Overseas Investment Amendment Bill

Transcription

1 Overseas Investment Amendment Bill Initial Briefing to the Finance and Expenditure Committee 12 February 2018 Prepared by the Treasury Treasury: v1 1

2 Contents Overview 4 The Purpose of the Bill 4 Policy design criteria 5 Use of the Overseas Investment Act 5 Land covered by the Bill 7 Defining residential land 7 Diagram: Residential and Lifestyle category land in Auckland 8 Apartments, serviced apartments and flat-owning companies 8 Land that is not captured 9 Who requires consent to purchase residential land 10 Individuals 10 Relationship property 10 Associates 11 Treatment of Australians 11 Summary: Who can purchase residential land? 12 Consent pathways 12 Consent to purchase a home to live in: commitment to reside in New Zealand pathway 13 Potential immigration impacts 14 Consent to develop new residential properties: increased housing on residential land pathway 14 Buying off the plans 16 Consents for other investment in residential land: the benefit to New Zealand pathway 16 Standing consents 17 Residential land that is already sensitive land under the OIA 18 Sensitive land that is not residential land 18 Table: Summary of consent pathways available based on type of land 19 Administration and enforcement 19 Information gathering powers 19 Notification of suspected breach and disposal 20 Enhanced powers to serve documents 20 Increased civil penalties 20 Third-party liability (and defences) 20 Obligations on conveyancers regarding residential land 20 Estimated volumes, costs, timeframes and the application process 21 Treasury: v1 2

3 Estimated volume of applications 21 Overview of the application process 22 Costs and timeframes 23 Other exemptions 23 APPENDIX ONE: SUMMARY OF NEW CONSENT PATHWAYS 24 APPENDIX TWO: COMPARISON WITH AUSTRALIAN REGIME 25 APPENDIX THREE: PROPERTY CATEGORIES UNDER THE RATING VALUATION RULES 26 APPENDIX FOUR: SENSITIVE LAND UNDER THE OIA 27 APPENDIX FIVE: EXAMPLES OF WHO CAN PURCHASE A HOME TO LIVE IN 29 APPENDIX SIX: SUMMARY OF NEW ZEALAND RESIDENCE PROGRAMME STREAMS 31 APPENDIX SEVEN: FACTORS FOR ASSESSING THE BENEFIT TO NEW ZEALAND TEST 32 Treasury: v1 3

4 Overview The Bill amends the Overseas Investment Act 2005 (the OIA) to ban overseas speculators from buying New Zealand houses. Following entry into force of the Bill, people who are not New Zealand citizens, and who are not permanent residents that live in New Zealand, will need to obtain consent to purchase residential land. Residential land is land that the local council has classified as residential or lifestyle for rating purposes, using a consistent national standard. Permanent residents and resident visa holders who can prove that they are committed to living in New Zealand can apply for consent to buy residential land. Overseas developers who want to buy residential land to grow New Zealand s housing supply will also be able to obtain consent. Overseas buyers will also be able to buy residential land where the purchase will be beneficial to New Zealand (including to use the land for non-residential purposes). The Bill includes new enforcement powers, including new powers to encourage the sale of properties and to impose penalties when people do not comply with the OIA or where conditions of consent are not met. The Purpose of the Bill The Bill implements the Government s 100 day commitment to ban overseas speculators from buying existing homes by bringing residential land within the category of sensitive land under the OIA. Once enacted, the Bill would ensure that overseas persons who are not resident in New Zealand will need consent to buy existing houses or other parcels of residential land, with consent available in a limited set of circumstances. New pathways to obtain consent would allow the Overseas Investment Office (OIO) to process residential land applications under the new pathways faster than currently. The Bill recognises the special status of residential property and the central role that home ownership plays in establishing strong New Zealand families and communities. It reflects the Government s view that the housing market should be a New Zealand market shaped by New Zealand-based buyers. The Government expects the Bill to make homes more affordable for New Zealand buyers at certain points in the property market cycle, including for first home buyers, and to support the development of a more productive economy, by helping redirect capital to productive uses. The Bill includes mechanisms to allow investment by overseas developers to increase New Zealand s housing supply and to allow the use of residential land for non-residential purposes where the benefit to New Zealand of doing so can be demonstrated. Treasury: v1 4

5 The Bill will not interfere with the rights of existing home owners to use and enjoy their properties. It will restrict who existing homeowners can sell their properties to. The Bill also makes more general changes to the OIA, including enhancing the information gathering and enforcement powers of the OIO. A summary of the consent pathways under the Bill that are available to overseas persons seeking to purchase residential land is set out in Appendix One. An overview of how the Bill compares with the similar regime operated by Australia is set out in Appendix Two. Policy design criteria When developing the detailed design of the Bill, the following policy criteria were used to assess options: Policy effectiveness: that the policy is effective, has the desired coverage, minimises any unintended consequences, and provides a mechanism for overseas investors to build new houses for sale where this supports housing supply without adding to demand. Compliance with New Zealand s international obligations: Obligations in a number of existing trade and investment agreements include the obligation not to discriminate on the basis of nationality, but there are permitted exceptions. Minimising compliance and administration costs: Supported by clear and simple rules that fit in with existing regulatory frameworks and land sale processes. Use of the Overseas Investment Act The OIA has been used as the vehicle to implement the policy to ban overseas speculators from buying existing homes. The OIA establishes an existing regulatory regime for screening investments by overseas persons, falling into three categories: overseas investment in sensitive land; overseas investment in significant business assets; and overseas investment in fishing quota (OIA and provisions in the Fisheries Act 1996) The OIA requires overseas persons to apply for consent before giving effect to an overseas investment. An overseas investment in sensitive land includes the acquisition by an overseas person, or an associate of an overseas person, of: an interest in sensitive land: a freehold estate, or lease 1 of three years or more (including rights of renewal); or rights or interests in securities of a body corporate or unincorporated body (e.g. shares in a company) that owns or controls (directly or indirectly) an interest in land, where the acquisition results in: 1 Or other interest in land. However, acquiring easements and profits à prendre does not require consent. Treasury: v1 5

6 o o o the overseas person or associate gaining a 25% or more ownership or control interest in the body corporate or unincorporated body; the overseas person increasing an existing 25% or more ownership or control interest in the body corporate or unincorporated body; or the body corporate or unincorporated body becoming 25% or more owned or controlled by overseas persons (e.g. the overseas person purchases 6% of a land-owning company already 20% overseas owned). Consent applications are decided by relevant Ministers or the OIO (under delegation). Consents are usually granted subject to conditions that can relate to how the land is used and how the investment is to be conducted. If consent is not obtained before a transaction is given effect to, then the other party can choose to cancel the transaction or the OIO can apply for the Court to overturn the transaction. There are also offences and civil penalties. All applications for consent are assessed against the investor test, which involves an assessment of the investor s business experience and acumen, financial commitment to the investment, good character, and status under sections 15 and 16 of the Immigration Act (which list certain persons not eligible for visas or entry permission). Additional tests apply for applications for consent to invest in sensitive land or fishing quota. The benefits tests, which is used in relation to sensitive land, is discussed further below. Why this approach? The OIA was selected as the most suitable vehicle to implement the Government s policy because: It provides an existing, well-developed regime for the management of overseas investment in sensitive assets. The OIO has pre-existing processes and expertise for considering applications, granting consent, imposing conditions, monitoring consents and enforcing noncompliance. It contains an anti-avoidance and enforcement regime that limits the use of associates to circumvent the requirement to obtain consent for investment transactions. It provides a mechanism to allow overseas investment that increases New Zealand s housing supply and has other benefits, as proposed in the Bill. The Government places high priority on maintaining consistency with international obligations, making the OIA a desirable vehicle for implementing this policy. Treasury: v1 6

7 Land covered by the Bill Defining residential land The Bill brings residential land into the category of sensitive land under the OIA, requiring overseas persons to obtain consent before they can legally purchase residential land. The definition of residential land in the Bill relies on the Rating Valuation Rules (Rules), issued by the Valuer-General under the Ratings Valuation Act The Rules require councils to assign a property category to each property based on its highest and best use (regardless of its actual use). For the purposes of the Bill, residential land is land that has been assigned a property category of residential or lifestyle in, or for the purpose of, the relevant district valuation roll that each territorial authority 2 must keep. Councils apply the Rules when assigning those property categories. (Residential land under the Bill also includes residential flats in a building owned by a flat owning company described in more detail in the next section.) All property categories contained in the Rules are set out in Appendix Three. Under the Rules, the residential category applies to residential land of a domestic type. The lifestyle category applies to land that is larger than an ordinarily residential allotment, generally in a rural area, and where the predominant use is for a residence. For land in the lifestyle category, traditional farming is non-economic. The definition captures urban and suburban properties as well as urban-fringe properties such as lifestyle blocks. It is expected that the broad coverage will avoid incentives to land-bank on city fringes. The definition would generally include holiday homes and baches. The definition excludes land where, under the Rules, residential housing is not the primary purpose (such as farms and commercial properties that include a residence). 3 The map below illustrates the effect of the definition on the Auckland area the red- and pink-shaded areas are properties that have a classification of either residential or lifestyle under the relevant district valuation roll, and would therefore be classified as residential land. White spacing is land rated for different purposes, such as commercial, industrial, or horticultural. Some of this land will already be classified sensitive land under the OIA (existing definitions are set out in Appendix Four). 2 Territorial authorities are city councils, district councils and unitary authorities (e.g. Auckland Council). They are not regional councils. 3 Where a property has mixed uses (for example, an office building with apartments on top), it will generally be split into different titles that can be sold separately. In this case, the apartments would be classified as residential while the office space in the building would not be. It is only necessary to consider whether a mixed use property is primarily used for residential housing where the property must be purchased as a whole package. Treasury: v1 7

8 Diagram: Residential and Lifestyle category land in Auckland Apartments, serviced apartments and flat-owning companies Apartment buildings will generally be unit titled meaning that each unit in the apartment complex will have its own rating and property category in the relevant district valuation roll. It is possible that different parts of a building will be rated differently e.g. the shop on the ground floor could be rated commercial, while the flat above could be rated residential. Where a unit has a residential (or lifestyle ) property category, overseas persons will require consent to purchase them. Individually-owned units in serviced apartment complexes may also have a residential rating. Residential flats in a building owned by a flat-owning company are specifically included in the definition of residential land. The purchase of a residential flat in a building owned by a flat owning company technically involves the purchase of shares in the company, which entitles the owner of those shares to occupy an area in the building (the residential flat). This structure was more commonly used before the Unit Titles Act Treasury: v1 8

9 Land that is not captured The definition of residential land should capture most non-business properties that are not currently classified as sensitive under the OIA (e.g. suburban housing and rural properties that are smaller than 5 hectares). However, there will be a very small number of properties that are used predominantly for a residential purpose but are not categorised as residential or lifestyle in the relevant district valuation roll. These properties may be classified as commercial yet be rented as residential properties, or be small rural properties classified as horticultural or pastoral which were once operated commercially but are now essentially lifestyle properties. The purchase of land in an urban area that is not categorised as residential or lifestyle would also not be captured (unless it is currently sensitive under the OIA). It would be possible for an overseas person to purchase such land and convert it to a residential use, without going through OIA screening. We assess the number of residential properties that will not be captured by the OIA after the Bill adds residential land as a type of sensitive land will be very small. Using a different definition of residential land to capture those residential properties would likely involve introducing subjective elements to core definitions in the Bill, which would decrease compliance and increase administration and enforcement costs. We see little benefit of attempting to capture this broader category of transactions as in many cases they will not result in increased demand for existing housing. In some cases (e.g. the development of commercial land into residential dwellings), investment will result in a net increase in available housing. Why this approach? Using the district valuation rolls, which are set using the Rules, will make it simple for people buying and selling property to know whether a property is residential land for the purpose of the OIA. Having a bright-line definition of residential land is important as it removes doubt about whether a property is captured, avoids delay in property transactions, and minimises administration and enforcement costs. Work is underway to ensure that the rating valuation of each property is easily available to the public through each council s valuation provider. Other options for defining residential property that were considered include the use of the Income Tax Act definition of residential land, a zoning basis and a definition based on intention of use. These options were considered less appropriate as they contained gaps in coverage or were ambiguous. Treasury: v1 9

10 Who requires consent to purchase residential land Individuals Under the Bill, overseas persons require consent before they can acquire residential land. The Bill imposes no restrictions on New Zealand citizens or permanent residents ordinarily resident in New Zealand. For residential land, an individual will be ordinarily resident in New Zealand if they hold a permanent resident visa; and have been residing in New Zealand for at least the past 12 months; and have been present in New Zealand for at least 183 days in the past 12 months. Other residence class visa holders are not considered ordinarily resident in New Zealand for the purposes of purchasing residential land. This differs from the existing approach in the OIA (which will continue for all sensitive land applications that do not include residential land, and for significant business assets and fishing quota applications). Under the existing approach, an individual will be ordinarily resident in New Zealand if they hold a residence class visa; and they are either (i) domiciled in New Zealand or (ii) residing in New Zealand with the intention of residing here indefinitely, and have done for at least the past 12 months. Why this approach? The new definition of ordinarily resident in New Zealand for the purposes of residential land creates a bright-line test for determining whether a person is an overseas person. It does not contain some of the subjectivity inherent in the existing definition, which makes the existing definition difficult to apply. As a consequence, it will make it easier for people to assess whether OIO consent is required. This will reduce the need for enforcement action. Relationship property The spouse, civil union partner or de facto partner of a New Zealand citizen or person ordinarily resident in New Zealand does not require consent to acquire assets together with their partner, provided the assets are relationship property. This exemption is already contained in the Overseas Investment Regulations 2005 and will also apply to investments in residential land. Body corporates and unincorporated bodies Existing provisions in the OIA set out when a body corporate or unincorporated body is an overseas person requiring consent. Broadly, a body corporate or unincorporated body will be an overseas person if it is incorporated outside of New Zealand, or if it is 25% or more beneficially owned or controlled by overseas persons. The OIA contains detailed rules on how ownership and control is measured for different types of bodies, including trusts and partnerships. Treasury: v1 10

11 These rules also apply to trusts. If overseas persons control 25% or more of the decisions of the trust or if 25% or more of the trust s beneficiaries are overseas persons, the trust will also be subject to the restrictions. In the case of discretionary trusts, if the following applies, a discretionary trust will not, in principle, be considered an overseas person: where less than 25% of the trustees are overseas persons; where less than 25% of the persons having the power to appoint, or control the appointment of, the trustees, or amend the provisions of any instrument establishing the trust, are overseas persons; and where overseas persons and New Zealanders are discretionary beneficiaries. However, if at any stage all of the discretionary beneficiaries are overseas persons, then the OIO would consider that the trust has become an overseas person. Also, where the trustee of a trust is controlled or influenced by an overseas person, then the trustee may be an associate of that overseas person. When assessing applications for consent, the OIA requires an assessment of the ultimate beneficial ownership and control of the body corporate or unincorporated body seeking to make the investment. Associates The OIA requires consent for transactions where an associate of an overseas person acquires an interest in land, or acquires rights or interests in securities of a person that owns or controls an interest in land. The meaning of associate is set out in section 8 of the OIA. Broadly, it includes a person that is controlled by, acts on behalf of, or acts jointly with an overseas person, or participates in an overseas investment as a consequence of an arrangement with an overseas person. This means, for example, that an investment in residential land made on behalf of an overseas person by a New Zealand citizen would require consent. Treatment of Australians It is proposed that regulations to be made under the Bill would exempt Australian citizens and permanent residents from the requirement to obtain consent to purchase residential land (unless the land is currently sensitive land under the OIA, in which case screening will continue). This exemption would be set out in regulations made under proposed new section 61(1)(ib) (inserted by clause 33 of the Bill), which allows for exemptions that are necessary to implement international commitments that are in force before the Bill commences. New Zealand has obligations to Australia under the Protocol on Investment to the Australia-New Zealand Closer Economic Relations Trade Agreement (CER IP) which require Australian citizens and permanent residents to be treated no less favourably than New Zealand citizens and permanent residents, respectively, in like circumstances. This means exempting all Australian citizens, and all Australian permanent residents who are Treasury: v1 11

12 ordinarily resident in New Zealand. New Zealand citizens (but not permanent residents) are exempt from Australia s residential property restrictions. Australian enterprises would also be exempt if they carry on substantive business operations in Australia, or Australian and New Zealand investors own and control more than 75% of the enterprise. Summary: Who can purchase residential land? NZ Citizens Australian Citizens Permanent resident visas (PRVs) Australian PRs Pathways to purchase a house to live in Pathways to purchase residential land to develop Do not require consent to purchase residential land Do not require consent if they meet the 12 months/183 days test (i.e. have been residing in NZ for at least the past 12 months and have been present in NZ for at least 183 days in the past 12 months) Resident visas (RVs) PRVs that do not meet 12m/183d test All other persons (including temporary visa holders) Can only purchase a house to live in if they obtain consent through the commitment to reside in NZ test Under this test, holders of specified visa may be able to obtain consent to purchase one house for use as their home in New Zealand on the condition that they sell if they leave. Cannot purchase a house to live in Can purchase residential land for development (but cannot live on the land) if they obtain consent through the increased housing on residential land test* or the benefits test** * The increased housing on residential land test requires the person to build additional houses, or build/extend a longterm accommodation facility. If building houses, these must be on-sold. If building/extending accommodation facility, this can be on-sold, leased, or operated directly by the overseas person. ** The benefits test is the current test under the OIA to purchase the land the overseas person must demonstrate that the purchase would benefit NZ. Residential land must be used for a non-residential purpose, used to increase housing on residential land (and then generally on-sold), or sold (e.g. surplus land not needed for the development) Consent pathways Overseas persons will require consent to purchase residential land under the Bill. Consent is available if the overseas person can satisfy the tests in one of the following pathways: 4 1. Commitment to reside in New Zealand pathway: the person has the appropriate visa status and satisfies the requirements of the commitment to reside in New Zealand test; or 2. Increased housing on residential land pathway: the person will develop the land and add to New Zealand's housing supply; or 3. The benefit to New Zealand pathway: the person is able to demonstrate that the use of the land (e.g. a business) would benefit New Zealand (or any part of it or group of New Zealanders). 4 See proposed new section 16(1)(e), inserted by clause 10 of the Bill. Treasury: v1 12

13 Consent to purchase a home to live in: commitment to reside in New Zealand pathway The Bill provides for a new commitment to reside in New Zealand consent pathway for overseas persons that hold a residence class visa of a type set out in regulations and meet the requirements for showing commitment to reside in New Zealand. 5 Consent under this pathway will allow an overseas person to purchase residential property (including residential land that is already sensitive land under the OIA) to reside in as their main home or residence, on the condition that they sell the property within 12 months of a trigger event (e.g. they have their visa cancelled). The Bill provides for trigger events to be set out in regulations. This disposal requirement would not apply if the screened buyer subsequently became a New Zealand citizen or met the test for being ordinarily resident in New Zealand. This pathway would allow a person with a permanent resident visa who is not ordinarily resident in New Zealand or a person who holds a resident visa to apply for consent to purchase a home to live in. The requirement to on-sell is intended to ensure that pathway is not exploited by those not intending to live here, such as where someone seeks to purchase homes as investments. This pathway would not be available to temporary visa holders, including holders of visitor visas, students visas and work visas. Those visa holders would continue to be able to rent houses under a residential tenancy. As drafted, the Bill proposes that some of the details of this pathway are set out in regulations. The Government now proposes that these details be incorporated into the Bill. See Appendix Five for examples of when a person will be able to purchase residential property to live in under the Bill. Why this approach? The intention of this approach is to provide those with a commitment to reside in New Zealand and the right to reside here indefinitely with a pathway to purchase a home to live in. The test has been developed in a way that will make it simple to apply, meaning relatively low application costs and faster consent timeframes. Other visa categories were not included in this pathway (e.g. international students on temporary visas) because those visa holders do not have a right to reside in New Zealand indefinitely. 5 See proposed new sections 16A(3)-(4) and 16B, inserted by clause 11 of the Bill. Treasury: v1 13

14 Potential immigration impacts The definition of overseas person in the Bill for residential land is a broader category of persons than the existing OIA definition, which excludes New Zealand citizens and all residence class visa holders that are ordinarily resident in New Zealand from the OIA. A residence class visa is defined in the Immigration Act The definition covers permanent resident visas and resident visas. Resident visas provide a right to reside in New Zealand indefinitely, provided conditions are met. Permanent resident visas have no conditions attached to them and do not expire if the person is outside of New Zealand. The overall objectives and numbers of resident visas that are granted are determined under the New Zealand Residence Programme. The objective of the Residence Programme is to meet New Zealand s ongoing skill needs and enhance human capability, maximise social cohesion and family connections, and meet our humanitarian commitments. The current Residence Programme planning range is 85,000 to 95,000 people between July 2016 and June It includes the Skilled/Business Stream, the Family Sponsored Stream and the International/Humanitarian Stream (see Appendix Six for further detail on the categories of visas that fall under each stream). The proposed approach creates some inconsistency between entitlements to reside in New Zealand indefinitely and entitlements to purchase a residential property. This could work against the aims of the immigration system, making New Zealand a less attractive location for migration under certain visa categories. Investor and Global Impact Visa holders (who number no more than a few hundred migrants at any time) may be particularly impacted. The proposed approach could prevent these migrants from purchasing a residence in New Zealand, which could impact on New Zealand s ability to attract these high-impact migrants. During the design of the Bill, the aims of the immigration system were balanced against the objective of the policy that the housing market should be a New Zealand market shaped by New Zealand-based buyers which led the Government to the position in the Bill. This requires resident visa holders to have a commitment to reside in New Zealand before being able to purchase a house for their own use. Consent to develop new residential properties: increased housing on residential land pathway The Bill establishes a new increased housing on residential land consent pathway. 6 This pathway is available to overseas persons seeking to purchase residential land (unless it is currently sensitive land under the OIA) to: 1. Develop the land to increase the number of dwellings, including purchasing off the plans for existing developments, and developing a site to support new residential dwellings (e.g. earthworks and road-laying, but a mere legal subdivision will not be sufficient); or 6 See proposed new sections 16C and 16D, inserted by clause 11 of the Bill. Treasury: v1 14

15 2. Build or expand a long-term accommodation facility, including developing a site to support those outcomes. Long-term accommodation facility is defined in the Bill as a: a retirement village or rest home; student accommodation; or other facility operated for long-term accommodation for residential purposes with some degree or provision of assistance or care for persons who dwell there. It does not include a hospital; a hotel, motel, inn, hostel, or boarding house; a camping ground; or any facility within a class set out in regulations. Where a developer purchases residential land to build or expand housing they will be required to on-sell the housing within a specified period (to be set out in the consent on a case-by-case basis), and are not permitted to reside in any of the housing. An exception to this requirement to sell is the building or expansion of long-term accommodation facilities, where the developer can retain and operate those facilities (but not reside in them). Overseas buyers wanting to use the increased housing on residential land pathway to obtain consent will need to apply to the OIO before purchasing residential land, and meet the existing investor test, including the good character criteria. This pathway is not available if residential land is also sensitive for some other reason in the OIA or if the intention is to use the land for a mixed use (e.g. a shopping mall with a residential housing development). In that case, consent could only be obtained using the benefits to New Zealand pathway (see below). Why this approach? The intention is to create a fast-track approval pathway for developments that will increase housing supply. This pathway acknowledges the important role that overseas persons play in developing new residential properties in New Zealand. Housing/apartment developments and long-term accommodation facilities are included in this pathway because they are important sources of housing for New Zealanders. Facilities excluded from the definition of long-term accommodation facility (hospitals, hotels, camping grounds etc) were excluded because they were not a significant source of long-term accommodation in New Zealand. The requirement to on-sell new houses/apartments is intended to support the Bill s policy objective of increasing housing supply. Allowing residential tenancies or leases was considered to create a potential loophole in the regime, which would be difficult to monitor and enforce, and may not support the policy objective of increasing housing supply. However, developers of long-term accommodation facilities can operate or lease their development as this is a common business model for developers of these facilities (but they cannot occupy the facility themselves). The requirement to on-sell (houses/apartments) or operate/lease (long-term accommodation facilities) within a specified period is intended to provide the developer with sufficient time to complete their development before they need to sell, or open the long-term accommodation facility. The specified period will be set on a case-by-case basis in the conditions of consent. Treasury: v1 15

16 Buying off the plans An overseas person will be able to apply to the OIO for consent to buy off the plans before the construction of a dwelling has commenced, subject to the requirement that they on-sell the completed dwelling. This cannot be used to purchase an investment property to rent out and sell in the future; the property would need to be on-sold shortly after construction. An alternative option considered during the design of the increased housing on residential land test was to allow purchases by overseas persons up until 6 months after construction is completed (aligning with the Reserve Bank s loan-to-value ratio rules for new builds 7 ). However, we did not consider that this option aligned with the policy objective to only allow overseas persons to purchase residential land where it contributes to increased housing supply as this would allow purchases of already constructed dwellings. It also did not align with the earlier policy choice to only allow overseas persons to buy residential land for development on the condition they sell, or lease/operate as a long-term accommodation facility. Consents for other investment in residential land: the benefit to New Zealand pathway The Bill provides a pathway to obtain consent to acquire residential land by using the benefits test in the OIA in cases where the investment will not fit within the previous two pathways (for example, to build a motel or retail operation). Clause 11 of the Bill re-states the existing OIA benefits test: 16E Benefit to New Zealand test The benefit to New Zealand test is met if all of the following are met: (a) (b) (c) the overseas investment will, or is likely to, benefit New Zealand (or any part of it or group of New Zealanders), as determined by the relevant Ministers under section 17; and if the relevant land is or includes non-urban land that, in area (either alone or together with any associated land) exceeds 5 hectares, the relevant Ministers determine that that benefit will be, or is likely to be, substantial and identifiable; and if the relevant land is or includes residential land, the relevant Ministers are satisfied that, if consent were granted, the mandatory conditions that the relevant Ministers would attach to the consent (see section 16F) would be, or would likely be, met. Elements (a) and (b) are currently in sections 16(1)(e)(ii) and (iii) of the OIA. 7 There is a new dwelling construction exemption to the Reserve Bank s Loan-to-Value ratio restrictions. This allows a bank to finance new dwelling construction without these loans counting towards the bank s high loan-to-value ratio limits. The relevant part of the exemption requires the construction loan to be for a newly-built entire dwelling completed less than six-months before the mortgage application. The dwelling must be purchased from the original developer. Treasury: v1 16

17 There are 21 factors for assessing the benefit to New Zealand, which are set out in section 17 of the OIA and regulation 28 of the Overseas Investment Regulations We have set out those factors in Appendix Seven. The Bill does not amend the factors. The benefits test will remain available as a pathway for consent for residential land that is already classified as sensitive land under the OIA. For each part of the land, one or more of the following three mandatory conditions must be applied to the land: 1. the investment will result in increased residential use and on-sale of the land, or the construction or extension of a long-term accommodation facility; 2. the overseas person sells (or otherwise disposes of) its interest in the residential land after a period of time that allows for the land to be developed for the consented benefits; or 3. the residential land will not be used for residential dwellings or long-term accommodation facilities. Different mandatory conditions may be applied to different areas of the land, e.g. some land is used for a long-term accommodation facility and then other surplus land is sold once the facility is constructed. Why this approach? The purpose of this consent pathway is to recognise that land rated as residential or lifestyle under the relevant district valuation roll may be used for a variety of nonresidential uses that are beneficial to New Zealand. The use of the benefits test would provide a pathway to obtain consent for these investments when they are of benefit to New Zealand (or any part of it or group of New Zealanders). As the benefits test is an existing pathway in the OIA, there is a body of practice which supports applicants to compile strong applications. The mandatory conditions which attach to this consent pathway are intended to ensure that the pathway is not used to avoid the mandatory conditions of the increased housing on residential land pathway i.e. that overseas persons cannot retain ownership of, or live in, new residential dwellings. Standing consents An overseas person will be able to obtain a standing consent before they purchase residential land and must then notify the OIO once the purchase has occurred. This process will enable developers to engage in land purchasing programmes and will enable individuals to make unconditional offers or bid at auction for houses, knowing that they already have the necessary consent under the OIA (and must then notify the OIO of the purchase). The standing consent is only available for the two new pathways ( Commitment to reside in New Zealand and Increased housing on residential land ). It is not available for investments using the Benefits to New Zealand pathway. It would be more difficult for the OIO to assess future hypothetical transactions against the benefits test, than the new Treasury: v1 17

18 bright-line tests in the new pathways. Standing consents are only available where the residential land is not also currently sensitive land under the OIA. Why this approach? The standing consent regime is intended to limit impacts of the regime on large-scale developers that have strong track records of undertaking developments in New Zealand. The regime will minimise compliance costs for them by allowing them to apply for consent once in order to complete a purchasing programme, rather than to apply for consent in each case. The regime is also intended to allow overseas persons using the commitment to reside in New Zealand pathway to effectively participate in the New Zealand housing market. Often there is very little time between the time a suitable property is identified and the time when an offer needs to be made. This regime will allow an investor to obtain consent before a property has been identified. Residential land that is already sensitive land under the OIA Some residential land will already be captured by the OIA as it is already sensitive (see Appendix Four). Where residential land is also sensitive land for other reasons, the only new consent pathway available in the Bill is the commitment to reside in New Zealand pathway. The new bright-line approach to defining who is ordinarily resident in New Zealand, which is limited to permanent residents, will apply whenever a transaction involves residential land. This means that a larger number of people will require consent than if the existing OIA definition (which includes some resident visa holders) was applied. The benefit test pathway would remain available for residential land that is also sensitive land. However, the new mandatory conditions (see above) will only apply to residential land (not to land that is sensitive only for other reasons). Sensitive land that is not residential land The OIA currently provides that land that is currently sensitive can be purchased by an overseas persons under two alternative pathways: benefit to New Zealand test; or intending to reside in New Zealand indefinitely test. The latter test is used by overseas person purchasing land to live on, such as rural properties over 5 hectares. The 21 factors used for the benefit test are not relevant when this test is used. Purchases under that test would not automatically be subject to the mandatory conditions of the commitment to reside in New Zealand pathway (though the OIO could choose to impose similar conditions on a case-by-case basis). Treasury: v1 18

19 Under the Bill, only land that is sensitive but not residential could be purchased under the intention to reside in New Zealand indefinitely test. 8 Table: Summary of consent pathways available based on type of land Types of land Residential (but not otherwise sensitive) land Residential land that is otherwise sensitive land Sensitive (but not residential) land Commitment to New Zealand (New Commitment to reside in New Zealand pathway) (New Commitment to reside in New Zealand pathway) (Existing pathway of intending to reside in New Zealand indefinitely) Pathways for consent Increased housing on residential land Benefit to New Zealand (Mandatory conditions)* (Mandatory conditions)* (Existing OIA benefits tests) Standing consent available (only for Commitment to reside in New Zealand pathway and Increased housing on residential land pathway) * One or more of the following conditions: as noted above, the investment will result in increased residential use and onsale of the land, or the construction or extension of a long-term accommodation facility; the overseas person sells (or otherwise disposes of) its interest in the residential land after a period of time that allows for the land to be developed for the consented benefits; or the residential land will not be used for residential dwellings or long-term accommodation facilities. Administration and enforcement The Bill includes a set of new compliance and enforcement powers that will allow better implementation of the OIA regime. These will apply across the entire OIA regime (i.e. to overseas investments in other sensitive land, in significant business assets, or in fishing quota) not just to investments in residential land. Information gathering powers The Bill broadens information-gathering powers to allow the OIO to require a person to provide information or documents when the OIO considers that it is necessary or 8 This test is currently contained in section 16(1)(e)(i) of the Act. The Bill (clause 11) would re-state the test in new section 16A(2). Treasury: v1 19

20 desirable for the administration or enforcement of the OIA. This will allow the OIO to more effectively assess compliance with the regime. 9 Notification of suspected breach and disposal If the OIO has reasonable grounds to believe that the overseas person has purchased any property in breach of the OIA, the OIO will be able to notify an overseas person that if they dispose of their interest in the property, that person will not be subject to further penalty under the OIA. The person can refuse to sell, at which point the OIO would need to decide whether to take further action. This is intended to incentivise overseas persons who breach the screening regime to agree to sell, avoiding the need for the OIO to routinely undertake lengthy and expensive court proceedings to force disposal in every case. The OIO would have the discretion to issue such a notice for a breach or contravention of the OIA, including where a consent holder fails to meet conditions of consent. Enhanced powers to serve documents The OIO will be able to serve documents using alternative mechanisms to personal service, such as service at a known electronic address or by leaving documents at the address of the relevant property. This is intended to give the OIO a practical means of service of documents or proceedings under the OIA where an overseas person is overseas or is otherwise difficult to personally contact. Increased civil penalties Civil penalties are increased to a possible three times the gain that the investor has made (the maximum penalty is currently limited to the higher of the gain the investor has made, $300,000, or the cost of remedying or loss suffered from breaching a consent condition). This means the penalty will act as an incentive to comply with the OIA, rather than allowing someone to financially break even (or better), despite a breach. Third-party liability (and defences) A third-party person who is involved in a contravention of the OIA (for example, a person who aids or abets the contravention) would be liable for a civil penalty as well as the overseas person who contravenes the OIA. There will be protections for innocent third-parties. There are new defences if the person s involvement in the contravention was due to reasonable reliance on information supplied by another person, or if the person took all reasonable and proper steps to ensure compliance with the OIA. Obligations on conveyancers regarding residential land Before giving effect to a purchase of residential land, conveyancers will be required to certify that, to the best of their knowledge, the purchaser will not contravene or commit an offence under the OIA by giving effect to the transaction. 9 Officials engaged with the Office of the Privacy Commissioner on the development of these new powers. The Privacy Commissioner has made a submission to the Committee on this aspect of the Bill. Treasury: v1 20

21 The Government s intention is that in most cases conveyancers can give a certificate based on the knowledge they acquire as part of usual conveyancing work and, from July once anti-money laundering obligations are in force, requirements around verifying a customer s identity. That is, in most cases a conveyancer will not have to undertake further enquiries into the identity of their clients, or the ownership and control structures being used, to assess if the transaction requires consent under the OIA. However, in some cases a conveyancer will have knowledge that will lead them to undertake further enquiries before being making the certification (or choosing not to provide the certification and refusing to complete the conveyancing). A conveyancer that gives effect to a transaction but fails to provide the required certificate or to keep a copy of the certificate on file for up to 7 years will be liable for a fine of up to $20,000. The Registrar-General of Land may in future specify the certification requirement as a statutory requirement under section 164A of the Land Transfer Act This means that conveyancers would be certifying that they had complied with this requirement when giving their usual certifications in an e-dealing transaction. The addition of this statutory requirement would not require changes to Landonline or amendments to the Land Transfer Act. If a conveyancer does not sign the required certificate then they cannot complete the conveyancing and the transaction will most likely fail. Estimated volumes, costs, timeframes and the application process Estimated volume of applications LINZ has estimated that approximately: 5,650 applications per year will be made by resident class visa holders under the commitment to reside in New Zealand pathway. This estimate is based on information held about the number of resident visa holders who purchased property last year, and information on the number of residential and lifestyle properties purchased in the last year. The Bill provides for bright-line tests meaning that screening will not require significant analysis or scrutiny. 700 applications per year will be made under the Increased housing on residential land pathway. It is expected that a number of these applications will be made by large developers that will seek consent for multiple properties using the standing consent clause in the Bill. This will mean that a proportion of the 700 applications will be made under bulk applications. In practice, this means that there will be less than 700 individual applications made to the OIO. Treasury: v1 21

22 This will require more stringent screening than under the Commitment to reside in New Zealand pathway but less than the Benefits to New Zealand pathway. 12 applications per year will be made under the Benefits to New Zealand pathway These applications require significant assessment to determine whether they have met the tests, in line with the approach to existing benefits test applications under the OIA. The above estimates are based on the provisions in the Bill as introduced into the House. If further changes are made to the visa categories, or the screening requirements, as the Bill progresses through the House then these estimates will change. In addition, there is uncertainty regarding the behaviour of overseas buyers once the regime is in force, which may have a significant impact on the volume of applications the OIO receives. Overview of the application process An overview of the process for purchasing residential land under the Bill is set out below: Treasury: v1 22

23 Costs and timeframes The fees charged by the OIO for consent under new pathways established by the Bill are still being confirmed. Ministers have asked the OIO to establish a cost-recovery model, which is yet to be developed. However, fees set will be primarily based on the anticipated time involved in assessing applications for consent and monitoring conditions. Fees for a standard application under the commitment to reside in New Zealand pathway would be less than the fees for applications under the increased housing on residential land pathway. As noted above, the benefits to New Zealand pathway is the most complex of the three pathways for residential land purchases and is therefore likely to involve the highest fees. The Bill does not propose any mandatory timeframes for OIO consideration of applications. However, where possible, the Bill uses bright-line tests which should facilitate the OIO providing timely responses to straightforward applications. Other exemptions Clause 33 of the Bill amends section 61 of the OIA to introduce new classes of regulations that can be made under the OIA. These include the power to: 1. Make exemptions where required to meet existing international commitments. This will be used to implement obligations to ensure that Australian citizens and permanent residents are treated the same as, respectively, New Zealand citizens and permanent residents. 2. Exempt overseas persons of Māori descent who would otherwise be subject to the OIO screening regime as an overseas person acquiring residential Māori freehold land 10 where the purchaser has an ancestral connection by descent. Section 61 contains existing powers to create specific exemptions and class exemptions from the OIA. It is likely that other class exemptions will be needed. 10 Māori freehold land is a category of land defined by section 129 of the Te Ture Whenua Māori Act Māori Land (including Māori freehold land) tends to have characteristics not associated with other forms of privately owned land, and is subject to a range of unique restrictions and protections. Māori land generally has multiple owners, and ownership of such land is generally obtained through succession. Māori land is referred to in Te Ture Whenua Māori Act 1993 and by Māori generally as a taonga tuku iho which denotes a treasure handed down through the generations. Treasury: v1 23

24 APPENDIX ONE: SUMMARY OF NEW CONSENT PATHWAYS Treasury: v1 24

25 APPENDIX TWO: COMPARISON WITH AUSTRALIAN REGIME Australia has rules that restrict foreign buyers from purchasing residential land. Below is high level comparison of the Australian rules compared with the rules proposed in the bill. Who requires consent to purchase residential land? Who can obtain consent to buy land to buy an existing home to live in? In what circumstances can someone obtain consent to purchase vacant land to develop into a home(s), a home off the plans or a newly built home? Where are standing consents or exemption certifications available? New Zealand proposed Overseas persons, who are individuals that are not NZ citizens or ordinarily resident in NZ i.e are permanent residents that have been residing in NZ for 12 months and present for at least 183 days in that period. Under the commitment to reside in NZ test individuals that hold permanent resident visas and resident visas can obtain consent to buy a home to live in. Under the commitment to reside in NZ test individuals that hold permanent resident visas and resident visas can obtain consent to buy vacant land to develop into a home, a home off the plans or a newly built home to live in. Under the increased housing on residential land test, overseas persons can obtain consent to buy: - vacant land and existing homes to develop; and - homes off the plans, provided they on-sell those homes Standing consents are available to buy: - land to develop new homes or long-term accommodation facilities under the increased housing on residential land test; or - an existing home to live in under the commitment to reside in NZ test. Australia Foreign persons, who are individuals that are not Australian citizens or ordinarily resident in Australia i.e. have been in Australia for 200 days or more in preceding 12 months and their presence in Australia is not subject to a time limitation imposed by law (e.g. a temporary visa). Temporary residents, being individuals that hold a visa that permits them to remain in Australia for more than 12 months or reside in Australia and have applied for a permanent visa, can obtain consent to buy an existing home to live in. Foreign persons can obtain consent to purchase new dwellings, vacant land for development and established dwellings for development. They can also purchase new dwellings from a developer that holds an exemption certificate. Exemption certificates are available to allow: - temporary residents to buy an existing home to live in; - developers to sell new properties to foreign persons; and - foreign persons to engage in a programme of land acquisition. Treasury: v1 25

26 APPENDIX THREE: PROPERTY CATEGORIES UNDER THE RATING VALUATION RULES The following is an extract from the Rating Valuations Rules 2008 (LINZS30300, Version date: 1 October 2010): F.2 Structure of category code F.2.1 First character definitions Each rating unit must be categorised individually based on its highest and best use, within a broad property group, using the codes set out in Table 18. Table 18 First character category codes First character A C D F H I L M O P R S U Definition Arable cash cropping land, generally farmed with some stock. This code does not include market gardening. Commercial uses Dairy land suitable for all types of supply and stud Forestry land that may be either in production or currently available for planting, and includes protected forest areas. This code does not include forest nurseries. Horticultural land suitable for uses such as orchards, market gardening, or glasshouses Industrial uses, including associated retailing Lifestyle land, generally in a rural area, where the predominant use is for a residence and, if vacant, there is a right to build a dwelling. The land can be of variable size but must be larger than an ordinary residential allotment. The principal use of the land is non-economic in the traditional farming sense, and the value exceeds the value of comparable farmland. Mining and other mineral extraction sites of all descriptions Other uses not covered by any alternative category in this table, generally non-economic uses of a government, civic, or recreational nature Pastoral farming land where the main farming use is a use such as grazing or fattening of livestock Residential land of a domestic type, including investment flats Specialist livestock of a non-dairy or pastoral land use type Utility assets Treasury: v1 26

27 APPENDIX FOUR: SENSITIVE LAND UNDER THE OIA The Bill brings residential land into the category of sensitive land under the OIA. It does this by adding residential land to Table 1 in Schedule 1 of the OIA. This table, including the addition of residential land, is set out below. What land is sensitive Land is sensitive under this Act if (a) (b) the land is or includes land of a type listed in table 1 and the area of that type of land exceeds the corresponding area threshold (either alone or together with any associated land of that type), if any; or the land (land A) adjoins land of a type listed in table 2 and the area of land A exceeds the corresponding area threshold (either alone or together with any associated land), if any. Table 1 Land is sensitive if it is or includes this type of land residential land non-urban land land on islands specified in Part 2 of this schedule land on other islands (other than North or South Island, but including the islands adjacent to the North or South Island) foreshore or seabed bed of a lake land held for conservation purposes under the Conservation Act 1987 land that a district plan or proposed district plan under the Resource Management Act 1991 provides is to be used as a reserve, as a public park, for recreation purposes, or as open space land subject to a heritage order, or a requirement for a heritage order, under the Resource Management Act 1991 or by Heritage New Zealand Pouhere Taonga under the Heritage New Zealand Pouhere Taonga Act 2014 a historic place, historic area, wahi tapu, or wahi tapu area that is entered on the New Zealand Heritage List/Rārangi Kōrero or for which there is an application that is notified under section 67(4) or 68(4) of the Heritage New Zealand Pouhere Taonga Act 2014 and that type exceeds this area threshold (if any) 5 hectares 0.4 hectares 0.4 hectares 0.4 hectares 0.4 hectares 0.4 hectares 0.4 hectares Treasury: v1 27

28 Table 2 Land A is sensitive if it adjoins land of this type foreshore or seabed bed of a lake land held for conservation purposes under the Conservation Act 1987 (if that conservation land exceeds 0.4 hectares in area) any scientific, scenic, historic, or nature reserve under the Reserves Act 1977 that is administered by the Department of Conservation and that exceeds 0.4 hectares in area any regional park created under the Local Government Act 1974 land that is listed, or in a class listed, as a reserve, a public park, or other sensitive area by the regulator under section 37 land that adjoins the sea or a lake and exceeds 0.4 hectares and is 1 of the following types of land: an esplanade reserve or esplanade strip (within the meaning of section 2(1) of the Resource Management Act 1991); or a recreation reserve under the Reserves Act 1977; or a road (as defined in section 315(1) of the Local Government Act 1974); or a Maori reservation to which section 340 of Te Ture Whenua Maori Act 1993 applies land over 0.4 hectares that is subject to a heritage order, or a requirement for a heritage order, under the Resource Management Act 1991 or by Heritage New Zealand Pouhere Taonga under the Heritage New Zealand Pouhere Taonga Act 2014 land over 0.4 hectares that includes a historic place, historic area, wahi tapu, or wahi tapu area that is entered on the New Zealand Heritage List/Rārangi Kōrero or for which there is an application that is notified under section 67(4) or 68(4) of the Heritage New Zealand Pouhere Taonga Act 2014 and land A exceeds this area threshold (if any) 0.2 hectares 0.4 hectares 0.4 hectares 0.4 hectares 0.4 hectares 0.4 hectares 0.4 hectares 0.4 hectares 0.4 hectares Treasury: v1 28

29 APPENDIX FIVE: EXAMPLES OF WHO CAN PURCHASE A HOME TO LIVE IN Examples: Who can purchase a home to live in? CITIZEN Zac is a New Zealand citizen and is looking to buy a house in January He will remain able to purchase residential land without consent. PERMANENT RESIDENT VISA Permanent resident visa holders do not require consent to purchase residential land if they meet the test of being ordinarily resident in New Zealand. To meet this requirement, permanent residents need to have: been residing in New Zealand for at least 12 months; and been present in New Zealand for at least 183 days in the last 12 months Ana holds a permanent resident visa and is looking to buy a house in January She has been living in New Zealand for over 12 months and has not been out of the country for more than a few weeks in Therefore she will be deemed ordinarily resident in New Zealand and will remain able to purchase residential land without consent. Ben holds a permanent resident visa and is looking to buy a house in January He had been living overseas and only returned to New Zealand mid In total, he only spent a few months in New Zealand in Therefore he does not meet the criteria to be deemed ordinarily resident in New Zealand and will need to apply for consent through the commitment to reside in New Zealand pathway. Treasury: v1 29

30 Ben can subsequently become ordinarily resident in New Zealand. By June 2020, he will have lived in New Zealand for over 12 months, and not been out of the country for more than a few weeks in that time. At this point, the mandatory conditions associated with the consent will be lifted (see section 16B(5)). Cat holds a resident visa and is looking to buy a house in January She will need to apply for consent through the commitment to reside in New Zealand pathway. The time she has spent in New Zealand in the previous 12 months does not impact whether or not she will need consent. RESIDENT VISA Treasury: v1 30