With speculation that the Government may be considering a softening of the residential land rules, we’ve taken the opportunity to reflect on what changes could be made by the Government in the current round of reforms.

Real Estate Partner, Greg Allen, spoke to the NBR about the different policy pathways available to the Government to streamline access and strike a better balance between protecting local interests and encouraging foreign investment. Read the full interview here (paywall).

In 2018, to address concerns about both housing affordability and overseas buyers purchasing homes as safe-haven investments amid global uncertainty, the New Zealand Government passed an amendment to the Overseas Investment Act 2005 which significantly restricted foreign investment in residential land. The result was that most foreign individuals could not buy residential properties for personal use (unless they were committing to reside in New Zealand) but also meant that non-resident businesses were (and still are) required to obtain consent from the Overseas Investment Office (OIO) to purchase residential land that was being used for residential land development or for non-residential purposes (such as medical consulting rooms, service stations, hardware stores and transmission towers for energy or communications).

We have maintained that:

1. Rather than creating streamlined pathways for these commercial uses, which are not associated with the issues which led to the regulatory change and, in the case of housing development, actually reverse the problem, these residential land uses should be permitted. If some form of restrictions are to be retained, institutional developers with a history of compliant housing development in New Zealand could be granted streamlined access to residential land. Criteria could include:
   

   •    demonstrated OIO compliance;
   •    delivery of a minimum number of housing units annually; and
   •    commitment to affordable or mixed-income housing projects.

   This would incentivise long-term, responsible investment and help address housing supply shortages.
   
   
2. The acquisition of certain types of residential properties by foreign individuals for personal use will have no detrimental impact on New Zealand’s housing shortage or the difficulties for first-home buyers to find affordable homes (eg, buying properties that are outside the urban centres or are remote, have a high land value or are subject to stringent restrictions that prevent future intensification and development). In fact, allowing the acquisition of those types of properties could actually enable the introduction of capital into New Zealand through the employment of builders, landscapers, other contractors and the purchase of building materials, etc.

We have now considered potential policy pathways that could strike a balance between protecting local interests and encouraging beneficial foreign investment in residential land.

Purchase price thresholds: One approach could be to allow foreign ownership for properties purchased above a certain price threshold, for example amounts of $2 million or $5 million have been touted. This would target high-value transactions that are less likely to compete with local first-home buyers. Such an approach would also need to consider situations where an overseas investor is buying bare land to build a new house. For example, an overseas investor may wish to purchase bare land for less than the threshold, but the total amount to be invested (being the combined land value and build cost for a new home to be built) is in excess of $5 million.

Regional median price benchmarking: To account for regional disparities in property values, a dynamic threshold based on the median sale price in each region could be implemented. For example, foreign buyers could be permitted to purchase properties priced at least 50% above the regional median. This would help ensure that foreign investment does not distort local housing markets in lower-cost areas while still enabling access in premium zones.

Geographic zoning: outside urban boundaries: Another option is to permit foreign ownership of residential land located a certain distance, say 20 kilometres, outside designated urban boundaries. This could encourage investment in rural or semi-rural areas, supporting regional development and infrastructure expansion without exacerbating urban housing pressures.

Investor visa integration: Foreign individuals investing a substantial amount ($10 million) into New Zealand businesses under investor visa categories could be granted conditional rights to purchase residential property. This could be structured to require:

•    minimum business investment thresholds;
•    property purchase above regional median price; and/or
•    property located outside urban boundary or in designated development zones.

Such a framework would align residential land access with broader economic contributions, including the benefits that New Zealand would gain from having sophisticated business operators living in New Zealand, sitting on boards of New Zealand companies and investing their capital into our country.

New visa framework: The introduction of a new visa that enables foreign individuals to obtain citizenship if they pay a substantial amount ($10 million) and buy a property (as opposed to investing in a business).

New duty or tax: Introduce a new duty or levy (eg, 15% of the purchase price) that has to be paid by a foreign individual.

Either of these last two mechanisms could generate additional government revenue that could be reinvested into affordable housing initiatives.

Conclusion

While we would not want to see the current restrictions on foreign ownership of residential land being removed altogether as there is still a need to ensure New Zealanders are not cut of the market for affordable homes and/or be able to buy homes in close vicinity to where they work, there is room to explore more targeted and strategic mechanisms. By linking land access to economic contribution, geographic location, and housing development outcomes, the Government could unlock new opportunities for overseas investment into New Zealand, encouraging economic growth while safeguarding local interests.

Get in touch

If you would like to discuss any of the above, please get in touch with our experts.