2. Foreign buyers ban relaxed

Finance and expenditure select committee chair Michael Wood said the committee had listened to a number of submitters before deciding on changes. Photo: Lynn Grieveson.

Foreign buyers will still be able to buy homes in New Zealand, if recommendations by the Finance and Expenditure select committee are adopted.

The committee has been hearing submissions on the Overseas Investment Amendment Bill.

Under the original draft of the bill, foreign buyers could purchase apartments off the plans, but would have to on sell them as once the building was completed.

The select committee has recommended this be relaxed to allow foreign buyers to hold onto new properties bought off the plan, provided they are in large, multi-storey developments with 20 or more units.

Select committee chairman Michael Wood told Newsroom the committee felt that making a change in this area was consistent with the bill’s aim of ensuring adequate supply of housing.

“Some of the concerns were that the bill as it was originally worded might have inhibited some of the investment that we need, particularly in the medium-high density area,” Wood said.

“A lot of the larger developments actually rely on pre-sales to get enough funds to make the project viable.”

This particular provision of the bill came under serious criticism in select committee and from commentators.

Jamie Hutchens, a partner with Conrad Properties, New Zealand’s biggest apartment developer, told Newsroom’s Nikki Mandow of the chilling effect of the bill on the apartment market.

“Once this bill was proposed, our sales stopped,” he said.

Respite for hotel developers

There was also discontent voiced by submitters who said that the bill would halt the building of much-needed hotels.

Some hotels are financed by developers selling individual units to buyers, which are zoned as residential properties for rating purposes, but leased back to the hotel to be operated as hotel rooms.

Graeme Todd, of Queenstown law firm Todd & Walker, advises on applications and proceedings under the Overseas Investment Act. He told Newsroom in February that he was concerned that the bill would cool overseas investment in hotel building.

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

“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.”

Wood said the committee had decided to make a change to the bill in response to submissions on hotel development.

“We did hear that concern, and there was particularly some of that out of Queenstown”, he said.

Foreign investors will continue to be able to purchase hotel units provided they are leased back to the developer or hotel.

Bad luck for viticulture

The committee has not made any recommendations on the inclusion of profit à prendre rights, which will come under the Overseas Investment Act for the first time. Profit à prendre is a right to harvest a crop like trees or grapes on land without needing to own the land itself.

Economic Development and Trade Minister David Parker told Newsroom that profits à prendre were being brought under the OIO regime to ensure consistency with other forms of ownership, like leaseholds, which were scrutinised by the OIO.

The bill has been criticised as unfair because it creates an inconsistency between forestry and other profits à prendre. Forestry profits do not come under the regime if the land in question is under 1000 hectares. In all other industries, anything over 5ha must first go through the OIO.

These rules will not be relaxed.

Bill still relevant

Statistics NZ said in June that just over three percent of homes sold in the first three months of the year had gone to foreign buyers.

Michael Wood said that the the statistics showing a much higher rate of foreign transactions in Auckland (7.3 percent) and Central Auckland (nearly 19 percent) showed the continued need for the bill to cool house prices in areas of high foreign ownership.