We recently attended a webinar by the Overseas Investment Office (OIO) on 20 July 2020. The purpose was to discuss some reforms to the rules and in particular the new “Urgent Measures Act”.

The purpose of the new changes are to support the Government as part of its business response to COVID by encouraging growth through investment. So there are some simplifications made to the normal OIO process– while also ensuring there are rules in place in relation to sensitive land and other categories of assets.

Before we get into detail it is worth noting that the guides on investing in New Zealand at the OIO website are quite helpful, for example, this one on which transactions need consent.

Overview

There are four key changes:

1. Temporary Emergency Notification Requirements;
2. New national interest assessment;
3. Simplified screening; and
4. Stronger enforcement powers.

In this article we will set out the key points for each of them.

1. Temporary Emergency Notification Requirements

Notification is required in relation to ownership/control there are (no monetary thresholds) and will be needed for increases above 25%, ownership beyond 50%, 75% or to 100%. They said that this is a deliberately broad approach they said. This is a temporary regime which will only apply for a limited time.

Who needs to notify? This should be done by any person who has more than 25% overseas ownership, are non-citizens and non-residents, and have more than 25% control of a board, as well as those who are associates.

What needs to be notified? Purchase of more than 25% of a business, increases in key thresholds (above) and purchase of more than 25% of the property of an NZ business (including land interests that would not be sensitive).

When to notify? 16 June is when legislation came into force, so only for those deals after that.

What do you not need to notify? If you already have consent, or if you need consent under another criteria.

Examples of when notice is needed:

Direct: An overseas entity buying all shares of an NZ company – needs to be  notified, even if a shell company.

• Indirect: Overseas person buying an Australian company that has an NZ entity – need to notify (ie even though already overseas owned).

• Notification of property: If a company is being bought that has property, then you need to notify. If a lease to an overseas person, then it depends if that is more than 25% of the value of the NZ companies property at the NZ Company.

There is no cost to notify and there is a form online. There is a much higher level of information needed than normal. It will take around 35-40 minutes to fill in the form. The type of information required includes type of transaction, if there is a target entity, the investor themselves etc.

Once submitted, they will assess if more details are needed or if the transaction can be approved. Generally this takes around 10 days (if the transaction can proceed). A few applications may be allowed to proceed subject to conditions. A few applications may be denied or need more information.

If more information is required, then you will need to allow a total of 40 working days and the aim is to resolve all within 70 working days.

If a transaction is not notified, there can be serious implications. The highest penalty would be civil penalties of up to $10million.

2. National interest assessment

The OIO emphasised that they want investments to proceed. So the question they ask is going to be:  “Is the transaction  is contrary to the national interest?” This test will be applied:

• If further assessment is needed;
• If it is a strategically important business; and
• If the Minister of Finance wants to ask more questions about an application.

The OIO will look broadly at factors such as competition, social impacts, character of the investor, national security, public order, international relations, alignment with NZ values and interests as well as broader policy settings. The factors are very broad. As an example, they would look more closely at military technology investments than other investments.

An application could have conditions added to manage risks, or it could be prohibited or it could just proceed without conditions.

3. Simplified Screening

This simplified screening includes that low risk transactions that do not need consent eg small increases in shareholding. There are also automatic standing consents for eg listed entities that are not more than 50% owned overseas, land adjoining sensitive land, managed investment schemes and some debt transactions.

As an example, if an overseas person is buying land next to sensitive land, that may qualify for the automatic standing consent. Also, some loans and debt can qualify for automatic consent.

4. Enforcement powers

These are increased, such as adding enforceable undertakings as a possibility as well as maximum penalties including  (changing from $300,000 to $500,000). For a company, it could range from $300k to $10 million. The reason for this is that breaches are serious and so the penalty reflects that.

Conclusion

Overall it appears that the intention is to allow easier investment in New Zealand. However, as you can see from the detail in this short update it is worth speaking with advisors about the particular context as there are likely to be additional points to consider to ensure you qualify for the simpler regime.

For more information the OIO website has a lot of detail. For example, the above is discussed here https://www.linz.govt.nz/overseas-investment/changes-overseas-investment-act.

Please note that this is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact us on 03 348 8480 or by email to Steven Moestevenmoe@parryfield.com or Kris Morrisonkrismorrison@parryfield.com

 

Buying your first home is exciting but it can also be quite overwhelming with lots of words being thrown at you that you don’t quite understand. As a house purchase is likely to be one of the largest investments you make, it is important that you are fully informed when starting the home buying process.

When my husband and I purchased our first home we were nervous and a little unsure of what was to come. Once we had worked our way through making an offer, working through our conditions and ending up at settlement day, picking up the keys to our first home is still one of our greatest memorys. I’m a young first home buyer and in this article I am going to break down some of the keys things I wish I had known/think other first home buyers should know.

1. Chat to the professionals

Once you are thinking about buying your first house, it is a really good idea to chat to your lawyer and bank/broker early on in the process. Having a strong team of professionals backing you from the get-go will ensure that the process is less stressful overall.

Bank

Your bank will be able to talk through the finance side of things with you to determine how much you can afford. They will also be able to work with you to determine if you are eligible for a KiwiSaver first home withdrawal or a HomeStart Grant. Your bank might also have special conditions that they need you to fulfil before they give an unconditional offer of finance. It is a good idea to find out what these conditions are (preferably in writing from the bank) and chat to your lawyer about them as early as possible. Common conditions that we would see include the bank receiving and being satisfied with a registered valuation or a builder’s report and having confirmation that your Kiwisaver funds are available for use. If you are purchasing in Canterbury, they may also wish to see all documentation relating to any earthquake claims associated with the property.

Lawyer

Contacting your lawyer early on means that you can get a better idea of what the process is going to look like and what you should be looking out for when you do find the right place. We would always suggest that you chat to your lawyer before you put an offer in on a property (sign a Sale and Purchase Agreement) as that way your lawyer can ensure that all the conditions are in your offer that need to be there.

2. Be prepared for extra costs

It is important to bear in mind that you will be putting more money into your purchase than just the purchase price. There will be additional fees such as your lawyer’s fees and builder’s fees if you choose to get a building report done. There are also extra fees that your lawyer will need to pay to Land Information New Zealand to transfer the title to the property into your name and register a mortgage and also to the local Council for ordering a LIM report.

3. There will be deadlines

There will be certain deadlines in your Sale and Purchase Agreement that you need to be aware of. Often, once you have signed your offer you will have 10-20 working days (about 2 to 4 weeks) to work through your due diligence and satisfy all your conditions. It is important to note that if you don’t meet the deadlines, the Vendor (the person selling the house) will have the option to cancel the Agreement on you.

Your lawyer will be able to advise you of the deadlines and will work with you ensure that the deadlines are met or that an extension is requested where needed.

4. Set time aside for meetings and phone calls

You should be aware that you will need to put time into getting things across the line. Your lawyer will be putting in a lot of work behind the scenes but there are certain things that they can’t do without you.

Signing KiwiSaver Withdrawal Documents

If you are looking to withdraw your KiwiSaver funds you will need to meet with your lawyer to sign some documents which they will then send away to your KiwiSaver provider. If you can’t meet with your lawyer to sign the documents, you will be able to do this with a local Justice of the Peace.

Phone Calls and Emails

While you are working through your purchase conditions, you will likely need to talk with various people. For example, if you are obtaining a builder’s report, you will need to arrange this with a builder and review the report that they send through. Likewise, you will need to talk about your bank/broker about finalising finance and with your lawyer as you work through the various conditions.

Settlement Documentation

Prior to settlement your bank will send your lawyer some loan documents which will need to be signed in order for your bank to pay out your loan on settlement. There will also be a couple of other documents that your lawyer will need to sign with you before they can transfer the title to the property into your name(s). These documents can normally all be signed in the same meeting.

5. Get excited!

If you are reading this article then congratulations on getting this far in the home buying process. Buying a house is a big deal and it will be a great feeling picking up the keys to your new home.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Our property team at Parry Field Lawyers love helping first home buyers into their first homes. We explain things to you in an easy to understand way and are here every step of the way to answer your questions. For more information, contact us on 03-348-8480 or by emailing Paul Owenspaulowens@parryfield.com, Judith Bullinjudithbullin@parryfield.com or Luke Haywardlukehayward@parryfield.com

Global economic uncertainty as a result of COVID-19 will impact house purchases.  On 30 April 2020, the Reserve Bank of New Zealand (RBNZ) announced the removal of mortgage loan-to-value ratio (LVR) restrictions for 12 months. The decision was made to ensure LVR restrictions did not have an undue impact on borrowers or lenders as part of the mortgage deferral scheme implemented in response to the economic downturn caused by the COVID-19 pandemic.  In this article we discuss what the changes are and the likely impact they will have.

LVR: What Does It Mean?

LVR is the amount of loan compared to the value of your property. For example, if the property is worth $500,000 and you have a deposit of $100,000, the LVR will be 80 percent meaning the loan cannot be higher than $400,000.  LVR restrictions were introduced by the RBNZ in October 2013, as it was concerned about the rate at which house prices were increasing and the potential risk that it posed to the financial system and the broader economy. These restrictions required banks to restrict new residential mortgage lending at LVRs over 80 percent and allowing no more than 20 percent of its total new lending in this category. This placed restrictions on New Zealand banks and the amount of low deposit lending they could do.

If you were thinking about purchasing a home and had a deposit of less than 20 percent of the home’s value, your home loan application would have been affected by the LVR restrictions. Your application would have had to go through a number of assessments by the bank in order to determine whether it could lend you money or not. If successful, borrowers would face an additional fee called a low equity margin. This resulted in a percentage added to your interest rate that remained there until your loan reduced to the 80 percent threshold. These restrictions certainly did not make it easy for first home buyers and many felt they had been locked out of the property market. However, such restrictions clearly did not deter them. In December 2019 the amount advanced on mortgages was $6.5 billion, with $1.2 billion being advanced to first home buyers, giving this group its highest share since August 2014 (at 18.5%).

Removing LVR

The announcement from the RBNZ to remove LVR restrictions was a strategic one to bolster the economy and increase demand for property as New Zealand comes out of lockdown, with this decision to be revaluated in 12 months. The removal of restrictions on the amount of money that can be lent to high-LVR borrowers will not only have an impact on new home buyers, but also investment property buyers and those who are already current homeowners.

First Home Buyers

If you have been looking at buying your first home for some time but have been put off by the LVR restrictions, the announcement may have come as a breath of fresh air to you. While it is likely that low equity margin rates may still be applicable, as long as you are credit worthy with income and meet the bank’s lending criteria, you could very well be on your way to buying your first home. The removal of LVRs will not only mean it will now be easier for you to obtain lending, it will also mean that you will now have the opportunity to ‘shop around’ and choose a bank that best suits your circumstances. Up until now, you may only have been able to get a pre-approval from your current bank, as most banks have been reluctant to give pre-approvals to non-bank clients in case their existing clients could not be approved. This should no longer be the case and an opportunity is there to be taken advantage of.

Investment Property Buyers

Due to the higher risks associated with these types of loans, the current policy classifies investor loans as high-LVR if they are more than 70 percent of the property’s value. These high-LVR loans could make up no more than 5 percent of a bank’s total new lending in this category. It is likely that this percentage will increase over time, but given the period of uncertainty we are in, it is hard to gauge when this will occur and what the removal of LVR restrictions will truly look like for investment property buyers.

Current Homeowners

The impact on current homeowners is minimal. However, this may make it easier to apply for home loan top ups, especially if you were already close to the 80 percent threshold. It may also mean if you have suffered a loss of income or your property value has decreased to mean your mortgage is now over 80 percent, it may not be as dire for you or the bank as it was before.

Conclusion

The announcement from the RBNZ to remove LVR restrictions was certainly welcomed, especially as the implications of Covid-19 from a financial point of view continue to be negatively felt throughout the country. It will certainly be interesting to see what occurs over the next 12 months as the impact of Covid-19 becomes clearer and whether LVR restrictions will be reinstated.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. We would be happy to assist you in your journey. Please feel free to contact Judith Bullin at judithbullin@parryfield.com or Paul Owens at paulowens@parryfield.com should you require assistance.

Implications of the Covid-19 lockdown

In property transactions, each party must sign an Authority and Instruction form allowing their respective lawyers the ability to make changes to a property’s title on their behalf. Physical signatures on these documents must typically be witnessed by a lawyer or Justice of the Peace. However, in response to the Covid-19 situation, interim guidelines issued by Land Information New Zealand (LINZ) record that Authority and Instruction forms can be signed by means of an electronic signature — until at least these guidelines are revoked. Alternatively, wet-ink physical signatures will need to be witnessed over a video link.

The Government has also made a temporary law change to modify the requirements of witnessing and signing wills and enduring power of attorneys (EPAs). These changes allow wills and EPAs to be signed and witnessed using audio-visual links (for example Zoom, Facetime and Skype etc). For further guidance on how these documents can be witnessed and signed,  it is explained here for wills and explained here for EPAs.

In terms of statutory declarations and affidavits, it appears that these may be administered electronically — however, physical signatures would still be required. As above, signatures in these cases need to be witnessed over a reliable video link .

It is still understood that powers of attorney and enduring powers of attorney (and presumably Wills and the like) cannot be signed electronically.

If anything is not clear here then we would be happy to discuss with you — as usual individual circumstances usually mean that the context is important to consider.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact Steven Moe at stevenmoe@parryfield.com should you require assistance.

The Overseas Investment Act 2005 imposes various requirements and conditions on “overseas persons” when investing in New Zealand assets.  A recent case* illustrates the costly consequences of failing to comply with this Act.

In December 2019, the High Court fined two property development companies,  FFG Investment Limited and Grand Sky Limited,  for failing to comply with the Overseas Investment Act 2005. Under section 10 of the Act, an overseas person must get government consent when making an:

  • investment in sensitive land; or
  • investment in significant business assets

In this case, both companies had the same three shareholders and were considered to be an overseas person for the purposes of the Act. FFG purchased sensitive land in

Auckland and later sold it to Grand Sky. However, neither party obtained consent from the Overseas Investment Office. While Grand Sky was an overseas person when they entered into the agreement to purchase the property, it was no longer an overseas person when the purchase was completed.

Both companies were found to have breached the Act by failing to obtain consent. While Grand Sky was no longer an overseas person when the purchase was completed, it was sufficient that they had obtained an interest in the property when entering into the agreement. The companies were fined $123,000 and ordered to pay court costs.

This case highlights the importance of the Overseas Investment Act 2005 and the ramifications of non-compliance.

If you have any questions or concerns arising out of this article, please contact Kris Morrison or Steven Moe at Parry Field Lawyers (+64 3 348 8480).

Several months ago we wrote an article on the key changes to the Overseas Investment Act coming into force later in the year (the article can be found here). The Overseas Investment Amendment Bill passed its third reading on Wednesday the 15th of August and received royal assent on Wednesday the 22nd of August. The changes are expected to come to effect in October 2018.

These are the key changes that you need to be aware of if you are a non-resident foreign buyer hoping to purchase property in New Zealand:

Scope of “sensitive land” to include “residential land”

The biggest change to the Overseas Investment Act is that the scope of “sensitive land” within the overseas investment regime is being broadened to include “residential land”. This is going to make it more difficult for overseas investors to purchase residential land in New Zealand, as they will need to apply for consent from the Overseas Investment Office which will require that the investment is going to, or is likely to, benefit New Zealand.

You will not need to apply for consent if you hold a residence class visa, have been living in New Zealand for at least 12 months, have been present in New Zealand for at least 183 days of those 12 months and are a New Zealand tax resident.

We have also published a more detailed article on the effect of this change, which can be accessed on our website here.

Forestry rights and interests:

The amendment will also impose stricter regulations on the purchase of forestry rights and interests, requiring the application for consent under one of two pathways – the “modified benefits test” or the “special benefits test”.

It should also be noted that it will be the obligation of the purchase to ensure that they are complying with the Overseas Investment Act.

If you would like to have a look at the Overseas Investment Amendment Bill, you can access it here.

If you have any questions or concerns arising out of this article, please feel free to get in touch. This article is not a substitute for legal advice and you should talk to your lawyer about your specific situation.

Kris Morrison krismorrison@parryfield.com

Paul Owens paulowens@parryfield.com

Options for parents to help

It’s every Kiwi’s dream to own their own quarter-acre share of paradise. Unfortunately for many first home buyers today, not only are the quarter-acre sections fast disappearing into multicomplex developments, but it’s also becoming harder than ever before with an ever-rising property market. Every time you turn on the news, we hear something about the housing unaffordability in Auckland. Those south of the Bombay Hills start to get a bit glassy-eyed when listening to this on repeat. However, since the government’s introduction of the ‘LVR’ rules in October 2016 aimed at improving affordability in these markets, we must pay attention as all of New Zealand is affected.

The LVR explained

The loan-to-value ratio (LVR) is a measure of how much a lender will lend against a mortgaged property compared with the value of that property. Borrowers with LVRs of more than 80% (that’s less than 20% deposit) are often stretching their financial resources. As well, they are more vulnerable to an economic or financial shock, such as a recession or an increase in interest rates. The LVR rules permit lenders to make no more than 10% of their residential mortgage lending to high-LVR borrowers who are owner-occupiers. The effect of this means that in order to buy your first home, you now must have a 20% deposit. In the Auckland and Queenstown markets where the average property price is over $1 million, this is a big savings hurdle for the buyers who want to take their first step onto the property ladder.

Be informed

If you are financially able and willing to open your wallets to help, there are options to support your children who are struggling to meet the LVR requirements. In this article we outline some of the more common options available. Most importantly, the decision to offer a helping hand needs to be informed and time needs to be taken for each party to obtain the appropriate legal advice. Depending on the option/s chosen, there may be significant paperwork to be prepared that records the complexities of the ownership and security arrangements. This is not something that can be completed overnight. You should get the ownership structure agreed before anybody signs on the dotted line.

Option 1

Gifting some funds

In this option, your child acquires the property in their own name and a gift of equity of the shortfall of the 20% deposit is made from you to that child. Lenders typically want confirmation that the 20% deposit is the purchaser’s equity and therefore any financial assistance is generally required to be gifted. The gift would need to be documented by way of a deed of gift. If a gift is made, there’s no ability for parents to later on demand partial or full repayment. This is an important consideration from both a relationship property perspective for your child and also for your own future financial needs. You must be careful that your generosity towards your child does not get in the way of your own retirement planning. If you want to protect the gift made for relationship property purposes (if your child is in a relationship), your child should enter into a contracting out agreement to record the gifted amount as their separate property.

Option 2

Loan from parents

If you can persuade the lender to agree to a loan to your child rather than a gift, then the shortfall of the deposit amount can be lent to your child. The terms of the loan would need to be recorded, generally, in a deed of acknowledgement of debt. This would include naming your child as borrower, interest to be payable (if any), dates for repayment, the ability for the loan to be transferred to a second or subsequent property and, most importantly, the ability to register a mortgage as security for the loan.

Option 3

Guarantee from parents

Under this option your child would purchase the property outright and any shortfall in the 20% deposit can be guaranteed by you as parents. The guarantee should be limited to the amount of the shortfall. The lender would also generally require that the guarantee is supported by a mortgage over your own property. If you choose this option, it’s important that all parties talk to the lender early on. As well, there would be a requirement for you and your child to each receive independent legal advice. The benefit of a guarantee is that there is no money required upfront. There is, however, considerably more risk should your child default in their obligation to the lender.

Option 4

Joint purchase of property

If your child can’t afford to buy their own property, you could buy a share of that property. The title to the property would then have you and your child registered as tenants in common in the shares owned. This option provides some security and potential capital gain return for you as parents. With joint ownership, careful discussion still needs to be held with the lender regarding the required securities. With this option, it’s essential that a property sharing agreement is entered into between all of the co-owners. This records the terms of the purchase, who will pay for outgoings, repairs and maintenance, management of the property, what happens if your child fails to perform their obligations and, most importantly, an exit strategy for you as parents. Again, you and your child will need independent legal advice.

Option 5

Family trusts

A family trust could be used in many of the ways explored above, if the terms of the trust deed allow this. Family trust funds could be used to distribute or lend money to a child beneficiary to help them buy a first home. Likewise, the trust could provide a guarantee or be a joint purchaser. A trust, of which the child is a beneficiary, could also be used as the purchasing entity. Once again, specialised legal advice needs to be sought regarding the trust and structuring of any lending. If your child is reliant on a government grant for part of their cash contribution, the property must be owned personally for the first six months. No family trust ownership is allowed. Although trusts have historically been used to provide relationship property protection, this is no longer the case. Trusts can also be open to claims. Whichever of the five options above you choose, you should also review the terms of your Wills or Memorandum of Wishes for your trust. As well, it’s important to ensure that any assistance, gift, loan or any potential liability under a guarantee or co-ownership arrangement is taken into account when dealing with all your children on an equal basis (if this is what you want to happen). This will help protect against claims by disgruntled siblings if similar assistance has not been provided to them.

Important to get advice

If you are financially able and willing to lend a hand to your child to help them into their first home, there are options to assist with meeting the criteria of the LVR rules. Our adviceis to ensure you take control of the decision making and get expert legal advice on the options available to you before your child commits you to something that may not be the best option for you. Parents can provide valuable support but it must work for all involved.

How can we help you?

We have dedicated teams based in our Riccarton, Hokitika and Rolleston offices who regularly advise on and assist with a variety of property matters. If you have any questions arising out of the issues raised in this article, please feel free to get in touch. You can contact Paul Owenspaulowens@parryfield.com or Luke Haywardlukehayward@parryfield.com, ring us on (03) 348 8480 or pop in to one of our offices.

Used by permission, Copyright of NZ Law Limited, 2017

New Extension of the Bright Line Test

 

In October 2015 the Government introduced the ‘Bright Line Test.’  The purpose of this test was to tax people on any “capital gains” made from the sale of residential land when that sale occurred within two years of the party acquiring the land and when an exemption to the tax did not apply.

Recently, a rather significant amendment has been made to this test that may affect you if you acquire property after 29 March 2018. Below we discuss this change and note the keys points that you should be aware of.

The Amendment

 

The timeframe under the Bright Line Test has now been extended from 2 years to 5 years.

 

 

Application of the Bright Line Test Moving Forward

 

Application of the Bright Line Test is now as follows:

  1. If you acquired your property prior to 1 October 2015, the Bright Line Test will not apply (this position has remained unchanged);
  2. If you acquired your property from 1 October 2015 to 28 March 2018 (both days inclusive) the original 2 year timeframe under the Bright Line Test will continue to apply;
  3. Any property acquired from 29 March 2018 will now be subject to the 5 year timeframe under the Bright Line Test.

The date you acquired the property is typically the date that you entered into an Agreement for Sale and Purchase to purchase the property (although this position can vary).

 

Residential Land Withholding Tax

 

Residential land withholding tax criteria has now also changed for offshore RLWT persons to align with the change to the Bright Line Test.  For property acquired from 29 March 2018 onwards, tax will be withheld by the solicitor/conveyancer for an offshore RLWT person and forwarded to the IRD on the sale of residential property sold within 5 years of its acquisition (if an exemption does not apply).

 

Does the bright-line test apply to all residential property?

 

All residential property is subject to the Bright Line Test however, the original exemptions to the Bright Line Test continue to apply.  Primarily if the land was used as your main home, was transferred to you as part of an inheritance or was transferred to you as an executor or administrator of an estate. In all other situations, you will need to look to the test to determine whether you are obligated to pay tax.

 

 

If you have any concerns or questions regarding the Bright Line Test and RLWT, and how it applies to your situation, we have teams based in Riccarton, Hokitika and Rolleston who would be happy to assist.  Please feel free to contact us to discuss further..

Contacts:

Paul Owenspaulowens@parryfield.com

Luke Haywardlukehayward@parryfield.com

Judith Bullinjudithbullin@parryfield.com

 

 

New changes to the Overseas Investment Act (OIA) will be enforced later in the year restricting non-resident foreign buyers from purchasing existing homes in New Zealand in an effort to make housing cheaper for New Zealanders.  These changes mean that all land considered “residential” or “lifestyle” will be deemed “sensitive land” and will be more difficult for overseas investors to purchase. The anticipation of these changes has raised some concerns and confusion for those hoping to purchase property in New Zealand.

This article aims to address some of these concerns, and clarify the confusion.

 

What are these upcoming changes?

 

The government is “tightening” the overseas investment regime by broadening the scope of “sensitive land” to include residential land, which will primarily be available only to New Zealand and Australian Citizens (and permanent residents who meet the criteria – more on this below). This will make it more difficult for overseas investors to purchase property in New Zealand as they will be subject to consent from the Overseas Investment Office (OIO). The consent/screening will require that the investors are committed to staying in New Zealand. If they obtain consent and subsequently breach the regime, the investors may be required to take certain actions such as selling their property within 12 months of the “trigger event”. The definition of a trigger event will be provided in a regulation in the act.

Along with this major change, stricter rules are likely to apply to the purchase of farm land or forestry by overseas investors.

NB: “Sensitive land” is land that cannot be purchased by overseas investors unless they obtain consent from the Overseas Investment Office.

Criteria for permanent residents:

 

A permanent resident may be classed with New Zealand and Australian citizens and therefore not need to obtain consent from the OIO where they have been residing in New Zealand for at least 12 months and have been present in New Zealand for at least 183 days. If they don’t meet these requirements, then they will be placed in the same class as residents for the purposes of purchase of sensitive land and will be subject to the same consent/screening criteria (showing that they are committed to residing in New Zealand).

 

Example:

Frank and Jill are planning to move to New Zealand from overseas and want to get in the property market over here. They are concerned that these upcoming changes to overseas investment in New Zealand will prevent them from doing so, so they want to buy property in New Zealand before it is too late. Frank and Jill are wondering whether it would be best for them to quickly buy an average house to ensure that they are in the property market before these new changes come into force.

 

Should Frank and Jill quickly buy property in order to get in the market?

At this stage, it is unclear when these changes will actually come into force. This poses a difficulty in determining when will be too late to purchase property before the new requirements are imposed. It is certainly a possibility that Frank and Jill could buy an average house in the meantime to simply get on the property market, and it is advisable that they do purchase property before the changes do come into force if they wish to avoid the screening criteria. If they enter into a sale and purchase agreement now, they will not be subject to the criteria when the changes do kick in.

That being said, purchasing an average property as a way of getting in the market would not give Frank and Jill a free pass to then on-sell and buy a new house later down the track. They would still be subject to the screening tests once they are enforced – that is, until they either meet the permanent resident requirements noted above, or until they become a New Zealand citizen.

 

Other options available to Frank and Jill:

Another option is that Frank and Jill rent a house until they have satisfied the permanent resident criteria, and then purchase a house at that stage. They will need to ensure that they have met the 12 month/183 days residing in New Zealand requirements in order to qualify by this means.

It is important to note that these changes do not by any means mean that Frank and Jill will not be able to purchase property in New Zealand; it simply means that they must get consent in order to purchase unless they meet the residency requirements.

What about agricultural/farm land and forestry?

 

As mentioned above, stricter requirements are also likely to apply to the purchase of farm land and forestry. If an overseas person is seeking to invest in farm land, questions in relation to jobs, new technology, increased exports, increased processing of primary and oversight and participation by New Zealanders.  An overseas person investing in forestry land may be subject to certain conditions such as entering into agreements with locals.

For a more general article on the changes to OIO rules, see our article here.

 

If you have any further questions regarding these upcoming changes, please feel free to get in touch with us. We have teams in our Riccarton, Hokitika and Rolleston branches who would be happy to help you.

Kris Morrisonkrismorrison@parryfield.com

Paul Owenspaulowens@parryfield.com

Steven Moe stevenmoe@parryfield.com