Businesses question "unintended consequences" of foreign buyers ban

A house for sale in Porirua, Wellington. Photo: Lynn Grieveson

Labour's proposed ban on foreign buyers has gone to select committee where submitters have suggested that it could stifle growth in the tourism sector.

They have claimed it could make it more difficult to build hotels, many of which are financed with foreign investment. This is in spite of a provision in the bill that says hotels will be excluded from the ban.

Graeme Todd, of Todd & Walker, a Queenstown law firm, who advises on applications and proceedings under the Overseas Investment Act, said that many hotel developments would still be caught up by the ban because of the way hotel developments were zoned and consented.

Many hotels were financed by developers selling individual units to buyers, which are zoned as residential properties for rating purposes. The properties are then leased back to the hotel, which will operate them as hotel rooms.

“Hotel development, which is desperately needed, is often funded through the sale of units to individuals, many of whom are overseas persons,” Todd told Newsroom.

“If development is on land categorised as residential for rating purposes such sales will be caught by the provisions of the bill as currently drafted,” he said.

The developers of the $100 million Rees hotel in Queenstown secured finance for the hotel this way.

The distinction between the residential zoning of the units and their operational use as hotel rooms was not reflected in the bill.

Todd told the Finance and Expenditure select committee on Thursday that many hotel developments in Queenstown, which struggle to provide enough accommodation for both tourists and residents, are on land zoned residential and financed with overseas investors purchasing hotel rooms.

He said the issue was an “unintended consequence” as a result of the speed with which the legislation had drafted and introduced.

Robert Neil, Director of Safari Group, a development and construction company, told Newsroom in December that he had written to the responsible minister, David Parker, about the concern.

Parker replied in a letter that hotels were “definitely” excluded from that category.

But the letter went on to say that: “The policy applies to all unit titles that are classified as a residential or lifestyle…This will include […] apartment units, but will exclude hotel units if they are classified as commercial.”

Neil said that all of the hotel units his company develops are classified and rated as commercial and thereby avoid being captured by the legislation.

The Safari Group built the $29 million Ramada Remarkables, near Queenstown Airport, as well as the $62 million Wyndham Garden Queenstown. It hopes to start construction on the $63 million Ramada Queenstown in April.

Hotels are not the only industry to be caught up in the legislation. The committee also received written submissions from three of New Zealand’s telecommunications providers.

Under the existing Overseas Investment Act, Spark, Vodafone, and 2degrees are all classified as overseas persons because more than 25% of their shares are, or can be sometimes, owned by overseas persons.

The telcos said that the bill as it currently stands would mean that they would need to go through the OIO to buy or lease land to install cellular infrastructure, which adds extra time and compliance costs to their business, especially at a time when the three companies upgrade their networks.

Vodafone’s submission highlighted the fact that ensuring New Zealanders had good coverage meant putting large amounts of cellular infrastructure in residential of lifestyle areas.

As well as being part of Labour's pledges for its first 100 days, the Government is moving to have the legislation passed before the CPTPP comes into force.

Failing to meet the shortage of hotel rooms could have unintended consequences of its own, as higher prices for alternative tourist accommodation could lead landlords to consider taking their properties out of rental stock and onto Airbnb or other similar services, increasing the acute accommodation shortage in New Zealand.

Parker was unavailable for comment, but his office said that officials were considering all the issues raised by submitters to the select committee. The committee will hear more submissions next Wednesday.