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Overseas Investment Bill that Prohibits Purchase of Residential Properties by Overseas Persons

Published on June 8, 2018

The "Overseas Investment Amendment Bill" ("the Bill") was introduced to Parliament on 14 December 2017 and has gone through the first reading. The Bill proposes several changes to the Overseas Investment Act 2005 ("the Act") to restrict the number of overseas persons buying real estate in New Zealand. The Overseas Investment Amendment Act is expected to be passed within the first quarter of 2018. The key change in the Bill is the alteration of the definition of "sensitive land" under the Act.

The Bill also creates new standards for assessing whether overseas persons can purchase land in New Zealand, including the: 1) "Commitment to New Zealand" test, 2) the "Benefit to New Zealand" test, and 3) the "Test Designed to Increase Housing on Residential Land". This article will briefly outline what this Bill will mean to those looking to acquire real estate in New Zealand.

Definition of Sensitive Land to include residential and lifestyle land.

As mentioned earlier, residential and lifestyle land now falls under the definition of "sensitive land" in the Bill. "Sensitive land" under the Bill includes any land with a dwelling on it which is used mainly as a residence, any apartment or flats, or any land that is likely to be developed to have dwelling houses on the land.
Lifestyle land is generally in a rural area, but its predominant use is for residence. The land is non-economical in a farming sense. This category does not include land categorised in other categories such as "commercial", which applies to land on which hotels, motels, or rest homes are built.
Land that was captured under the original definition of sensitive land is still captured. This includes any non-urban land greater than five hectares, any land that borders on a public park, reserve, lake or foreshore, and land on specific islands.
Can overseas persons still buy residential or lifestyle land?

Overseas Investors can still buy residential and lifestyle in New Zealand if they are able to satisfy any of the new tests proposed in the Bill. Each test has separate requirements but the underlying principle that is that there must be either a long-term benefit to New Zealand, or the purchaser must be able to show an indefinite, long-term commitment to New Zealand.
An overseas investor can purchase land in New Zealand if they are either a New Zealand citizen, or a person ordinarily residing in New Zealand. An ordinary resident includes those with a permanent resident visa, or someone who has lived in New Zealand for more than half a year and plans to continue residing in New Zealand indefinitely.
If the purchaser is not a person ordinarily residing in New Zealand, or a New Zealand citizen, then the overseas purchaser must apply for consent under one of the new proposed tests: "commitment to New Zealand" test, "Increase Housing on Residential land" test, or "benefit to New Zealand" test.
Commitment to New Zealand Test

To satisfy this test, the overseas purchaser must show the following:
The applicant is a "qualifying individual" who can show commitment to residing in New Zealand. The applicant must hold the appropriate residence class visa (permanent residence visa, or a working visa but not a student visa).
A qualifying individual is assessed by the Minister and is subject to mandatory conditions when purchasing land.
The applicant would be required to reside in the property as the applicant's main residence, and he/she would be required to sell the property if a "trigger event" occurs. A trigger event is undefined but potentially could include the applicant leaving the country for a prolonged period
Increase Housing on Residential Land Test

Consent to purchase a property may be obtained if the relevant Minister is satisfied the overseas person would comply with the requisite mandatory conditions. The relevant conditions are that:
The overseas person would construct residential dwellings, increasing from the original number (which can be 0), or constructs a "long-term accommodation facility"; and
During the development period, while the overseas person has an interest in the land, neither the overseas person nor any of their associates occupy the land for residential purposes; and
The overseas person retains no relevant interest in the residential land after the development.
Benefit to New Zealand Test

To satisfy this test, the applicant must prove that:
The overseas person would benefit New Zealand; and
The benefit is substantial and identifiable, if the area of the land exceeds 5 hectares.
This condition is also subject to further conditions, including the requirement that so long as the overseas person has an interest in the land, it cannot be used for residential purposes and that the purchaser would no longer retain any interest in the land after a reasonable amount of time.
Other relevant matters

This Bill also allows for the relevant Ministers to be able to enter into contracts with any overseas purchaser to enforce any extra conditions, if the Ministers think it is necessary.
The Bill also prescribes criminal and civil liability for those who fail to comply with notice given to the overseas purchaser, or to those who have provided false or misleading information in their application. A civil liability is also created for those who are involved with the contravention, offence or failures to follow conditions, even though they may not be a party to the agreement between the Overseas Investment Office and the purchaser.
The purchaser may be issued a notice to "dispose" of the property if they fail to comply with any conditions set out, or if the regulator has reasonable grounds to believe that a person has contravened the Act, committed an offence, or failed to comply with conditions of consent.
This Bill does not impact purchase of commercial property or commercial land by overseas persons. As such, overseas investors are still able to purchase any property that is rated as "commercial", without having to gain consent.

The second reading of the Bill is scheduled to take place in June 2018.

Please note that the above information is intended to provide general information. The contents contained in this article do not constitute legal advice and should not be relied on as such.

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