Wednesday, 1 November 2017

New Zealand follows Australia in shutting the back door to foreign residential property investors

In one of her first acts as Prime Minister of New Zealand, Jacinda Ardern has announced legislative amendments to classify residential housing as ‘sensitive’ and introduce a test for residency.  The effect of these changes to the Overseas Investment Act will be that non-residents and non-citizens cannot purchase existing residential dwellings.
These changes may seem protectionist, but actually mirror Australia’s existing prohibition on foreign investment in established residential property.

The overarching principle of the Australian policy, implemented by the Treasurer through the Foreign Investment Review Board (FIRB), is to ensure that any foreign investment in Australian residential real estate increases Australia’s housing stock. 

Foreign investors (as that term is defined in the relevant legislation) generally need to apply for FIRB approval and pay the relevant application fee before purchasing new dwellings or vacant residential land for development.  FIRB approval will generally be granted where the development genuinely increases the stock of Australian housing. 

To ease the application process, developers can apply for exemption certificates for new developments so that one application by the developer can be made for multiple new dwellings in, say, a new apartment block, rather than multiple applications from each purchaser. 

There is generally no limit on the number of new dwellings a foreign person can purchase, but an application to FIRB must be made for each purchase and FIRB may impose conditions on the transaction.   

By contrast, non-residents are generally prohibited from purchasing established dwellings in Australia all together (although an exemption exists for temporary residents on the condition that the property is sold when they leave the country).  It seems that the intent of the New Zealand amendments will replicate the Australian position – unless there is a genuine increase in the housing stock available, foreign buyers will be locked out of the market. 

There is one important exception to the Australian policy – Kiwis are exempt and are able to purchase residential real estate in Australia.   To maintain Trans-Tasman tranquillity, Ms Ardern has proposed a reciprocal exemption for Australians purchasing in New Zealand.

So there’s no need to rush out and buy that ski house before the new legislation takes effect!

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