Complying with the Overseas Investment Act – The price of living in paradise!!

Most of us don’t think twice about what a privilege it is to live, work, and own property in New Zealand. We are not an “overseas person” and we’re not affected by the restrictions on acquiring “sensitive land” contained in the Overseas Investment Act 2005 (OIA). The land in the Crafar Farms case was sensitive land, there has been ongoing media criticism of OIA consents being granted to buy iconic High Country properties, and decisions being queried when the overseas buyers turned out to have questionable histories. But that affects other people, doesn’t it?

Well, not really, the OIA affects a surprising number of people and a wide range of properties. Annual migration of 60,000 plus is becoming the norm. Our relatively open economy in world terms means that a large number of corporate entities, including those that are household names, have significant foreign ownership. And more importantly the definition of sensitive land doesn’t just apply to large rural properties, like many would think. The most common type of sensitive land is non-urban land that exceeds 5 hectares (ha) or coastal land exceeding 2000m2. This applies to many lifestyle blocks, small orchards and vineyards. Even land in urban areas can be sensitive if it exceeds 4000m2 and adjoins certain types of reserve or is on certain islands. (Who would consider, for example, that a house on Waiheke might be sensitive land?).

It also affects non “overseas persons”. If you own such a property, a significant part of your target buyer market will be “overseas persons”, thus affecting your sale process.

The consenting process is not simple or cheap. If the applicant intends to reside in New Zealand permanently, the Overseas Investment Office (OIO) will require extensive evidence showing the steps taken to obtain domicile and transfer assets to New Zealand. If the applicant doesn’t intend to reside here then a stringent criteria for showing that the purchase will benefit New Zealand needs to be satisfied. An OIA application can easily exceed 100 pages including annexures.

The Cabinet Economic Growth and Infrastructure Committee has recently approved a number of targeted exemptions to the consent process. Treasury is drafting regulations that are planned to be released for consultation later this year. These regulations are intended to include an exemption for small areas of land vested under the Public Works Act 1981 that would otherwise be classified as sensitive land because they adjoin sensitive land already owned by an overseas person.

This exemption reflects submissions made by The Property Group (TPG) and will remove a costly block to the efficient vesting of small areas of surplus land resulting from public works.

Increased fees have also been approved and included in regulations which take effect in July. This has resulted in increases of fees for sensitive land applications from $19,500.00 to between $22,500.00 and $49,000.00 depending on value and class of application. The fees for most applications by non-residents will be between $35,500.00 and $47,000.00.

These fees, when coupled with the legal fees involved in lodging the application, present a considerable barrier to land purchases, even if applications can be formulated and processed quickly, which is not always possible. That is why it is important (to both buyers and sellers of land) to establish with certainty whether it is sensitive land early in the process of sale or purchase. Unless land is clearly non-urban land exceeding 5 ha, it can be a complex and time consuming exercise.

This is an area where TPG can provide clear and reliable advice to both prospective buyers and sellers. If land is sensitive, early identification of sensitive land issues speeds up negotiation and gives a running start on preparation of the application. If land is not sensitive, it simplifies the sales process and removes doubts which might otherwise put off purchasers.