Tougher rules stall market’s top end

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 had 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.

The first was the directive from Finance Minister Grant Robertson that took effect last December.

It placed more stringent criteria on overseas purchases of more than 5ha of rural land, putting a greater emphasis on the importance of jobs, new technology and business skills, increased exports, the processing of primary products and the oversight and participation of New Zealanders that must flow from such a sale.

The second was the Overseas Investment Amendment Bill, which was launched last December and is expected to become law at the end of the year.

It proposes to ban foreign buyers from purchasing existing residential and lifestyle properties, except for Australians and Singaporeans.

Pleciak said that regardless of whether the property was a highcountry station or a luxury lodge, if it was on more than 5ha of land it would be captured by the tougher criteria in the ministerial directive.

It was not just the top end of the luxury market, which included properties valued at over

$20 million, that was slowing.

‘‘I’d say it is probably over $5m plus,’’ he said.

Pleciak was aware of a number of applications to buy luxury properties that were waiting on approval from the OIO. He was involved with some, which he could not discuss because they were confidential.

Overseas buyers were still interested in New Zealand property, he said. 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, such as Queenstown and Wanaka, he said.

Lawyer Sam Nelson, who is a managing partner of Lane Neave’s Queenstown office, said that before the ministerial directives there were strict criteria regarding 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 parcels to less than 5ha so they could be sold as lifestyle properties to Australians 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.

Nelson acted for many 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 affect prices over time, 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 slowdown 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, he said.

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 expatriate Kiwis looking for holiday homes in the Southern Lakes District. Some of the land was 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 Sotheby’s sales had been to Kiwis and Australians, so Sotheby’s did not expect the impact on its business to be dramatic.

Sotheby’s believed stamp duty would be a better way for the Government to limit property sales to overseas buyers. That had worked in Canada and Singapore, Harris said.