Foreign ownership Ban on NZ residential land will add costs
Ban on foreign ownership of NZ residential land will add costs and risks
The New Zealand Law Society says a proposed requirement for lawyer certification in the Overseas Investment Amendment Bill will likely result in an increase in conveyancing costs for home buyers.
A key proposed change will require certification from anyone doing conveyancing work for a purchaser, that the purchaser will not contravene the Overseas Investment Act by buying the residential property.
Providing incorrect certification, or failure to provide certification, could result in a lawyer receiving a conviction and $20,000 fine.
The Law Society says this new requirement does not reflect the reality of the majority of residential property sales.
“It’s common with residential property sales (such as auctions) that a buyer will have their first contact with a lawyer when they have already entered into a binding contract with the seller,” says Law Society spokesperson, Duncan Terris.
He says if it later transpires that the purchaser was not entitled to purchase the property, severe complications could result, affecting not only the purchaser but also the property seller.
“The increased obligations on lawyers will increase their exposure to a risk of innocently or unwittingly aiding someone to breach the Overseas Investment Act. This risk may ultimately be reflected in higher conveyancing fees,” he says.
The Law Society says potential issues could be eliminated by simply placing the obligation to state that a purchaser is not breaching the Act by buying a residential property to where it logically belongs; with the prospective purchaser.
It says an objective test has been proposed in the Act which will enable a prospective purchaser to ascertain for themselves whether they are eligible to buy the property.
The Law Society says this should be one of the first steps taken early in the home buying process, before lawyers typically become involved.
“This could be incorporated into the ‘industry standard’ Agreement for Sale and Purchase of Real Estate used almost universally in residential land transactions in New Zealand. It would satisfy the requirements for Overseas Investment Office information-gathering relating to the residential ban,” Mr Terris says.
He says this solution would also minimise the number of land transactions that might fail due to ineligibility, and would protect innocent vendors from the risk of accepting offers from ineligible purchasers. This, he says, is far preferable to the Bill’s proposed requirement for lawyer certification.
The Law Society is also offering its assistance and expertise with drafting changes to the Bill.
The NZLS submission is
available at http://www.lawsociety.org.nz/__data/assets/pdf_file/0005/118184/Overseas-Investment-Amendment-Bill-24-1-18.pdf
The Bill is available here: http://www.legislation.govt.nz/bill/government/2017/0005/latest/DLM7512906.html
For more information on the changes introduced by the Bill, see over.
Overseas Investment Amendment Bill – information:
What is the bill about?
The bill aims to ensure that overseas buyers, who are not resident in New Zealand, will generally not be able to buy existing houses or other pieces of residential land.
It is intended that the restrictions on overseas investors will lead to a housing market with prices shaped by New Zealand-based buyers, which will make houses more affordable for New Zealanders - especially first-home buyers.
What does this bill mean?
The bill proposes to place restrictions on overseas investors buying existing houses or residential land.
Under the bill, overseas buyers will be able to buy residential land if:
• they develop the land and add to New Zealand’s housing supply
• they convert the land to another use and show that this would have wider benefits to the country
• they hold an appropriate visa and can show they have committed to live in New Zealand.
Under the bill, an “overseas person” would be someone who is not a New Zealand citizen, or is not “ordinarily resident” in New Zealand. A person would be classified as “ordinarily resident” if they hold a permanent resident visa and have been in New Zealand for 183 days in the past year.
The Bill also enhances the information-gathering and enforcement powers of the Overseas Investment Office to assist in ensuring compliance with the Act.
Who might this affect?
• overseas investors
• first-home buyers
• non-permanent residents
• property sector
What happens next?
The Overseas Investment Amendment Bill passed its first reading on 19 December. It was referred to the Finance and Expenditure Committee.