Proponents say it’s set to pave the way for droves of frustrated would-be first
homebuyers to finally nab their own digs. Opponents, however, are just as
adamant its impact will amount to about three thirds of diddly-squat – or,
worse still, that it will harm rather than help.
In amongst all the conjecture, though, there is now one certainty: the Overseas
Investment Amendment Act 2018 will be in force from Monday, October 22, after the legislation recently gained Royal Assent.
Let’s take a look in the rear-view mirror for a moment. On the hustings last year, real estate – including homelessness, affordability and foreign ownership – was a key electioneering platform. Sure enough, just weeks after coming to power, the Labour-led Government came good on its promise, tabling the Overseas Investment Amendment Bill, aimed at curbing foreign buyers’ ability to snap up property. Its overarching objectives: to reduce homelessness; cool the soaring property market; get more Kiwis into their own home; and, make sure all foreign investment brings genuine benefits for New Zealand.
Debate over foreign ownership is nothing new, of course – it’s been an often-divisive political hot potato for years. However, it’s become increasingly obvious that there really is no quantifying, with any degree of accuracy, the impact foreign buyers have had, and continue to have, on the Kiwi market. Early on in the piece, it was said, anecdotally, that a whopping 30 percent of the property market was made up of foreigners. However, since officials started recording the numbers, the data collected revealed they account for just 3 percent. Remember, though, not all real estate is bought by individuals. The records also show 11 percent of buyers are corporates, to which the natural rejoinder is: are they Kiwi or offshore? The answer? We don’t know. That rather salient information hasn’t been captured.
As it stands, and until the new law comes into force, people from overseas have the same rights to buy New Zealand residential property as Kiwis – provided it’s not deemed “sensitive”, which includes non-residential land over 5ha, or property that adjoins a foreshore, lake bed, a reserve or Department of Conservation land. In those cases, foreigners must obtain Overseas Investment Office consent to buy.
So, where are we headed?
At the hub of the new law is the reclassification of sensitive land to include residential property, meaning any non-resident will need OIO approval to buy even a bog-
standard section. In very simple terms, existing homes will generally be able to be bought only by New Zealand citizens and residence-class visa holders who have spent the majority of their time in New Zealand. People who hold New Zealand residence class visas, but don’t live here, will be able to apply to the OIO for consent to buy a home.
Traditionally, OIO approval has been neither a speedy nor cheap exercise. A year-long process is not uncommon, and neither is a total bill in the many tens of thousands of dollars … remembering, too, an application doesn’t come with any guarantee it’ll succeed, either. Details on any changes to the application process and the OIO fees are still be released.
There’s a misconception that the new Act bans all foreigners from buying New Zealand property. Not so. Non-New Zealanders, who are “ordinarily resident” here will still be able to buy, as long as they can pass the new “commitment test”. In essence, they’ll need to prove they call Aotearoa home, in that they: hold a resident-class visa; have lived here for the past 12 months and have been physically here for 183 days of that period; and, are a tax resident.
Foreigners not applying under the commitment test can try to buy through one of three other categories: the “increased housing test”, where they can demonstrate they’ll be adding to New Zealand’s housing stock; the “non-residential use test”, under which the buyer can show land would be used for non-residential purposes; and, the “incidental residential use test”, where a buyer plans to use the land for a residential purpose, but in the course of business – for example, a student hostel or retirement home.
Following feedback, the Bill was amended enabling developers of large, multi-torey apartment buildings (20-or-more residential dwellings) to apply for an exemption to sell a percentage of the units to overseas buyers “off the plans” without purchasers needing to obtain consent or to on-sell once the unit is complete. The buyers won’t be allowed to occupy the units themselves, however. Foreign buyers can also build,
or invest in, large hotel developments (20-or-more units) without needing to obtain consent or on-sell once complete. The buyer must, though, lease the unit back to the hotel company and can only occupy the unit for 30 days in each year.
More power to the OIO
Significantly, the new legislation includes sharper teeth for the Overseas Investment Office, too. Come the end of next month, it’ll have the power to force a landowner to dispose of property in the event of a contravention of the Act, an offence, or a failure to comply with an exemption or condition.
We might share Auckland’s high prices but, from my observations, our neck of the woods is home to quite different market dynamics, including buyer profiles and objectives. The foreign nationals we work with don’t tend to be on any great land grab. They usually bring with them far more than they take, are innovative and philanthropic; they often start businesses, create jobs and, in all, add to the richness and diversity that is our wonderful, eclectic community.
So, locally, I wouldn’t bank on plummeting property prices or a sudden torrent of newly-available housing stock any time soon. Longer term, only time will tell if, and how, the Wanaka, Queenstown and Central Otago housing situation responds to these reforms – never forgetting, new legislation aside, there are myriad other forces that will sooner or later affect the market, too.
• Hard Case legal column is back! Posted: 12 June 2018
• Home truths Posted: 07 July 2018
• Subdivisions: buyer’s regret Posted: August 2018
Please remember: the information in this column is designed as a general guide only and should not replace specific legal advice on a particular issue.
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