The proposed anti-foreign house-buyer ban here has gone much further than Australia, prohibiting non-residents from not only buying an existing house but also building a house or buying a property off the plans without consent, a top lawyer says.
Joanna Pidgeon, Auckland District Law Society president, said even if consent was granted, foreigners would need to sell property here within a year.
This will apply to all overseas people with skilled worker visas living in New Zealand, she said and would mean New Zealand's proposed law would be much harsher than Australia's.
The Overseas Investment Amendment Bill, which had its first reading in the House just before Christmas, would ban foreigners from buying New Zealand houses or apartments even if they build them, she said, "because the requirement to divest the property within 12 months of completion would make the purchase and construction too risky with possible market fluctuations."
One of the aims of the legislation is to "build a more productive economy, by helping redirect capital to productive uses", the bill states.
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But Pidgeon said prohibiting overseas purchasers from buying off the plan or building houses unless they divest the property within 12 months would not see this redirection of capital.
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Guidelines from Australia's Foreign Investment Review Board show the country views foreigner non-residents more favourably. If they develop new houses or apartments, non-Australian residents can own them and keep them. That country sees new stock as of benefit.
Australia's Foreign Investment Review Board says: "Foreign persons generally need to apply and receive foreign investment approval before purchasing new dwellings. Applications to purchase new dwellings are usually approved without conditions. "
But the bill here bans foreigners from buying residential or lifestyle land under 5ha and building a new house is no pathway for foreigners wanting to get a toe-hold in New Zealand.
Pidgeon said Australia had a much more constructive and positive approach than New Zealand would have if the new law is passed in its current format.
"It is very important that our legislation is clear and simple. Australia has a very simple and clear rule: overseas people cannot buy existing property, but can buy new property," she said.
Australia imposes a levy on property owners if they leave their property vacant for more than six months. That encourages construction and discourages speculation or buying property and sitting on it without it being occupied to just receive the capital gain, Pidgeon said.
"Overseas property developers will need to get consent to buy land to develop, adding another layer of costs, and delays which add additional cost due to construction price escalation," she said.
"This will discourage them from developing in New Zealand. Overseas developers already see New Zealand as an expensive place to develop," she said.
"Overseas developers will need to sell their completed projects within 12 months of completion. That puts a huge risk factor into the development proposition. What happens if there is a recession and prices fall at the end of the project?
"The developers would have to sell anyway, regardless of price and losses which is too big a risk for most developers. Existing overseas developers may seek an exemption to purchase and develop land. We don't know on what terms they will be issued. Presumably they will also have to sell within 12 months of completion. However the risk, costs, delays and uncertainty will discourage new market entrants," she said.
Pidgeon wants the legislation simplified to allow foreigners to develop and buy off the plans, such as in Australia.
"Then we will see more property development improving housing affordability. Putting obstacles, costs and delays in the process will see overseas developers look elsewhere for development opportunities, and housing affordability will not improve," she said.
Associate Finance Minister David Parker says the new law recognises and reaffirms that it is not a right for an overseas buyer to purchase a house here.
"Our objective is to ensure that the New Zealand housing market is shaped by New Zealanders," he said, a change achieved by bringing residential land within the category of sensitive land in the Overseas Investment Act.
Submissions on the bill have not been released by the Finance and Expenditure Select Committee, although they were due out yesterday. That is because time frames on the legislation have now been extended.
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The report back date for the bill was extended by the Business Committee from February 20 to May 31. The committee has also re-opened submissions on the bill until February 16, parliamentary staff said.