Investing

Investment in New Zealand

Overseas Investment in New Zealand

New Zealand welcomes overseas investment. Regulation is liberal with controls featuring more strongly in foreign investment in “sensitive land” than in “‘significant business assets”. Generally, overseas people are free to purchase a commercial building, a residence or holiday house in New Zealand without the need for consent from any regulatory body. If the property falls within the types of land requiring consent being “sensitive land” or the value of the commercial building as a ‘business’ exceeds NZ$100 million, then Overseas Investment Office consent will be required.

The Citizenship Act 1977 provides that every person who is not a New Zealand citizen is entitled to own and sell land in the same way as a New Zealand citizen. However, owning a house or other property in New Zealand does not give an overseas person rights to reside permanently in New Zealand.

OVERSEAS INVESTMENT REGULATION

The main regulatory controls are contained in the Overseas Investment Act 2005 (OIA) and Overseas Investment Regulations 2005 (OIR). The Overseas Investment Office (OIO)1 administers them under the Minister for Land Information and the Minister for Finance.

1Overseas Investment Office - www.oio.linz.govt.nz

There is a distinction between investment by overseas persons and entities in land, and in non-land assets.

Overseas persons are those who are neither citizens of New Zealand nor ordinarily resident in New Zealand. A company is deemed to be an overseas entity if:

  • It is incorporated outside New Zealand.

  • 25% or more of its shares are owned by an overseas person or a company incorporated outside New Zealand.

The following entities may also be considered overseas persons or entities depending on the extent to which they are owned or controlled by overseas persons:

  • Trusts

  • Partnerships

  • Joint Ventures

  • Unit trusts.

An associate of an overseas person is also an overseas person for the purposes of the Act. An associate is any person or entity acting in concert or jointly with an overseas person, or who is controlled by, or subject to an overseas person’s direction or influence or participates in the overseas investment as a consequence of any understanding or arrangement with an overseas person.

Non-compliance with this legislation can attract large fines and the potential for imprisonment.

Purchase of Significant Business Assets (Non-Land)

Overseas persons require consent to:

  • Acquire a 25% or more ownership or controlling interest in an entity or to increase an existing 25% ownership or controlling interest and:

  • The consideration exceeds NZ$100 million; or

  • The value of the assets of the entity and 25% or more of its subsidiaries exceeds NZ$100 million.

  • Establish a business in New Zealand where the total expenditure expected to be incurred before the business commences exceeds NZ$100 million and the business is carried on for more than 90 days in any year.

  • Acquire property in New Zealand used in carrying on a business in New Zealand where the total value of the consideration exceeds NZ$100 million.

Criteria for Significant Business Asset Acquisitions Consent

The criteria used by the OIO in determining whether to grant an applicant consent are as follows:

  • Does the overseas person2 have business experience and acumen relevant to the investment?

  • Has the overseas person demonstrated financial commitment to the investment?

  • Is the overseas person of good character?

  • Is the overseas person a person prohibited by section 7(1) of the Immigration Act 1987?

2Or the persons controlling the overseas entity

Purchase of Sensitive Land

The purchase of sensitive land by an overseas person (or an associate of an overseas person) requires consent under the OIA

Sensitive land is defined as:

  • Non-urban land of five hectares or more.

  • Any land that is part of the foreshore or seabed.

  • Land on specified islands in the OIA.

  • Land over 0.4 hectares that includes or adjoins certain sensitive areas, for example, on specified islands, reserves, historic or heritage areas or lakes.

An overseas person will need consent if they purchase securities of an entity that owns or controls an interest in sensitive land and as a result:

  • Has a 25% ownership or controlling interest in the entity.

  • Increases an existing 25% or more ownership or control interest in the entity.

Under the OIR, if an overseas person wishes to acquire sensitive land that includes special land the seller must first offer the special land to the Crown as a condition of the application for consent.

Special land is any foreshore, seabed, riverbed or lake included in the sensitive land. Sensitive land that is used exclusively or principally for agriculture, horticulture or pastoral purposes, but not forestry, must be publicly advertised for sale to New Zealanders for a minimum period, with the seller being in a position to accept any offer arising from the advertising, before an application for consent will be considered.

Criteria for Sensitive Land Consent

The criteria used by the OIO in determining whether to grant consent for the purchase of sensitive land include in addition to the criteria above relating to significant business asset acquisitions:

  • The creation of new job opportunities or retention of jobs that may have been lost.

  • Increased export receipts for New Zealand exporters.

  • The introduction of additional investment for development purposes.

  • An increase in competition leading to lower prices and increased efficiency.

  • The introduction of new technology or business skills.

  • An increase in New Zealand primary products processing in New Zealand.

Additional considerations include whether adequate protective mechanisms have been put in place and assessment of the benefit of the investment against a list of factors in the OIR.

Application Process

Obtaining approval for purchasing non-land assets is reasonably straightforward. Applications involving sensitive land, particularly those involving special land (any foreshore, seabed, riverbed or lake included in the sensitive land) are more rigorous and require a considerable amount of information to be provided to the OIO. This application process will affect a transaction’s timing, particularly when sensitive and special land is involved.

Applications involving sensitive and special land have been declined by the OIO. It is unusual for applications involving non-land assets to be declined.

In terms of confidentiality, the OIO will not generally disclose the existence of an application while it is being considered (although it has the power to). Once an application has been determined, the OIO issues a public decision sheet, unless the applicant can show that good reason exists for withholding some or all of the information in respect of the application. In these situations, third parties may seek a ruling from the ombudsman as to whether the material should have been withheld by the OIO.

TITLE TO LAND

New Zealand uses the Torrens land registration system, where all parcels of land have their own titles showing the dimensions and location, and record ownership and other interests such as easements and securities, rather than relying on successive title deeds.

Titles are held in an electronic database maintained by Land Information New Zealand called Landonline. This allows electronic searching and registration of documents. Only registered and authenticated users are allowed access to ensure the integrity of the system. The government guarantees the correctness of titles, which can be searched by any member of the public for a nominal fee.

PLANNING LEGISLATION AND RULES

The use and development of land is generally controlled by local government . The power to regulate activities derives from the Resource Management Act 1991 (RMA). The stated aim of the RMA is to promote the sustainable management of New Zealand’s natural and physical resources. Each local authority’s district or region has a set of rules and a District Plan or Regional Plan that apply to development and the use of land in that area. They integrate laws relating to resource management bringing together the management of land, water, minerals, the coast, air and physical resources.

All land is classified within the District Plan or Regional Plan as being a particular “Zone”. Zones specify the activities for which land may be used, whether as of right or with resource consent. Activities may also be prohibited. Zones include:

  • Residential – placing limits on housing density and the types of non-residential activity that may take place.

  • Rural – the land is primarily for farming or horticultural purposes.

  • Industrial – land uses which are possibly more hazardous or are of greater nuisance to neighbouring occupiers, such as tanneries, refineries, etc.

  • Business – regulating activities in commercial areas.

CONTRACTS TO SELL AND BUY LAND

Agreements affecting land must be in writing if they are to be enforceable and are usually in the form drafted by the Auckland District Law Society in consultation with the Real Estate Institute of New Zealand. Once signed by seller and buyer, an agreement for sale and purchase becomes binding on both parties. It can, however, be made subject to conditions which protect either the seller or buyer by requiring the transaction to be finalised only if those conditions are satisfied or waived. Common conditions are:

  • The buyer raising finance.

  • The buyer being satisfied with a due diligence on the property, its tenants, zoning, etc. in all respects, including a land information memorandum.

  • All government consents being obtained.

  • The buyer being satisfied with valuation or engineering reports.

Usually, a deposit of up to 10% of the purchase price is payable on signing the agreement.

It is important for any buyer or seller to consider whether Goods and Services Tax (GST) (which is 12.5%) is applicable to a particular transaction. In most situations GST will not impact on the sale and purchase of residential dwellings as they are exempt. In many property transactions, GST will be applicable and the purchaser may be required to pay GST to the seller in addition to the purchase price. In some situations, the property may form part of a going concern and it may be possible to zero-rate the GST. Legal input on GST should be obtained prior to signing a sale and purchase agreement for land.

If the sale and purchase requires OIO consent, the agreement must be conditional on consent being obtained.

There is no stamp duty on land transactions.