Overseas Investment Amendment Bill

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Overseas Investment Amendment Bill

Government Bill

5—1

Explanatory note

General policy statement

This Bill amends the Overseas Investment Act 2005 (the Act) to ensure that investments made by overseas persons in New Zealand will have genuine benefits for the country. The Bill has a focus on residential land, but also makes more general changes to the Act, including enhancing the information-gathering and enforcement powers of the Overseas Investment Office.

The Bill will ensure that overseas persons who are not resident in New Zealand will generally not be able to buy existing houses or other pieces of residential land. This will lead to a housing market with prices shaped by New Zealand-based buyers. The Bill will therefore make homes more affordable for New Zealand buyers at some times in the property market cycle, including for first home buyers, while also supporting our efforts to build a more productive economy, by helping redirect capital to productive uses.

Sensitive land that is residential land will be all properties classified as either “residential” or “lifestyle” for rating valuation purposes under the Rating Valuations Rules, which are issued by the Valuer-General. A property’s classification is held by the relevant territorial authority and could be obtained directly from them, or from various property-information websites.

A natural person is an overseas person under the Act if they are neither a New Zealand citizen nor “ordinarily resident in New Zealand”. The Bill modifies the definition of “ordinarily resident in New Zealand” for the purposes of the new residential land provisions. Under that new definition, a person will be ordinarily resident here if they hold a permanent resident visa and have been residing in New Zealand for at least a year and have been present in New Zealand for at least 183 days in the past year. The definition of “ordinarily resident in New Zealand” remains as it is in the current Act for all other purposes.

The Bill provides that overseas persons would be able to buy sensitive land that is residential land in certain situations. These are—

  • if they will be developing the land and adding to New Zealand’s housing supply; or

  • if they will convert the land to another use and are able to demonstrate this would have wider benefits to the country; or

  • if they hold an appropriate visa and can show they have committed to reside in New Zealand.

The Bill requires that conditions be imposed if an overseas person purchases residential land utilising one of these exemptions, for example, if an overseas person purchases residential land to build houses on it, they will be required to sell the land when the houses are built.

The Bill enhances the information-gathering and enforcement powers of the Overseas Investment Office, including by providing for civil liability for those involved in a contravention of the Act. These enhancements will assist in ensuring compliance with the Act.

Departmental disclosure statement

The Treasury is required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

Regulatory impact assessment

The Treasury produced a regulatory impact assessment on 30 November 2017 to help inform the main policy decisions taken by the Government relating to the contents of this Bill.

A copy of this regulatory impact assessment can be found at—

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 provides that the Bill comes into force on the 10th day after Royal assent.

Clause 3 provides that the Bill amends the Overseas Investment Act 2005 (the Act).

The Bill is in 3 Parts. Part 1 proposes to implement the Government’s policy to bring residential land within the category of “sensitive land” for the purposes of the Act. This means that the restrictions in the overseas investment regime will apply to residential land. For example, section 10 of the Act provides that a transaction requires consent under the Act if it will result in an overseas investment in sensitive land. Part 2 contains amendments relating to the consent and conditions regime for overseas investments in sensitive New Zealand assets. These amendments include new tests as part of the criteria for consent for overseas investments in sensitive land where residential land is involved, and mandatory conditions if consent is granted. Part 3 contains amendments relating to enforcement and miscellaneous matters. Among other things, the regulator’s powers (including information-gathering powers) are extended, the potential maximum civil penalty is increased, and the persons on whom a civil penalty may be imposed are extended.

Part 1Sensitive land

Clause 4 inserts a definition of residential land. For the most part, residential land is defined as land that has a property category of “residential” or “lifestyle” for the purpose of the relevant district valuation roll. Rule F.2 of the Rating Valuations Rules 2008 (LINZS30300) provides for each rating unit to be based on its highest and best use, within a broad property group, using the codes set out in Table 18 of those rules.

The residential category in those rules is defined as “Residential land of a domestic type, including investment flats” and consists of the following:

  • apartments which are in multi-storey buildings and are on strata title:

  • bare or substantially unimproved land, which is likely to be subdivided into dwelling house sites:

  • converted dwelling houses which are now used as rental flats and have 2 or more units of use:

  • dwelling houses of a fully detached or semi-detached style situated on their own clearly defined piece of land:

  • ownership home units which do not have the appearance of dwelling houses:

  • home and income. The dwelling is the predominant use and there is an additional unit of use attached to, or associated with, the dwelling house which can be used to produce income:

  • vacant or substantially unimproved land on which it is likely that multiple housing units will be built:

  • there is more than one principal dwelling house:

  • unit-titled car park which is likely to sell for residential use:

  • rental flats which have been purpose-built for rental purposes and have 2 or more units of use:

  • vacant or substantially unimproved land on which it is likely that a single dwelling house will be built.

The lifestyle category is defined in the Rating Valuations Rules 2008 as—

“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.”

The lifestyle category includes the following:

  • bare or substantially unimproved land, which is likely to be subdivided into smaller lifestyle lots:

  • improved to the extent that there is some residential accommodation sited on the land:

  • vacant or substantially unimproved land without immediate subdivision potential.

The lifestyle category does not include land categorised within other categories, for example, “commercial”, which includes accommodation such as motels and hotels and elderly rest homes.

Clause 5 inserts the item residential land into Schedule 1 of the Act, which makes it sensitive land to which the Act applies.

Part 2Amendments relating to consent and conditions regime for overseas investments in sensitive New Zealand assets

Clause 6 amends the overview section in the Act.

Clause 7 amends the main interpretation section of the Act.

Subclauses (1) and (3) relate to the new residential land provisions.

Subclauses (2) and (5) relate to enforcement.

Subclause (4) relates to the definition of ordinarily resident in New Zealand. This definition is important because, if a person is ordinarily resident in New Zealand (or a New Zealand citizen), the person is not considered an overseas person and the consent requirement does not apply.

The definition is changed for the purposes of an overseas investment in sensitive land that is or includes residential land. Currently under the Act, a person is ordinarily resident in New Zealand if the person holds a residence class visa granted under the Immigration Act 2009 (ie, a permanent resident visa or a resident visa (see section 4 of the Immigration Act 2009)) and is in one of the following categories:

  • is domiciled in New Zealand (see section 9 of the Domicile Act 1976); or

  • is residing in New Zealand with the intention of residing there indefinitely, and has done for the immediately preceding 12 months. Absence from New Zealand for no more than 183 days in aggregate in the last 12 months does not prevent a person from satisfying the requirement for residing in New Zealand for the last 12 months.

The new definition for the purposes of an overseas investment in sensitive land that is or includes residential land is a narrower, brighter-line test as follows:

  • a person must hold a permanent resident visa:

  • domicile is not a means by which the person can satisfy the rest of the test:

  • a new test of residency in New Zealand replaces the requirement to assess a person’s intention to reside in New Zealand indefinitely.

Clause 8 proposes a consequential amendment to section 7 that is only a tidy-up.

Clause 9 provides for transitional, savings, and related provisions in new Schedule 1AA.

Clause 10 replaces section 16(1)(e), which contains some of the criteria for consent for overseas investments in sensitive land.

Under the current Act, applicants for consent must satisfy certain criteria including the core investor test criteria, which relate to matters such as business experience and acumen, financial commitment, good character, and not being certain types of convicted or deported persons. Those criteria are unchanged by the Bill.

Currently, under section 16(1)(e) of the Act, consent to acquire sensitive land will be granted only if one of the following criteria is met:

  • the transaction will, or is likely to, benefit New Zealand:

  • the relevant overseas person intends to reside in New Zealand indefinitely.

The Bill proposes to replace those 2 criteria in current section 16(1)(e) of the Act with 3 new pathways as follows:

  • a commitment to New Zealand test (see new section 16A):

  • a test designed to increase housing on residential land (see new section 16C):

  • a benefit to New Zealand test (see new section 16E).

Clause 11 inserts new sections 16A to 16F, which contain the new pathways for screening for consent to buy sensitive land. The new commitment to New Zealand test and the benefit test both apply to residential land and other sensitive land, but in general the requirements are different depending on whether the land involved in the transaction is or includes residential land.

If the transaction does not involve any residential land, the net effect of the new sections is the same as that of existing section 16(1)(e). An overseas person who intends to reside in New Zealand indefinitely can meet—

  • the new test in new section 16A(2) (commitment to New Zealand test) instead of existing section 16(1)(e)(i); or

  • the benefit test in new section 16E instead of existing section 16(1)(e)(ii) and (iii).

If the sensitive land is or includes residential land,—

  • the test in new section 16A(3) is new. (The test applies, for example, to people who hold a relevant residence class visa and who meet requirements, to be set in regulations, about their commitment to reside in New Zealand):

  • the test in new section 16C is new. (The test, in summary, relates to increasing the number of dwellings, improving land for subdivision and other accommodation uses, and then on-selling or (in the case of certain accommodation uses only) operating in a certain way and not occupying any of the dwellings. This particular test is only available if the land is sensitive land only because it is residential land, ie, it is not also sensitive for some other reason under Schedule 1 of the Act):

  • the benefit test contains new requirements, as well as the existing benefit test.

No change is proposed in the Bill to the core provisions of the Act about the approach to the criteria for consent (see section 14), subject to the following:

  • applicants for consent for overseas investments in sensitive land must state in their application for consent which new test or tests under new section 16(1)(e) enables section 16 criteria to be met for the purpose of section 14(1)(c):

  • in respect of the new residential land provisions,—

    • for certain tests, applicants must also state which increased housing outcome or outcomes they propose will result:

    • the simpler test (eg, whether there is an increase in residential dwellings “before and after” the investment) applies (see new section 16D(3)):

    • in some cases, applications for consent can be made and considered in advance of the actual transaction being identified (see new section 23A).

Clause 12 proposes consequential amendments to section 17 to reflect the changes to section 16.

Clause 13 amends section 23 to require applicants to nominate, in their application for consent, which test they are electing to be screened under.

Clause 14 inserts new section 23A to enable the granting of “standing consents” for land that is only sensitive land because it is residential land (ie, the land is not also sensitive for some other reason under Schedule 1 of the Act). This will enable consents to be granted once the overseas purchaser has been screened, but before the land or the transaction has been screened, provided that certain conditions are met.

Clauses 15 to 17 relate to consents and conditions of consent.

Clause 18 amends section 31, which relates to what the regulator does. The amendment clarifies that the regulator’s functions include monitoring compliance with the Act, investigating conduct, and enforcing the Act. This substantially reflects existing things that the regulator does under the Act.

Clause 19 relates to the Ministerial directive letter.

Part 3Enforcement and other miscellaneous matters

Subpart 1 relates to enforcement.

Clause 20 changes the heading of subpart 4 of Part 2 from “Monitoring” to “Information-gathering powers”.

Clauses 21 to 23 amend sections 38 to 40, which allow the regulator to give a notice that requires certain information or documents to be provided. The amendments require the information or documents to be provided in the manner specified in the notice.

Clause 24 amends section 41, which currently allows the regulator to require information and documents for the purpose of detecting offences. The section is extended to allow the regulator to require information or documents if the regulator has reasonable grounds to believe that the supply of the information or documents is necessary or desirable for the purposes of administering or enforcing the Act.

Clause 25 inserts new sections 41A to 41D. In summary,—

  • new section 41A deals with the effect of a proceeding relating to the regulator’s information-gathering powers. Until a final decision is given, the powers may continue to be exercised and no person is excused from fulfilling the person’s obligations to provide information or documents (unless a court orders otherwise):

  • new section 41B provides for the effect of a final decision that an exercise of a power is unlawful, including requiring the destruction of information or documents that have been unlawfully collected (unless a court orders otherwise):

  • new section 41C provides for information and documents obtained by the regulator under section 41 to be published or disclosed only in specified circumstances (for example, when exercising or performing the regulator’s powers, functions, or duties):

  • new section 41D allows the regulator to impose conditions relating to the publication or disclosure of information.

Clause 26 inserts new sections 41E and 41F. In summary,—

  • new section 41E allows the regulator to give a notice requiring property to be disposed of if the regulator has reasonable grounds to believe that there has been a contravention of the Act. The property must be disposed of within the time and in the manner specified in the notice:

  • new section 41F gives a person protection from civil or criminal liability in relation to the contravention if they dispose of the property within the time and in the manner specified in the notice. Any other person who is involved in the contravention may still be liable for a civil penalty.

A failure to comply with the notice under new section 41E is not itself a contravention of the Act that gives rise to any civil or criminal liability. In contrast, section 47 provides for a similar power relating to disposal, but in that case orders of disposal are made and enforced as court orders.

Clause 27 amends section 46, which relates to an offence of making a false or misleading statement. The amendment clarifies that the offence applies to materially false or misleading statements.

Clause 28 amends section 48, which allows the court to impose a civil penalty. The amendments—

  • extend the provision to allow a penalty to be imposed on a person who is involved in a contravention (for example, a person who aids or abets the contravention or is otherwise knowingly concerned in, or a party to, the contravention):

  • increase the potential maximum civil penalty. Currently, the maximum penalty must not exceed the higher of certain amounts, including the quantifiable gain received by the person in contravention of the Act. This has been increased to 3 times the amount of the quantifiable gain.

Clause 29 inserts new section 48A to give a defence to a person who is involved in a contravention (where, for example, the person took all reasonable and proper steps to ensure that the Act was complied with).

Clause 30 corrects section 51 so that it applies better to persons relying on exemptions.

Clause 31 inserts new section 51A. New section 51A applies to a lawyer or a conveyancing practitioner who is acting in relation to the purchase of residential land. It requires the lawyer or practitioner to give a certificate that, to the best of that person’s knowledge, the purchaser will not breach the Act by giving effect to the transaction. A failure to give the certificate is an offence with a maximum fine of $20,000.

Clause 32 replaces sections 54 and 55, which relate to service. The main changes are to—

  • clarify that the provisions apply whenever notices or other documents are given, provided, or served by the regulator under the Act; and

  • provide for service in New Zealand on overseas persons (and other persons) who are not consent holders; and

  • clarify how to prove that documents have been given, provided, or served.

Subpart 2 contains miscellaneous provisions.

Clause 33 amends section 61, which contains the regulation-making powers. Some of the more significant proposed changes are to enable regulations to be made—

  • to prescribe classes of visa, and factors for assessing commitment to New Zealand, for the purposes of new section 16A(3):

  • to provide for the acquisition by a Māori person of an interest in Māori freehold land:

  • to implement any obligation that has entered into force for New Zealand before the commencement of the Bill under any international agreement and that relates to either or both of overseas investments in sensitive land and overseas investments in significant business assets.

Clause 34 inserts new Schedule 1AA, which contains transitional, savings, and related provisions. The main effect of these provisions is that the Act (as in force before commencement) continues to apply to transactions entered into before commencement as if this Bill had not been enacted. This applies even if an application for consent that relates to a transaction entered into before commencement is made after commencement.

This position is subject to 2 qualifications relating to the new enforcement provisions. The new information-gathering powers in section 41 and the new service provisions in new sections 54 to 55A apply to matters before and after commencement.