Update on the overseas investment bill

The Overseas Investment Amendment Bill is currently before Parliament and seeks to amend the Overseas Investment Act 2005. The Bill is designed to ensure investments made in New Zealand by overseas persons have a benefit to New Zealand.

The “Benefit to New Zealand” as currently drafted states that the overseas investment will, or is likely to, benefit New Zealand (or any part of it or a group of New Zealanders).

Overview

The Bill introduces limitations on the types of property that can be purchased by overseas persons. For clarity, the Bill would not apply to all permanent residents and resident visa holders who spend the majority of their time in New Zealand. Such individuals would be able to purchase housing without the need to obtain consent. Further, Australian and Singapore citizens and residents will be treated the same as New Zealand citizens and permanent residents.

The impact that the Bill may have on our housing market is yet unknown and is causing some debate. Currently, New Zealand is experiencing a housing shortage. Some are of the view that the proposed amendments have the potential to impact negatively on the housing market, yet others are of the view that there could be a positive effect for all New Zealanders. 

Property developments and business initiatives

Parliament’s Finance and Expenditure Select Committee have given some good feedback on the Bill and, through this feedback, provided some balance to the original drafting.

In particular, there’s support for developments and business initiatives. Broadly, the Bill provides that overseas persons could purchase residential land if it was used to increase the supply of housing. Properties built on land purchased under this pathway must not be lived in by the owner, and generally must be on-sold once they are completed.

The Finance and Expenditure Committee recognise that large developments often rely on the pre-sales of units to raise funds and satisfy financiers that a project is viable, which then ensures developers can access sufficient funding to develop and build.

They consider that requiring overseas persons to on-sell could reduce the attractiveness of some larger projects and negatively impact on viability. They advise that this is contrary to the intention of the Bill and therefore have recommended an amendment that developers of large multiple-storey apartment buildings of 20 or more units could apply for an exemption to sell a percentage of the units to overseas buyers in an “off the plans” format and further not have the need for consent or the requirement to on-sell them at completion.

The Finance and Expenditure Select Committee advise that an amendment would allow for a percentage of units per development that could be sold in this manner to overseas buyers and that this percentage could be changed by regulation to any level between 0 and 100 per cent. A proposal of 60 per cent has been made. The buyers would not be allowed to occupy the units themselves.

Hotel developments

Further, the Finance and Expenditure Select Committee recognise that hotels are also important developments in New Zealand. Financing of hotel developments can rely on investors purchasing individual units and leasing them back to the hotel.

These arrangements may involve an agreement where the owner may use the unit for their own interests for a certain period of time each year. Under the Bill as introduced, overseas investors would need approval to purchase hotel units if the land was categorised as “residential” or “lifestyle”. The Finance and Expenditure Select Committee consider that this could limit further development of large hotels.

They recommend that an allowance is made to overseas investors enabling the purchase of units provided a lease-back arrangement with the hotel’s developer or operator is entered into. A recommendation on placing restrictions on the length of stay in a unit has been made at 30 days.

Essential services

Other exemptions include those of network companies or the provision of essential services. It is recognised that overseas investments in gas and electricity, telecommunications and transmission networks are important for New Zealand and growth of infrastructure.

The Finance and Expenditure Committee has commented that many of these companies are overseas persons. Residential land purchased is used for network infrastructures such as cell towers and substations. A recommendation has been made that residential land could be acquired for this purpose without needing consent.   

The Act currently screens leases for a term of three years or more. Submitters noted that many overseas persons (for example, international students) reside temporarily in New Zealand in rented accommodation, and a significant proportion may do so for three years or more. The Finance and Expenditure Select Committee has recommended that overseas persons be enabled to take leases of up to five years over residential land, compared to current three year limit without the need for consent. 

The Bill is currently going through its processes and being moulded by feedback. We will keep an eye on its progress and provide further updates.