The Overseas Investment Amendment Act 2018 restricted investment by overseas persons in New Zealand’s housing market. Five years on, we recap the permitted ways in which foreigners may invest in pockets of local real estate, including certain designated NZ apartments and hotel units.
Background to the current restrictions on overseas buyers of NZ property
The Overseas Investment Amendment Act 2018 was introduced at a time where double digit percentage year-on-year price growth had led to an unaffordability crisis among local buyers of New Zealand property. Foreign capital was cited as being increasingly prevalent in the local housing market and was accused of fuelling the crisis. New Zealand real estate had established its reputation as a compelling market for achieving a return on capital but increasingly, New Zealand was also becoming known as a safe haven for wealthy investors to have a ‘bolt hole’ amid global uncertainty.
The 2018 legislative amendment was designed to cool the increasingly frenetic New Zealand property market of that time, and it did so by placing restrictions on foreign buyers. Key changes included:
Special exemptions for Australian and Singaporean Investors
Although the changes under the 2018 legislative amendment applied to all ‘overseas persons’, special concessions were granted to Australians and Singaporeans, in line with New Zealand’s international commitments.
Investors from these countries are not automatically restricted from buying residential property in New Zealand, however, whether or not they require Overseas Investment Office (OIO) consent for property acquisitions will depend on whether they are citizens or permanent residents of Australia/Singapore and their residency status in New Zealand.
OIO Consent – the current position on overseas investment in NZ property
For all other foreign investors, it is possible to seek OIO consent to buy a residential property where:
There are certain prescribed exemptions to the above rules which allow flexibility for foreign buyers in certain circumstances.
Large Apartment Developments – a notable exemption from the foreign buyer ban
One key exemption to the rule prohibiting foreign ownership of residential property in New Zealand is where an overseas person buys ‘off the plans’ from a developer who holds an exemption certificate (specifically issued by the OIO) allowing the developer to sell a percentage (maximum 60%) of the units to overseas people.
Developers can apply for an exemption certificate from the OIO if:
The OIO will scrutinise the track record and financial standing of the developer to determine whether it may receive an exemption certificate to sell to foreign buyers.
Under the exemption certificate, a buyer is not allowed to live in the apartment but can hold it as an investment property and is not required to ‘on sell’ the apartment.
Hotel Unit Exemption
Similarly, overseas persons can invest in hotel units in New Zealand (or fund their construction in advance of completion) provided those hotel units are, or will be, leased back for hotel use. The overseas purchaser cannot occupy, reserve or use the unit for more than 30 days in any given year. For the rest of the year, the unit must be used for hotel purposes. When the lease back ends the purchaser must either grant a further lease to the hotel or sell.
Particular criteria apply to the designation of the land, including the requirement that the land is ‘sensitive’ only because it is residential land as well as the requirement for the development to have twenty or more units.
Hesketh Henry – Foreign Investment Experts
Hesketh Henry regularly assists offshore clients (including large corporates and individual investors) with investment applications to the OIO. If you would like further information about the legal frameworks applicable to foreign investment into New Zealand, please get in touch with Ben Hickson of our Business Advice team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.