Tougher rules on foreigners buying 'sensitive land' stall luxury property sales
Friday, 27 July 2018
The sales of high-end luxury residential properties to overseas buyers are stalling as the tougher criteria around buying 'sensitive land' of more than 5 hectares hits home.
Luxury property specialist Michael Pleciak of Legacy Partners said there have been no luxury property purchases approved by the Overseas Investment Office (OIO) since December last year, apart from two by overseas parties who became residents as a condition of buying the properties.
'My professional opinion is that end of the market has taken a pause to try and understand the [finance] minister's directives and the new legislation to be passed,' Pleciak said.
There were two parts to the new property rules.
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The first was the directive from Finance Minister Grant Robertson which took affect last December placing more stringent criteria around overseas purchases of more than 5ha of rural land.
The directive put a greater emphasis on the importance of jobs, new technology and business skills, increased exports, processing of primary products and oversight and participation of New Zealanders that must flow from an overseas purchase of more than 5ha of land.
The second was the Overseas Investment Amendment Bill, launched last December and expected to become law at the end of the year, proposing to ban foreign buyers from buying existing residential and lifestyle properties, except for Australians and Singaporeans.
Pleciak said whether the property was a high country station or a luxury lodge on more than 5ha of land, it would be captured by the tougher criteria in the ministerial directive.
Pleciak said it was not just the top-end of the luxury market at over $20 million that was slowing.
'I'd say it is probably over $5m plus,' he said.
He was aware of a number of applications to buy luxury properties waiting on approval by the OIO and he was involved with some which he could not discuss because they were confidential.
Overseas buyers were still interested in buying property in New Zealand. A critical selling factor was New Zealand's distance from the trouble spots of the world.
'It's probably one of the top two or three 'whys'.'
Some parts of the luxury market were still strong, like Queenstown and Wanaka, Pleciak said.
Lawyer Sam Nelson, managing partner of Lane Neave's Queenstown office, said before the ministerial directives there was strict criteria around rural land bordering reserves, lakes and water that made it difficult for overseas buyers to purchase it.
But the ministerial directives had now made it 'almost impossible' for an overseas person to buy a property, including rural land of more than 5ha unless they brought something special to the country.
Nelson expected to see developers and others subdividing land to shrink the land parcels to less than 5ha so they could be sold as lifestyle properties to Australian and Singaporeans.
Australians formed about 70 per cent of overseas buyers in the Southern Lakes District, local agents had told him. Singaporeans were a small percentage but still significant.
He acted for a lot of lifestyle property purchasers and said the Southern Lakes District would still enjoy a strong pool of Australian and Singaporean buyers for smaller properties.
Nelson said the foreign buyer restrictions would over time affect prices but that had not started yet as far as he could see.
The owners of high end luxury homes on rural land were not necessarily desperate for cash. Often sellers would try to ride out any downturn as long as they could. Some might withdraw the property and others might not put their properties on the market.
It would eventually hurt prices, 'but it will take some time,' Nelson said.
New Zealand Sotheby's International Realty director Mark Harris said there had been quite a slow down at the super high end of luxury properties between $10m and $25m. But at the same time there were not a lot of those properties in Queenstown for sale.
But in the $3.5m to $10m range Sotheby's had seen a consistent run of sales in the past three months.
About 90 per cent of the buyers were Australians, Kiwis and ex-pat Kiwis looking for holiday homes in the Southern Lakes District. Some of the sales were on land less than 5ha and not captured by the ministerial directive.
Prices in this range had held up well, Harris said.
Over five years 90 per cent of sales for Sotheby's had been Kiwis and Australians so Sotheby's did not expect the impact on it to be dramatic.
Sotheby's considered stamp duty would be a better way for the Government to limit overseas buyer purchases. That had worked in Canada and Singapore, Harris said.