Fletcher caught under fee hike
Aproposed fee hike for foreign investors will likely cool the desire to buy land here but will also push up costs for major residential property developer Fletcher Building, which is caught under the rules.
Land Information New Zealand (Linz) has recently closed consultation for a new two-tiered fee structure for the Overseas Investment Office (OIO) which proposes a nearly $100,000 jump in the fee for complex sensitive land applications. The OIO is responsible for approving all foreign investment of businesses where the investor is acquiring more than 25 per cent of a business or its assets or increasing ownership to or beyond 50, 75 or 100 per cent.
It also handles approvals
of applications for sensitive land purchases which captures most land in New Zealand including residential, lifestyle and large land purchases. Linz is reviewing the fees in light of an operating deficit at the OIO of $3.5 million in the 2019/2020 financial year. As of June 30, 2020 the OIO was in deficit by $8.48m. Those who apply to buy one home to live in will see no increase in fees, while applicants wanting to purchase land, business, forestry and fisheries assets will pay different amounts depending on whether the application is standard or complex. Linz estimates 75 per cent of applications it receives are standard and will see fees for significant business asset applications rise by just over 20 per cent, but total fees for sensitive land applications would increase by 75 per cent. For the 25 per cent of applications that are complex total fees for significant business applications would nearly triple from $32,000 to $86,700 and total fees for sensitive land applications would more than triple from $41,500 to $141,200.
Tessa Baker, a partner at law firm Chapman Tripp who specialises in property and real estate, said it would likely slow investment, although there could be a short-term rush to get in before the price hikes come in. “I think it will potentially have a bit of a cooling impact on transactions that might be a bit finely balanced in terms of feasibility. If you are adding potentially up to $170k into your upfront feasibility it puts a lot of pressure on making sure the transaction can definitely proceed. You have to pay the transaction fees before you know you will get consent.”
Investors were already quite careful in terms of only applying if they think they will be successful, she said. “But if it is finely balanced in terms of feasibility, cost or the likelihood in terms of getting consent I think we will probably see more people pulling back.”
Major NZX-listed companies Fletcher Building and Ryman Healthcare are also caught as foreign investors because a large number of their shareholders are overseas based. That means when Fletcher Building buys a large piece of land for residential development it has to get approval from the OIO.
Fletcher Residential chief executive Steve Evans said it was aware of the significant fee rises Linz proposes. “While such increased fees when introduced will represent an increased cost for projects, we don’t foresee this being passed on to customers or having any material impact on prices for residential developments, however, we await the outcome of Linz’s consultation process and the final position.”
A Ryman spokesman said it did not have a view on the price rise. But it would be small compared with a typical land acquisition for Ryman, which is about $120m.
Baker said she expected the size of the purchase would be a factor for foreign investors. “I think what we are going to see is people . . . are only going to go ahead with a complex application if it is a big enough deal. I can think of situations where we have had a complex application not of big value and those types of deals just might not proceed.” She said part of the challenge was that the OIO had yet to define what complex meant.