New foreign buyer laws – deadline looming
16 Oct 2018
By Sarah Ogilvie, Associate, Aspiring Law
Anyone looking to buy land in New Zealand who is classified as an “overseas person” will need to sign on the dotted line before next Monday (October 22) or, otherwise, be subject to the new foreign buyer rules.
If you’re classed as a foreign buyer, and are currently interested in a piece of property, the restrictions you face after October 22 might be quite different to those under the current regime.
One common question we’re being asked is if a sale and purchase agreement, signed before October 22, can be subject to conditions, even if those conditions are to be confirmed after the new law comes into force. The answer is yes. (As always, though, please make sure you take proper, timely legal advice before signing anything.)
To avoid disappointment or confusion, our advice to anyone who will be affected by this law change is to take immediate legal advice to confirm your buyer status, and to explore your options. It could be that your best pathway is to fast-track your purchase – but your time is running out.
A political hot potato, opinion remains sharply divided on whether the new foreign buyer legislation will achieve the Government’s objectives: reducing homelessness, cooling the property market, enabling more Kiwis to buy their own home, and ensuring investments by foreigners bring genuine benefits for the country.
Statistics around foreign ownership are about as polarised as the views. It has been said, anecdotally, that around 30 percent of the property market is made up of foreign buyers, but since statistics have been kept, they so far show it’s more like 3 percent. What is not clear is, of the 11 percent of properties that went to corporates, how many were under foreign ownership. That data is not recorded.
Of the submitters to the Bill, 90 percent contended the proposed legislation would have the opposite impact to that intended, and, as a result, some of the initial provisions went by the wayside or were amended.
What we’re finding, not surprisingly, is that many people have been left confused about what the final upshot of this new legislation is, particularly given that what was initially proposed changed throughout the parliamentary process.
The law as it stands
So, let’s look at the current legislation governing investment by overseas buyers in New Zealand: The Overseas Investment Act 2005.
As it stands – until the new law comes into force on October 22 – foreigners must obtain consent from the Overseas Investment Office (the OIO), before they buy, or take an interest in, “sensitive land”.
What’s sensitive land? The most common form of sensitive land is non-urban land over five hectares, or land that adjoins a foreshore, lake bed, a reserve or Department of Conservation land.
Leases of, or other interests in, sensitive land lasting three or more years also require OIO approval (this has now been extended to five years under the new Bill).
Overseas buyers must further satisfy the OIO that they:
- Are ordinarily resident in New Zealand, or intend to live here indefinitely (known as the Commitment Test); or
- That the investment would result in a benefit to New Zealand (the Benefit Test) – and, in some cases, that benefit needs to be substantial and identifiable.
If the land isn’t deemed to be sensitive, OIO consent isn’t needed and a person from overseas can buy the property, as normal.
… that’s all about to change, of course, as of Monday, October 22.
What’s important to note first is that the new laws will not apply to contracts entered into before the new law comes into force. Nor will it stop those “ordinarily resident in New Zealand” from buying residential property, provided that they can show they call New Zealand home, which means the person:
- Holds a resident class visa
- Has resided in New Zealand for the last 12 months
- Has been physically present in New Zealand for 183 days of that 12-month period; and
- Is a tax resident of New Zealand.
Australians and Singaporeans have slightly different rules due to fair-trade agreements, and this means consent is not required for Australian or Singaporean citizens who are buying residential land. Those with Australian or Singaporean permanent resident visas do not require consent either, provided that they call New Zealand home and comply with the above four bullet points.
Companies registered outside of New Zealand, and any that are at least 25% foreign owned, will still be treated as "overseas persons" and need OIO approval to buy residential land, if an individual would.