Overseas Investment Amendment Bill – proceeding at a slower pace
There has been a concerted response from submitters that the Government needs to slow down the pace of the OIA Bill and it is gratifying to see that that is exactly what has occurred following the receipt of initial submissions on 23 January 2018 – submissions were reopened until 16 February and the Finance and Expenditure Committee are now scheduled to report back on 31 May (rather than the original report-back date of 20 February).
The basic premises of the Overseas Investment Amendment Bill are to establish affordable housing for first-time buyers and to ban overseas speculators from buying existing houses. Although the fast-tracking of this legislation meant that there was limited time for detailed analysis (the shortened consultation period closed on 23 January), ADLS’ Property Law Committee recently made submissions on the Bill, setting out a number of concerns with and suggested improvements to the current draft.
ADLS considers that the scope of the Bill needs to be narrowed to achieve more effectively its aims of banning overseas speculators from buying existing homes, given that overseas purchasers form only a very small part of the residential property market. ADLS is also concerned that the Bill, in its current form, will increase the costs of compliance for all purchasers, not just for overseas persons (although their costs will undoubtedly rise dramatically). This will not assist with the affordability of property, and will likely have a detrimental impact on property development in New Zealand by both New Zealand and overseas residential property developers. The Bill may also have a negative impact on attempts to attract skilled workers to immigrate to New Zealand as they will not be able to purchase a home when they first relocate here.
ADLS also notes that Australia’s similar attempt to ban overseas purchasers of existing residential properties has not been successful in improving housing affordability or stopping the prices of houses from rising.
Unintended consequences of amended definitions
A number of ADLS’ submissions dealt with proposed changes to some of the Act’s key definitions, including narrowing that of a person ordinarily resident in New Zealand, for the purposes of an overseas investment in sensitive land that is or includes residential land, the definition provides that the person is ordinarily resident in New Zealand, if the person:
(i) holds a permanent resident visa granted under the Immigration Act 2009; and
(ii) has been residing in New Zealand for the immediately preceding 12 months; and
(iii) has been present in New Zealand for 183 days or more in the immediately preceding 12 months.
Impact on housing developments
ADLS is concerned that the proposed Bill may impact potential housing developments in New Zealand, and detrimentally affect both New Zealand and overseas developers. This could have the flow-on effect of vastly reducing the number of new properties being offered in New Zealand. Many apartment developers are offshore persons who can choose what country to develop in, and may begin to perceive New Zealand as a place that is too difficult to invest in, with the high cost of applications and the delay in their processing of around six to nine months, especially if they are forced to divest themselves of the property within 12 months. This may mean that New Zealand misses out on capital which would have otherwise been productively invested into the country. The Bill also does not take into account that both New Zealand and overseas developers often rely on sales to overseas investors in order to meet their lenders’ pre-sale finance conditions.
ADLS submitted that the rental market also stands to be affected by the proposed changes. The media has recently reported a critical shortage of rental stock, particularly in the main cities and tourism hot-spots. There is a fear that without overseas purchasers being able to purchase property, and the possible reduction in the number of housing developments, the consequent reduction of rental housing on the market will put a significant amount of pressure on the rental market which is already under strain.
Existing home owners
Existing home owners may similarly be hit by the Bill’s unforeseen consequences. While its aim is to improve housing affordability, this will need to be achieved through a decrease in housing prices. If the policy is successful in making property more affordable by reducing house prices, the legislation will have the effect of preferring first-home buyers over those who currently own residential properties and already have “a foot on the ladder”, who may have taken on a significant debt to acquire these properties.
This could put those who have already entered the property market at the current house prices (and who have borrowed on the basis of those values) in the situation of paying far more in loan repayments than the property is actually worth. However, given the broad scope of the Bill at present, and the perceived negative impact on property development, at this stage it is unlikely that property prices will decrease as a result of the Bill (and indeed they may increase due to a possible reduction in the supply of new housing).
Issues for conveyancers
A particularly pertinent question is how, under the Bill, are lawyers and conveyancing practitioners going to satisfy themselves that their clients are compliant with the legislation? How will it be verified that a person possesses a permanent residency visa, has been residing in New Zealand for the past 12 months, and has been physically present in New Zealand for 183 days of those 12 months?
Will it be enough to sight a certificate of citizenship or permanent residency visa or a passport, or will these need to be verified? Will they, in good faith, be able to rely on approved entities to conduct this due diligence? ADLS suggests that, as an alternative to the current proposals, the solicitor or conveyancer could rely on a statutory declaration sworn by the purchaser that they have complied with the requirements of the Act, then a modified certificate could be given.
Legal professional privilege
There also appears to be tension in the proposed Bill between obligations set out in the current draft (specifically, the information-gathering powers allocated to the Regulator) and legal professional privilege – a tension that does not appear to have been adequately considered. ADLS suggests that one solution may be to replicate section 24 of the Serious Fraud Office Act 1990, which provides an example of how this could be addressed. However it is to be noted that this privilege does not apply to conveyancing practitioners.
ADLS’ Property Law Committee will continue to engage with this process, and would be keen to hear comments from practitioners in this area. These can be sent to firstname.lastname@example.org. A full version of ADLS’ submissions can be found on the Property Law Committee’s tab here.