Change is on the horizon for overseas property investment regulations as the second and final stage of the review of the Overseas Investment Act 2005 gets underway.
Initial amendments, introduced last year, included major changes to the definition of ‘sensitive land’ and ultimately made it more difficult for offshore buyers, apart from Australians and Singaporeans, to purchase residential property in NZ.
The government recently issued a consultation document setting out a number of proposals to further reform the Act. The proposals focus on three central areas that will affect how the Overseas Investment Office (OIO) screen candidates in the future.
What is screened
The Act currently specifies the different assets or ‘interests’ in those assets that require consent from the OIO. This restricts the kinds of properties offshore investors can purchase, adds additional costs to purchasers and also slows down property transactions. The new proposals will look at streamlining this buying bottleneck.
For example, under the current rules, an overseas investor buying land that is ‘sensitive’ because it borders certain land, i.e. a reserve, will require OIO consent. The process (and cost) in this context is the same as that required for an offshore person to purchase one of NZ’s largest farms or part of our foreshore. The reforms will look at whether changes are required so that the process for the first scenario is less stringent.
Another proposed change relates to leases. Currently, a non-New Zealand resident requires OIO consent if they take on a residential lease for a period exceeding 3 years. This means they are required to go through the same process as an offshore person buying residential land. The reforms will look at extending the lease period to 10 years so that residential leases under ten years do not require OIO consent. This will make investment by foreign companies easier.
Who is screened and when
Upcoming amendments also intend to review the threshold for an overseas individual who wants to increase their shareholding in a company that owns land in New Zealand.
Currently, if a New Zealand company has 25 per cent or more offshore shareholders, the company becomes an overseas entity and OIO consent is required for certain asset acquisitions. If an offshore shareholder wants to increase its shareholding from say, 24 per cent to 26 per cent, the OIO consent requirement will be triggered. This remains the case even if the increase in shareholding does not increase the overseas shareholder’s control over assets.
This causes a great deal of inefficiency and the proposed reforms will remove cases where individuals do not gain increased control over assets after adding to their existing shareholding.
How investors are screened
The OIO consent process is complex, lengthy and costly. Investors must meet certain character requirements and show that the investment will benefit NZ.
The reforms will look at how this process can be simplified to better clarify the OIO’s benefits for New Zealand criteria. The amendments also propose a separate National Interest Test for higher-risk investors, which will provide greater ministerial discretion to decline an application to purchase land.
What you need to know
The Government’s proposals will hopefully improve the current regulations. While this second stage of changes won’t generally make it easier for an overseas person to buy land, the reforms will clarify applicant criteria for purchasing property in New Zealand. Alterations will also remove many complexities from the first round of amendments to the Act and streamline the screening process.
