Overseas Investment Amendment Bill

Transcription

1 Overseas Investment Amendment Bill Answers to questions from the Finance and Expenditure Committee 19 February 2018 Prepared by the Treasury

2 Question Answer Obligations on Conveyancers Can officials specifically define who will be deemed conveyancers who can certify that the overseas purchaser will not contravene or commit an offence under the OIA by giving effect to the property transaction? The Bill (clause 31) would insert a new section 51A to the Act, which imposes obligations where a provider is providing conveyancing services to a person acquiring an interest in residential land. The provider must certify that, to the best of the provider s knowledge, the person acquiring an interest in residential land will not contravene or commit an offence under the Act by giving an effect to the transaction. The Bill would also insert new definitions of provider and conveyancer, conveyancing and conveyancing services in the Act, as follows: provider means a lawyer or a conveyancer who provides conveyancing services conveyancer, conveyancing, and conveyancing services have the same meanings as in section 6 of the Lawyers and Conveyancers Act 2006 Section 6 of the Lawyers and Conveyancers Act 2006 in turn defines: conveyancer as a person, not being a lawyer or a person acting under the supervision of a lawyer, who provides conveyancing services ; conveyancing services as services that a person provides by carrying out conveyancing for any other person ; and lawyer as a person who holds a current practising certificate as a barrister or as a barrister and solicitor. Conveyancing is a broad definition and specifically includes the presenting of any instrument for registration under the Land Transfer Act That occurs most commonly where a lawyer or registered conveyancing practitioner uses the Landonline system to register a change in registered proprietor or mortgagee on a certificate of title. Are there other people who can undertake conveyancing but will not be captured by the conveyancer definition noted above? For example, Under the Land Transfer Act 1952, only practitioners (i.e. a lawyer, or a conveyancing practitioner, who holds a practising certificate) may give a certification in Landonline. In addition, a practitioner must register with LINZ and hold a digital certificate (which must be renewed annually) from LINZ to be able to certify. Therefore, the qualified solicitor in the example above would not be able to certify a transfer and complete their own conveyancing electronically (because they are not practising and therefore could not hold a digital certificate). They could, however, complete a 2

3 a person who is a qualified solicitor but currently not practicing and wishes to complete the conveyancing of their own house? paper transfer and lodge that manually, as the ability to lodge paper instruments is not restricted to a particular class of persons. It is worth noting that the number of transactions involving a paper transfer and manual lodgement is very small as it is a more time consuming process. Nonetheless, material changes in the number of paper transfers and manual lodgements will be monitored as part of the introduction of the new AML/CFT regime. Timing Issues What consideration have officials given to the issue where overseas purchasers unknowingly or unwittingly buy a residential property at auction but then later (most likely at the time the transfer of the property is been executed) discover they are ineligible to acquire the property without OIO approval? When designing the bill, officials did consider how easy it would be for individuals to understand and comply with the law. The bright-line definitions of residential land and ordinarily resident in New Zealand (which is a key limb of the definition of overseas person ) were both designed to be easy for individuals, including real estate agents, to determine whether a purchaser requires consent to buy a property. In addition, the offences and penalties in the Act create strong incentivise for purchasers, vendors and providers of conveyancing services to comply with the bill. These offences and penalties will make it more likely that people involved in the sale and purchase of residential land will be aware of the requirements in the bill. In addition, the OIO is planning to conduct education campaigns to ensure that real estate agents and others involved in residential land transactions are aware of the requirements of the bill. In the event that someone unknowingly or unwittingly buys residential land at auction and later discovers they are ineligible to purchase without consent, they can apply to the OIO for a retrospective consent under section 25 of the Act. The OIO may require the applicant to pay an administrative penalty before the consent is granted. This would protect the transaction from the risk of being cancelled. The bill also introduces the ability to, in appropriate circumstances, issue a notice setting out a process by which someone in breach of the Act can agree to dispose of the property without further enforcement sanctions. What systems or procedures do officials propose to put in place to stop overseas purchasers deliberately adopting this practice? The OIO is planning to conduct education campaigns to ensure that real estate agents and others involved in residential land transactions are aware of the requirements of the bill, including the risks of not obtaining consent. The risk that residential land transactions could fall over or that significant additional time would be required to apply for a retrospective consent will act as incentives on real estate agents to advise potential purchasers of the requirements of the bill. 3

4 Further, the offences and penalties that the bill would make available for contraventions of the bill, including third party liability for those involved in the contravention of the Act, would create strong incentivise against deliberate non-compliance with the Act. Further, the OIO is empowered to monitor compliance with the Act. This includes investigating suspicious transactions and responding to information suggesting non-compliance with the Act. OIO Resourcing What assumptions have officials made as to the expected number of preapproval applications and applications from overseas purchasers who have conditional approval to buy residential or commercial land will be processed by the OIO in each of the three years following the introduction of this Bill? How many approvals/preapprovals do you expect to make under the new regime? Current OIO forecasts predict the following volumes of applications per year under new consent pathways introduced by the bill: 5650 new applications to purchase a home to live in under the Commitment to reside in New Zealand pathway 700 new applications to purchase land to develop under the Increased housing on residential land pathway 12 new applications to purchase land to develop under the benefits to New Zealand pathway Pre- approval figures will be driven by decisions made by the market. We have assumed that there may be a significant number of purchases seeking pre-approval under the Commitment to reside in New Zealand pathway. The decision of a perspective buyer to seek pre-approval will be influenced by a number of factors including their knowledge of the pre-approvals option, their desire for certainty, the application fee, the time frame the pre-approval covers, and the impact pre-approval may have on vendors decisions as to which offer to accept to name a few. The changes proposed in the bill differ from the current screening regime in a number of ways and therefore differ from the current OIO operating model. For example, currently most applications to acquire sensitive land must satisfy a number of complex tests, such as the investor test and the benefit to New Zealand test (which involves a counterfactual assessment and 21 benefit factors). However, most applications to acquire residential land are expected to fall under the new Commitment to reside in New Zealand and Increased housing on residential land pathways, which are very different tests to the benefit to New Zealand test. 4

5 We are looking at ways to improve our knowledge of how the market will respond, for example by speaking to industry and consumers. How many front line staff do OIO currently employ and what is the expected number of people (and their associated cost) expected to be required to provide a timely processing service during each of the three year period noted above? What is the number of Overseas Investment Office staff expected to be available to process standard approvals/preapprovals under the new bill? How many staff will need to be employed to do this? What is the maximum time officials believe it will take for OIO to pre-approve applicants and approve property transactions that may have been bought at OIO currently employs 15 FTE frontline staff responsible for applications. The implementation design is dependent on policy decisions being finalised through the passage of the legislation so we cannot yet provide full clarity on the resources required for the system to function. Nonetheless, the OIO is proactively planning for implementation of the changes proposed in the bill. We are building in leeway to adjust capacity to match demand, monitor the number of applications and our assessment times closely, and adjust accordingly. The time allowed for implementation of the final form of the bill will also affect our ability to implement the bill effectively. We are unable to provide a maximum time for consideration of applications under the new regime, as each application will require a consideration of different factors. For example, a lower quality application will require more time liaising with the applicant to obtain the necessary information to process the application. However, LINZ has been conducting workshops in order to assess the length of time it will take to process different applications. Our estimates for the timeframe to assess commitment to reside in New Zealand applications are based on the following assumptions: Each of the criteria will be bright line and will be able to be satisfied through the provision of objective evidence; An assessment of the application will not involve any discretion; Standard conditions will be able to be imposed on all applicants; We will be able to verify visa information with MBIE in a timely manner; and It will not be necessary to request further information from the applicant and wait for this to be provided. 5

6 auction or are subject to some form of acquisition agreement? Using these assumptions, we expect that commitment to reside in New Zealand applications will take days rather than weeks or months to assess. We estimate that at the other end of the spectrum the standing consent process under the Increased housing on residential land pathway is likely to be more akin to the existing applications process for sensitive land applications under the benefits to New Zealand test in terms of complexity and time required. The average time the OIO currently spends on these applications is 43 working days; this does not include time with the applicant or the final decisions making process. These figures remain highly speculative as we have little information on the behaviours of overseas persons under the legislation. Officials advised the Committee that they could not give an indication of the effect on resourcing and timeframes at the OIO from the Overseas Investment Amendment Bill, because they do yet know the final form of the legislation. Would officials provide the Committee with those elements of the Bill that will have a direct bearing on the likely timeframes of applications should the Bill pass, and how those timeframes might be affected by changes to the Matters that are likely to have a direct bearing on the likely timeframes for consideration of applications include: Ordinarily resident: Extending the definition to include more people would significantly reduce the number of transactions that would be screened by allowing more people to buy property. Introducing subjective elements to the definition would likely impact on investors ability to self-assess and also enforcement Visa types: Extending the types of visas eligible for consent under the commitment to reside in New Zealand pathway would increase the number of transactions to be screened Good character: Removing the good character criterion would reduce screening time and monitoring/enforcement requirements On-sale requirement: Removing the requirement to on-sell new builds will increase the number of transactions to be screened, as the pathway will become more attractive to long term investors Increased housing on residential land: Adding a requirement to consider the number, type or quality of additional houses will increase processing time considerably. (At present the test simply requires a simple increase in the number of residential dwellings on the land) Long term accommodation facilities: Removing the requirement for long term accommodation facilities to be screened would have a small downward effect on volumes Matters that are likely to have a direct bearing on the time and cost of administering the regime more generally include: 6

7 bill that have been discussed recently. Trigger events and mandatory conditions: Introducing additional trigger events or mandatory conditions, or having trigger events or mandatory conditions that are not bright line will increase the monitoring and enforcement requirements. Information gathering: Removing the additional powers provided in the bill to gather information would make it more difficult to detect offences, and would result in a less effective and more costly enforcement regime. Information sharing: Changes which enable the free flow of information between LINZ and MBIE (Immigration NZ in particular) and other departments will reduce the cost of monitoring and enforcing the rules. Disposal: Removing the new disposal process from the bill (which involves a notice and voluntary disposal regime, as an alternative to court enforced disposal) would make it harder, more time consuming and more costly to manage simple breaches of the Act. Bright lines: Removing bright lines from the bill will increase screening times (by days or weeks, not hours), increase the volume of investor enquiries and increase the cost and risk for investors. Sub-development and Apartment Development Can officials be specific as to the likely specified time following completion of a sub-division or apartment development before the overseas buyer must sell the residential property? Will the determination of a specified time require a case-by-case judgement by the OIO official and, if so, will this complicate the processing requirements and timeframe? The specified period in the bill will be set on a case-by-case basis by Ministers and, for delegated decisions, the OIO. The specified period relates to the timeframe after which overseas persons developing residential land must: On-sell new residential dwellings they have constructed; or Operate or lease a long-term accommodation facility they have constructed. The intention of leaving the specified period to be set on a case-by-case basis was to provide flexibility to allow developers sufficient time to complete (and sell) their development, while restricting them from retaining land longer than is necessary to complete (and sell) the development. As developments differ in size, scale and complexity, establishing pre-set, rigid time periods was considered undesirable and could potentially lead to greater cost to applicants through requests to vary consent conditions. Allowing overseas persons to retain land longer than necessary to complete development activities would work against the government s objective to support increased housing supply. It would also extend the period over which the 7

8 overseas person could benefit from any capital gain on the land beyond the period required to complete the development activities. The process of finalising the specified period for each transaction will likely add some additional processing time to applications under the increased housing on residential land pathway. However, over time we expect that the OIO will develop precedents that it can use in the case of similar consent applications, which may allow it to shorten the time required to assess the specified period in each case. Will such decisions be subject to review/legal challenge? Yes. Decisions made under the OIA, including under sections inserted by the bill, will be subject to judicial review under the Judicial Review Procedure Act For a Court to overturn a decision, the OIO or Ministers would need to have made the decision unlawfully. This examines whether the process of making the decision was faulty, or whether the decision was irrational. The Court cannot re-make the decision itself. What will happen if the overseas buyer cannot (in good faith) sell the remaining properties within the specified time (i.e., there is a meltdown in property prices/confidence and buyers are unwilling to buy properties), as occurs from time-to-time? Section 27 of the Act establishes that conditions of consent (including the specified period ) can be varied with the agreement of the consent holder and that the consent holder can apply to the OIO to have conditions of consent varied. Applications to vary conditions of consent are made on a case-by-case basis, taking into account the condition and the reason why it is no longer relevant or cannot be complied with. Ministers may consider it desirable to agree to amend the specified period in a consent in some circumstances. Clause 26 of the bill inserts section 41E which allows the OIO to issue a notice to a person, including a consent holder, requiring that person to dispose of property if they have contravened the Act, committed an offence against or failed to comply with a condition of consent or exemption. If the person does not comply with that notice, the regulator may take any other enforcement action it thinks fit, including applying to the court for an order for the disposal of the property. 8

9 If the OIO considered where genuine reasons that the property had not yet been sold, despite the good faith efforts of the owner, it could exercise regulatory discretion not to take formal action. What consideration was given to allowing overseas buyers to ability to finance specific subdivisions and apartment developments without allowing overseas purchasers full rights to acquire property and develop it through to fruition, and thereby allowing these overseas purchasers the right to (a) own large lots of land directly, (b) for prolonged periods of time (i.e., several years during the course of the development); (c) have responsibility to undertake the development in accordance with NZ consent and building requirements on the clear understanding they cannot and will not have any ongoing ownership entitlement; and (d) capture all the profit margin associated with the development. The Government policy for the bill focuses on ownership of housing, and therefore who can own a completed house/apartment to live in. A key aspect of the Government s policy is reflected in the increased housing on residential land pathway, which allows overseas persons to obtain consent to develop residential land in a way that will benefit the country by adding to housing supply on the basis that they don t retain the housing for their own use. The bill does not change the existing definition of whether a body corporate or unincorporated entity is an overseas person under the Act. These entities will be overseas persons if they are 25% or more overseas owned or controlled. This definition captures a large number of developers that are companies registered under New Zealand law but that have some foreign ownership, including some that are listed on the New Zealand Stock Exchange. This means that overseas persons play an important role in developing new residential dwellings and long-term accommodation facilities in New Zealand. Preventing them from undertaking residential developments would work against one of the objectives for the bill: to provide a mechanism to support housing supply. 9

10 Pacific Nations Australian investors have preferential rights. What consideration was given to allowing investors based in Pacific Island nations (including the three protectorate islands nations of NZ) with similar rights? The proposed exemption for Australian investors from the requirement that overseas persons obtain consent to purchase residential land is based on New Zealand s obligations to Australia under the Protocol on Investment to the Australia-New Zealand Closer Economic Relations Trade Agreement. We only considered exemptions for investors from other countries where New Zealand s international obligations required such an exemption. However, people from Tokelau, Cook Islands and Niue are New Zealand citizens. As a result they are not overseas persons under the bill so do not require consent to invest in residential land. General Question What is the number of approvals per annum under the current regime? Please provide an estimate of the number of houses sold to foreign buyers in the past 12 months who were not caught under the current legislation, but who would be caught under this bill. How do you plan to educate real estate agents on their obligations under the new legislation? Under the current overseas investment regime and based on data collected for a four year period ( ), OIO approves an average of 153 applications per annum. Current available data on overseas buyers of residential land in New Zealand is limited. LINZ currently estimates that 5,650 applications per year will be made by residence class visa holders under the commitment to reside in New Zealand pathway, and 700 applications per year will be made under the Increased housing on residential land pathway. Further analysis is being undertaken using the property tax statement data. This data indicates that 3% of land transfers in New Zealand involve at least one person that is foreign tax resident (including Australian tax residents). However, further analysis is required to assess how many transactions captured by this data cover transactions that currently require OIO approval. This analysis is being undertaken and will be provided to the committee as soon as possible. The OIO is planning stakeholder education and communications for two types of audiences the public (both overseas and local) and specialists, such as conveyancers, real estate agents, immigration advisers, developers, and lawyers who operate in the current sensitive land field. The strategy for both audiences is to enlist the help and support of those agencies and membership bodies that already reach these groups. 10

11 The OIO s approach to educating the public on the reform is based on cross-agency website information, and involves coordination between MBIE, the Real Estate Authority, DIA and the OIO. The OIO is working with MBIE to develop simple online tools to allow people to understand how the changes apply to them, and what to do next. The OIO s approach to educating specialists on the reform is a mixture of direct education via membership registrations, and general education via umbrella organisations and membership bodies. The OIO envisages a mix of letters, website information, other printed collateral, participation at conferences and seminars, contributions to sector publications and some targeted workshops for groups with more complex and frequent involvement. 11