Overseas Investment Amendment Act – property development update
On Wednesday last week (22 August 2018), the Overseas Investment Amendment Act 2018 (Amendment Act) became law. The new laws will come into force on or before 22 October 2018.
The Amendment Act brings “residential land” within the existing Overseas Investment Act, such that any overseas person who wishes to buy or lease residential or lifestyle land (of any size) will, in almost all cases, need to apply to the Overseas Investment Office (OIO) consent.
A general overview of the new residential land provisions is contained in our separate update: New OIO laws bring changes for residential land, forestry and horticulture. This update contains more detail on how the changes will impact on the property development sector.
The key impacts of the Amendment Act on the property development sector are twofold:
- All developers with a degree of overseas ownership (generally 25%+) will need to apply for consent to buy residential land for the purposes of new development; and
- The new rules will also impact on the potential purchaser pool for new residential property developments by imposing restrictions on overseas persons buying into these developments.
An overseas person investing in an entity that already holds residential land in New Zealand for development purposes may also require consent, particularly if they are acquiring a 25% or more ownership interest in that entity.
The “increased housing” test
Property developers that are “overseas persons” can apply for OIO consent to purchase residential land on that basis that they will be developing the land and adding to New Zealand's housing supply.
Consents granted under the increased housing test come with specific conditions, including:
- the overseas person must dispose of all interests in the residential land within a specified period (to be set by the OIO in each case); and
- while the overseas person holds an interest in the land, they must not occupy any part of it (or allow related parties to occupy any part of it).
Purchasers who are overseas persons may also be able to rely on the “increased housing” test, where pre-sales of the new residential dwellings are an essential aspect of the development funding, although they will be subject to the on-sale and non-occupation conditions. Otherwise, individual purchasers must generally:
- apply for OIO consent on the basis that they have an appropriate visa status (to be defined through regulations) and intend to reside in the property being purchased; or
- purchase pursuant to an “exemption certificate” held by an apartment developer (see below).
Large-scale developments – rules, allowances and exemptions
There are some more relaxed rules for large-scale developments, although they do still require OIO applications to be made:
- developers can be permitted to retain long-term interests in new residential dwellings (e.g. as landlords or through shared-equity or lease-to-buy arrangements) if the development involves 20 or more new residential dwellings;
- developers of retirement villages are permitted to retain ownership of and operate a new (or expanded) retirement village; and
- developers of large apartment blocks (20+ apartments per building) can apply for an “exemption certificate”, allowing them to sell a certain percentage of the apartments “off the plans” to overseas buyers without those buyers requiring OIO consent. The overseas buyers will not be permitted to occupy the apartments. The percentage of dwellings that can be sold under an exemption certificate will be set by regulation, and is expected to initially be 60%.
There are also some new exemptions for hotel lease-back arrangements and for network utility companies that need to acquire residential land to provide essential services.
Where an overseas person is applying for consent to acquire an ownership interest in an entity that already holds residential land in New Zealand, the Ministers may exercise a discretion not to impose to on-sale condition if the overseas person is acquiring (a) less than a 50% ownership interest or (b) an indirect ownership interest (i.e. through another entity).
An overseas person buying an existing development (i.e. where the new dwellings have already been constructed) will generally have to satisfy the “benefit to New Zealand” test, and also satisfy a “residential land outcome” (such as on-sale, and/or no-occupation).
The new “standing consent” regime is available for developers wishing to acquire land under the “increased housing” test. This allows them to remain competitive in the market when making new land acquisitions, as once they hold a standing consent their offers will not need to be conditional on obtaining OIO consent.
Transitional provisions – apartment developments
If sales of apartments in a new apartment development (of 20+ new apartments per building) have already commenced before the Amendment Act comes into force, the developer can apply for a special exemption certificate that will allow them to potentially sell all of the new apartments to overseas buyers. The right to make applications for these exemption certificates is effective 2 weeks after royal assent (22 August) but expires 6 months after the date of royal assent.
For further information about please contact a member of our overseas investment team.
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.