Does Labour’s workaround work?

Using the other OIA to stop overseas buyers from buying properties with existing homes on them.

WARNING: GENERALITIES FOLLOW

As reported by Stuff, Labour will stop foreigners from buying houses in this country by designating existing dwellings as being “sensitive” within the framework of the Overseas Investment Act regime.

Does this satisfy Labour’s promised “ban” on foreign home owners?

It depends. The government said it would introduce legislation to achieve this. If that’s the case, then it might make substantive changes to the Act. If it simply intends to add “land which contains a dwelling” to the list of regulated purchases, then it depends on what’s meant by a “ban.”

How the OIA works

The purchase of land by an overseas person requires consent if the land is “sensitive” land. Sensitive land is described in Schedule 1 of the Act. The schedule lists various categories of land that can be sensitive, as well as the area of land required to make it sensitive in each case.

For example, non-urban land is currently considered “sensitive” if it exceeds five hectares.

Obtaining consent

The requirement for consent is, by definition, not a “ban” on the purchase of property. And, in fact, if all criteria in s 16 and 18 of the Act are met, the minister must grant consent to the acquisition.

Heavily simplified, the criteria for consideration are:

• The character of the applicant as well as their business experience, acumen and financial commitment to the investment.
• Whether the applicant is eligible for certain visa and entry permission under the Immigration Act 1987.
• Whether the applicant intends to reside in New Zealand indefinitely or, if not, whether the transaction will benefit New Zealand (and, in particular cases, that benefit is substantial and identifiable for consent to be granted).
• There are some additional criteria for some investments. For example, farmland must be offered on the open market before consent can be granted.

What’s a benefit to New Zealand?

In determining whether there is a “benefit to New Zealand”, all the factors in s 17(2) must be considered, though the minister decides the relative importance of each factor in relation to each application. Heavily simplified, the matters to be considered are whether the investment will:

• Create new jobs, or retain existing jobs;
• Introduce new technology or business skills to NZ;
• Boost NZ’s exports;
• Increase competition, efficiency or productivity, or enhance domestic services;
• Introduce additional investment for development purposes; and
• Increase processing of primary products in NZ.

The minister also needs to consider a whole lot of other factors (such as the protection of animals and plants, heritage considerations and so on and so on).

So is this a ban?

Unless Labour were to make further reforms to the OIA, adding land with houses on it to the “sensitive land” list wouldn’t be a ban in theory. However, for the reasons set out above, it would soon become expensive. getting OIA consent can be quite involved. Applications can run to one-hundred pages or more. As you might imagine, this can be an expensive process.

So you might call it a de facto ban on the purchase of properties with homes by overseas people.

Figures released earlier this year showed that home buyers without citizenship or residency accounted for about two percent of transferees. So while it might be effective as a ban, I wouldn’t be holding my breath about it doing much more than the scratching of a populist itch.

UPDATE: This may overstate things somewhat because, of course, that two percent includes Australians, who I’ve just realised will be exempt from Labour’s ban.