Developers of large apartment developments holding transitional exemption certificates (which are set to expire in August 2023) may be able to get a discretionary exemption from the OIO, which would allow completion of sales to take place beyond August 2023.
As part of our recent OIO Recap, we outlined ways in which foreigners could invest in NZ residential real estate following implementation of the foreign buyer ban in New Zealand (legislated as part of the Overseas Investment Amendment Act 2018 (Amendment Act)).
The Amendment Act also provided for transitional exemptions to the foreign buyer ban, including where a developer had obtained a ‘transitional exemption certificate’ from the Overseas Investment Office (OIO).
Transitional exemption certificates and August 2023 Expiry Date
Transitional exemption certificates were originally introduced so that developers of new large apartment buildings who had already commenced selling dwellings ‘off the plans’ prior to the introduction of the foreign buyer ban, could remain exempt from the foreign buyer ban and continue sales to overseas persons – at least for a limited period of time.
Between late 2018 and mid 2019, the OIO issued a number of developers with transitional exemption certificates. These certificates were originally issued with an expiry date of 22 August 2023. The certificates allow certain developers in exempt developments to continue selling new dwellings in the apartment building to overseas buyers, provided the buyer ‘acquired’ the dwelling before the expiry date of 22 August 2023. This was particularly important for large apartment projects, which often require pre-sales to ensure adequate funding for the overall project.
An area of some original ambiguity was the requirement for the apartment to be ‘acquired’ and whether that meant a buyer had to, by 22 August 2023:
- Simply have an apartment under contract (from signing date the buyer has acquired an equitable interest in the apartment); or
- Have given effect to the transfer of the apartment (meaning the buyer needed to have acquired the legal interest).
The purpose behind the OIO’s decision to consider granting of new discretionary exemptions is to resolve the ambiguity by confirming the first interpretation.
Covid, Delays, Discretionary Exemption?
Covid19 and the associated delays caused considerable delays in the construction sector in New Zealand and this meant that many developers were delayed in their sales to third party buyers.
We understand that the OIO is open to hearing from developers holding transitional exemption certificates (having a current expiry date of 22 August 2023), where sales contracts are expected to be signed before the cutoff date of 22 August 2023 but settlement of those sales will not be complete by that date (although the sales are expected to be completed shortly after issue of title).
If you are a developer in that position, then applying for a discretionary exemption allowing you to attend to settlement and completion of sales after 22 August 2023 (for contracts formed prior to that date) is something that you can now explore with OIO. We recommend that contact with the OIO should be made as soon as possible to discuss the prospects of a discretionary extension.
Should you require support in engagement with the OIO either on seeking of a discretionary exemption or any other matter, Hesketh Henry’s Foreign Investment Team is well placed to assist.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.