On Thursday 14 December, the Government introduced the Overseas Investment Amendment Bill, which was foreshadowed in an earlier announcement by Housing and Urban Development Minister Phil Twyford and Land Information Minister Eugenie Sage.
If passed into law, the new rules would apply from the 10th day after the law receives Royal assent. This means that land purchased before that date would not be subject to the new rules. The Treasury question and answer document published today suggests that the law could come into effect, if passed, in early 2018.
Residential Land to be "sensitive land"
The Bill proposes to change the Overseas Investment Act 2005 to include "residential land" as a new category of sensitive land requiring OIO approval. Residential land will be defined by reference to a property's rating status, and will cover land classified as "residential" and "lifestyle" for rating purposes. An overseas person will still be able to buy residential land if they can pass one of the following tests:
- a commitment to reside in New Zealand test,
- an increased housing on residential land test, or
- the benefit to New Zealand test.
It appears that corporates that acquire residential land as part of their business will now have to obtain OIO consent to buy residential land. This will require them to focus on the "new housing supply" test or the existing "benefit to New Zealand" test. It is unclear how this will work in the context of the counterfactual test that applicants are required to compare their benefits to.
It appears that migrants who hold residence (as opposed to work) visas will be able to buy sensitive land provided they have lived in New Zealand for 12 months. Migrants who have applied under the investor categories are not required to have lived in New Zealand for 12 months.
New housing test
The "new housing test" will include a requirement for an overseas person buying "off-the-plans" to on-sell the property once construction has finished. This appears to be an onerous condition that will effectively close down pre sales to overseas persons who are looking for a rental property investment. It also does not appear to allow an overseas buyer to hold the property if there is a market downturn during the construction period. Conversely it would seem to result in any gain being taxable both under ordinary principles as well as under the two year bright line test.
Complex and potential wider implications
Our first impression is that the drafting of the Bill is complex and it could have wider implications than the Government announcements have suggested to date. We are reviewing the drafting in more detail to assess the impact of the Bill.
We understand that the Bill will have its first reading next week. Minister Eugenie Sage has commented that it will be sent to a Select Committee so that New Zealanders can have an opportunity to comment on the details of the Bill.
This is an important proposed change to the Overseas Investment Act that could impact many of our clients who wish to purchase "residential land". It is therefore important that clients, both individuals and corporates, consider the implications of the Bill on their own circumstances.
Our leading Overseas Investment Act team are available to assist with any submissions to the Select Committee.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.