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15 Feb 2018
One of the first promises was to stop non-NZ residents from purchasing residential property. This was just one step the government wanted to take to help solve the housing crisis.
It is perceived that foreign owners are forcing up local property prices. Personally, as an accountant and economist, I do not subscribe to that point of view. I believe it is more to do with basic demand and supply of property. However if you can reduce some of the demand (the foreign owners) it will probably have an impact, albeit probably a small percentage of the housing demand overall.
The government are able to bring this rule change in really quickly as they are amending the existing rules relating to foreign ownership of sensitive land, which requires Overseas Investment Office (OIO) approval. They are just going to amend the definition of sensitive land to include residential property.
The Bill to approve this is currently being fast-tracked through the Select Committee, as the bill needs to be passed into Parliament before the Trans-Pacific Partnership agreement is signed, which is expected to be 8 March.
Until the final Bill is passed we do not know exactly what it will consist of. However, the draft Bill gives us strong indications of what will be included.
The Bill is likely to cover not just individuals but also property acquired by a company or a trust. If a company has more than 25% foreign ownership they will not be able to acquire residential property. For example, a company owned 75% by Kiwi’s but with overseas’ investors of 25% would not be able to acquire residential property without OIO approval.
Similarly with trusts - if just one of the trustees is not a NZ resident, then OIO approval will be required. Even if there are no foreign trustees, if the Settlor of the Trust is not a NZ resident, it is likely that this will also need OIO approval, as Settlors often have the right to appoint trustees, and could appoint a foreign trustee.
So, if my mother (UK citizen) wanted to set up a trust for her grandchildren, she would be prevented from investing in residential property, even though it would be for the benefit of NZ residents and citizens (my twin boys were born here!)
Considering the gate is going to be closed to foreign owners within the next month, you may have expected a sudden rise in housing prices, with foreigners taking advantage of their last opportunity. I certainly haven’t seen any significant activity from overseas owners, and Auckland property prices do not indicate any significant increase either.
The definition of residential land is due to be worded to include land with a dwelling on it. Therefore, foreign owners should be able to acquire bare land and then build on it. This will increase the overall housing stock, one of the reasons for the specific wording.
Only time will tell whether the new legislation, when passed, will have any significant impact on the housing market. We will just have to wait and see.
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