Overseas Investment Amendment Bill – Finance and Expenditure Committee (“Committee”) Report
On 18 June 2018, the Committee released its report on the Overseas Investment Amendment Bill (“Bill”). This report recommended the Bill be passed with amendments. The Bill passed its second reading in the House on 26 June 2018.
Progress of the Bill
The progress of the Bill has been quick. The Committee reported back on the Bill on 19 June 2018 and the Bill passed its second reading on 26 June 2018. We expect the Bill will be passed into law in July or August 2018.
Our 1 December 2017, 16 January 2018 and 10 April 2018 articles provide previous updates on the progress of the Bill and are found on our updates page.
Recommendations of the Committee
The Committee has made a number of recommendations to amend the Bill – this is in part to address the significant number of submissions on the Bill. Some of the material recommended amendments are outlined below.
Adding the “non-residential use test” (new section 16(1)(b)(i)(C)): This allows an overseas person to apply for consent to acquire residential land, provided the land is to be used for non-residential purposes in the ordinary course of its business and is not used for any future residential purpose.
Adding the “incidental residential use test” (new section 16(1)(b)(i)(D)): This allows an overseas person to apply for consent to acquire residential land where that land will be used for residential purposes, but only in support of the ordinary business of that person. This test is not applicable where the ordinary business of the purchaser is the use of land for residential purposes (e.g. residential rental property).
When considering whether to grant consent under this test, the Minister must consider:
• whether any reasonable alternative exists to the acquisition of the relevant interest in the residential land;
• the proximity of the residential land to the premises or operations of the relevant business;
• whether the use of the residential land for residential purposes is (without limitation) as accommodation for staff engaged in the relevant business; and
• any other factors that seem to the relevant Ministers to be relevant in the circumstances.
We consider this is a useful amendment for companies that acquire residential land for purposes ancillary to their main business operations (such as for staff accommodation).
Amending section 16 – criteria for consent to investments in sensitive land: The “commitment to reside in New Zealand test” now requires an overseas purchaser of residential land to occupy it as their main home and be present in New Zealand for 183 days per year and to become a New Zealand tax resident. This to apply until the purchaser becomes a New Zealand citizen or sells the residential property.
Expanding the pool of “ordinary residents” (new section 6): Those who are “ordinarily resident in New Zealand” can purchase sensitive land without the need for the overseas investor to obtain the consent of the Overseas Investment Office (OIO Consent). In order to be considered ordinarily resident in New Zealand under the original Bill, a person needed a permanent resident visa. The Committee recommends all residence class visa holders who meet the other requirements of the Bill be considered ordinarily resident in New Zealand.
Supporting large developments (new section 11A, new Schedule 2 and 3): New Schedule 3 allows developers of multi-story apartment buildings of 20 or more units to apply for an exemption permitting the developer to sell a specified percentage of the “residential” units to overseas investors “off the plans”, without requiring the investors to obtain OIO Consent or to onsell the unit. Such overseas purchasers would not be allowed to occupy the units themselves. The percentage of units per development that could be sold under this provision would be set by new regulations. The Committee recommends an initial starting point of 60%.
The Committee also recommends amending new Schedule 2, so that the relevant Ministers may grant consent to allow an overseas person building or investing in developments of 20 or more units, to retain the units once construction is complete, provided all dwellings in the development are maintained as rental properties, a shared equity development, or sold under a rent to buy model. The owner would not be allowed to occupy the units.
These amendments are intended to support large residential developments that often require a number of pre-sales for funding and to allow overseas investors to invest in new developments (provided they do not occupy the same).
Exemption for purchasers of hotel units (new Schedule 3): The Committee recommends allowing an exemption to only the “residential land” requirements of the Overseas Investment Act 2005 Act (Act). This exemption is to allow overseas investors to purchase units in hotels with 20 or more units, provided they enter into a lease-back arrangement with the hotel developer or operator. The overseas investor must also not occupy a unit for more than 30 days per year.
Exemption for network companies providing essential services (Schedule 5 and new Regulation 36AE): New regulation 36AE would allow “residential land” to be acquired without OIO Consent for business purposes by overseas investors providing essential services such as electricity, gas, and telecommunications.
Exemption relating to existing Resource Management Act 1991 requirements (Schedule 1): This provides an overseas purchaser of “residential land” does not require OIO Consent if such purchase is required to satisfy a condition of a resource consent or district plan that applied before the new Act comes into force.
Introduction of standing consents (new Schedule 4): The amended Bill provides for a “standing” OIO Consent to be granted. This will allow an overseas person to be granted OIO Consent for multiple future transactions. We consider this is a pragmatic and sensible amendment.
Leases and periodic tenancies (new Schedule 3): The Committee recommends clarifying that periodic leases of residential land do not require OIO Consent and allowing residential tenancies of up to 5 years by overseas persons without OIO Consent.
Reducing compliance burden on conveyancers (new section 51A): The Bill originally required lawyers to certify that a purchaser will not contravene or commit an offence under the Act by purchasing residential land. The Committee instead recommends requiring the purchaser to provide the lawyer with a statement as to whether the transaction requires consent under the Act. The lawyer would be unable to transfer the property without such a statement, or if they had reasonable grounds to doubt the accuracy of the statement.
Clarifying regulation making powers (amended section 61 and new section 61B to 61F): This provides for broader and more detailed powers to grant exemptions than those which currently exist are introduced, along with a requirement to provide reasons for exemptions.
Transitional provisions: The transitional provisions (Schedule 1AA) have been clarified to provide the Amendment Act will not apply to:
• Any transaction entered into before the Bill becomes law (even if the transaction is subject to a condition precedent).
• Any application for consent made before the Bill becomes law, which relates to a transaction entered into before commencement.
• Any application for consent made after the Bill becomes law, which relates to a transaction entered into before commencement.
Profits – à – Prendre (Profits)
The Bill provides that a large class of Profits will now be captured under Act – including many Profits that are commonly used for vineyard or other horticultural purposes. This means OIO Consent will be required to allow an overseas person to enter into such Profits.
There has been criticism from the National Party that changes to the Profits regime unfairly impact on the horticultural industries (when compared to say the forestry industry).
We recommend any “overseas persons” that hold Profits review and consider those arrangements in light of the Bill.
We will shortly providing another update that focuses the Bill and its proposed changes to the forestry sector.
Want to know more?
If you have any questions about the Bill, please contact our specialist property team.
A copy of the Bill can be found here.