A number of substantial changes to property laws this year have affected our clients and how we practice conveyancing. Before you look to expand your property portfolio, move house, or take your first step onto the property ladder, you should be aware of these changes and the impact they may have on your ability to succeed in the property market. These changes fall into four main areas:
– Restriction on foreign ownership of property
– Extension of the bright-line rule, affecting property taxation
– Preventative measures to help tackle money laundering, requiring extensive verification of our clients
– Modernisation of the Land Transfer Act
Restriction on foreign ownership of property
The Government’s restriction on overseas buyers of property in New Zealand is arguably the biggest change to property law this year and has no doubt been a hot topic of discussion around the dinner table in recent months. The Overseas Investment Amendment Act 2018 came into play in October, with the effect of restricting foreign ownership of New Zealand residential land, and the intent of allowing New Zealanders to shape the housing market.
Previously, foreign buyers have faced very few restrictions when purchasing property in New Zealand, unless the land was deemed ‘sensitive’ under the previous overseas investment regime. Now, all residential land is automatically sensitive and overseas buyers are restricted from buying residential land in New Zealand except in very specific circumstances.
One exemption we have already seen in action applied to a New Zealand resident who was deemed an ‘overseas person’ because they had been working overseas for more than a year. This New Zealand resident, come ‘overseas person’, was married to a New Zealand citizen, so they could rely on the relationship property exemption contained in the Overseas Investment Regulations. The rules surrounding other exemptions can be complex, particularly where a trust or company, with ‘overseas persons’ as trustees or directors, is the purchaser.
The flow-on effect of the Overseas Investment Amendment Act is that every purchaser must now complete a Residential Land Statement before settlement can take place. This statement confirms that the purchaser is eligible to complete the purchase.
Extension of the bright-line rule
The bright-line rule is well-established legal jargon that previously stipulated the taxation on profits when a property was sold within two years of purchase (subject to certain exemptions). In March of this year however, the bright-line period was extended to five years.
We have only recently started to see the effects of the extended bright-line period. Property owners are having to complete cost-benefit analyses that weigh up holding on to their property for longer, versus selling earlier and accepting the tax consequences. We are yet to see the full effect that this extension will have on our clients.
The introduction of the Anti-Money Laundering (AML) and Countering Financing Terrorism laws in 2013 was designed to make it harder for criminals to launder money. While these laws have applied to a range of different business sectors since 2013, they have been extended to encompass a wider range of services, including services offered by banks, law firms, accounting firms and come January, real estate agents.
Practically, this means more verifications and checks to authenticate who you are, where you live, and perhaps the source of your funds and wealth. If you have visited your bank recently you may have noticed that they have asked for identify verification and proof of address, amongst other information. This can be confusing, and at times frustrating, especially when you have been a loyal customer for longer than you care to remember. These requirements are a direct effect of the more all-encompassing Anti-Money Laundering laws.
Now that law firms are subject to the requirements of the Anti-Money Laundering laws, we too will need to verify and authenticate your details. Many of our clients have already completed these checks, ensuring compliance with the legislation, but if you call us for the first time in a while, don’t be surprised (or offended) if we ask you for this information.
With regard to property law, this legislation means we need to carry out certain verifications and checks before we can complete settlement of any sale, purchase, refinance or other similar transactions.
Modernisation of the Land Transfer Act
When it comes to the legal transfer of land we have long been accustomed to the Land Transfer Act 1952. While the underlying land transfer system in New Zealand has not changed, the Land Transfer Act 2017 (effective as at 12 November 2018) heralded a much-needed modernisation.
The new Act recognises the modern ‘electronic dealings’ system we use to transfer land, has modernised some of the terminology in the Act, and has also introduced methods to minimise risk of fraudulent transactions.