commitment to New Zealand test”).
Should an applicant be successful, conditions will be imposed to ensure they carry out what was promised in their application.
Where to from here?
Following its first reading, the Bill is expected to go through a truncated select committee process, in order to progress it through the House prior to a potential signing of the new TPP agreement. The Government intends to have the Bill passed by early next year. This, subject to any Government support party bargaining, means that the Bill that was introduced today is not likely to change much as it progresses through the House.
Possible scenarios under the proposed Bill
So, if the Bill were passed in its current form, how would it apply in practice?
An overseas couple migrating to New Zealand for work
A couple from overseas are granted a residence class visa to live and work in New Zealand. They find a house online that they want to buy for them to live in when they arrive, but are advised by their agent that they are overseas persons, and the house is situated on residential land. The good news is, by having the residence class visa, they will meet the “commitment to New Zealand test”, but first, they must apply to the OIO for consent. This takes some time, but luckily, they included a clause in their purchase contract which makes their purchase conditional on being granted OIO consent. The consent is granted, on the condition that they occupy the home as their main home in New Zealand, and if a certain event occurs which changes the status of their visa, they must sell the house within 12 months.
An overseas investor looking to develop land
An overseas investor has heard about a patch of land on the outskirts of Christchurch that is up for sale, that they are keen to develop. The investor is advised that the land is classified as residential, and that since they do not live in New Zealand, they would now need to apply for OIO consent to buy the land. The investor knows about the housing issues in New Zealand at the moment, and is keen to build some residential properties. The investor is advised that they may satisfy the “increased housing on residential land test”, but to do this, their application must convince the OIO that the works will increase the number of houses on the land, that they will retain no interest in the land within a specified period, and they, or their associates, will not occupy the land for residential purposes while they do retain an interest. Since the investor was keen to sell half of the houses to some of his relatives residing in New Zealand, the OIO reject his application, and the vendor finds another buyer.
A family relocating to New Zealand
A family who have recently moved to New Zealand have been going around a number of open homes to find their first home. They have been looking for weeks, but cannot find anything they like. Finally, they find their dream home, and the agent gets them signed up to an agreement on the spot. The settlement date is to be in just two weeks time, as they are currently living in a motel room. They engage a lawyer to act for them on the transaction, who immediately raises alarm bells about the new requirements for overseas persons buying residential land. The lawyer advises that since they have been in the country for less than a year, they must first obtain OIO consent. The lawyer is now required to certify that the couple will not commit an offence under the Act by giving affect to the transaction, which they refuse to do. The couple are forced to cancel their contract.
As you can see there are going to be some hurdles to overcome as we work through this process, for agents and lawyers alike. If you would like assistance with drafting appropriate clauses regarding OIO consent, please contact one of our residential team.
We will keep you updated as this Bill passes through Parliament into law, including any changes that may arise.