Property development is now an acceptable investment under the refined Active Investor Plus Visa – meaning there are huge, unrecognised benefits for New Zealand’s property sector.
The visa changes, which came in on 1 April, are designed to allow international investors to significantly contribute to New Zealand’s investment scene by allowing them to make a meaningful impact on the economy.
As we have covered earlier, New Zealand Trade and Enterprise (NZTE) has expanded the class of assets that investors pursuing the Growth Category applications can invest in.
The new Balanced Category also widens the scope of eligible investments to include new and – to a certain extent – existing property development.
Under these new rules, investors can either invest equity directly in New Zealand property, or through a managed fund dedicated to property development and/or funding.
We are seeing huge interest in the new visa settings, and now that “property plays” can be included as an acceptable investment for Balanced Category applications, the funding opportunity for New Zealanders developing or intending to develop is the first of its kind.
Direct investment – residential, commercial and industrial developments
The requirements for property to be considered as an acceptable investment are relatively broad and provide a huge opportunity.
Residential, commercial, and industrial developments can all qualify, with the changes broadening the range of potential investment opportunities while also enabling Kiwi developers to access funding that was previously inaccessible.
With a minimum investment of NZD$10m for the Balanced Category, this opens major opportunities for New Zealand’s property market. Existing developers can expand their capacity, take on more staff, grow their businesses and execute larger, more ambitious projects. Meanwhile, new developers can break into the industry and hit the ground running without having to jump through the hoops of traditional bank lending.
Residential developments
New subdivisions or builds are now eligible if they include the creation of more than one dwelling because that will help grow New Zealand’s housing supply.
However, renovations or extensions to existing homes don’t count.
New commercial or industrial properties
For these to qualify, they need to serve a business purpose and generate commercial returns on the open market at the end of the development – such as leasing. Properties can’t be purchased just to “land bank” and wait for a rise in value.
Even vacant land can qualify if formal development plans have been submitted, and the development or construction is pending resource consent.
Any development projects must have either obtained all necessary resource consents or have any required consent applications submitted to Council and approved as “complete” for processing. In addition, all property development ventures – new or existing – must aim to generate a commercial return on the open market.
This could involve eventual product sales, rental or leasing income, although there are no strict guidelines on what qualifies as a commercial return. The broad definition allows for creative approaches to property development, moving beyond the traditional understanding of a “commercial return.”
Existing commercial or industrial properties
The updated rules also provide the opportunity for investment into existing commercial or industrial properties, provided that the existing development involves a significant additional investment. For example, earthquake strengthening or a significant change of use being contemplated for the investment being made – such as converting a run down three-star hotel into a revitalised five-star hotel.
A value-add investment is required for existing assets, rather than simply acquiring an existing asset as it is, because there is no perceived benefit to New Zealand in doing so – therefore not meeting the policy’s objective.
We think this option is particularly appealing to New Zealanders interested in property who lack the time or resources to manage a new development from start to finish, or simply want to gain experience in the industry before embarking on a new development.
Managed funds – funding residential, commercial and industrial developments
Another exciting change is that managed funds in property development may be considered an acceptable investment. The significant value and volume of overseas investment in this sector has the potential to accelerate existing businesses while creating opportunities for new ventures to emerge. It should be noted here that unlike the Growth settings, managed funds being established for new residential, commercial and/or industrial property development do not require approval from NZTE.
Various rules apply to such funds and we are experts in helping you navigate these. We see this as an opportunity for both existing fund managers and brokers, and those looking to enter the industry.
A NZD$1b annual opportunity
There are large numbers of new applications being prepared and filed under the new investor settings by our Immigration Law team – far more than under the prior regime.
Based on the volume we are seeing, we believe that once these visa settings become well-known internationally, they could attract new investment capital into the country to the level of NZD$1b per annum.
These changes present a compelling opportunity for developers to attract foreign investment while supporting the country’s economic growth, creating new jobs and addressing the demand for new housing and commercial spaces. In addition, by opening doors to offshore investors, New Zealanders can establish long-term investment relationships that support future projects and contribute to a more resilient property market.
As the leading national law firm in this space, we are uniquely positioned to assist anyone involved in developing or planning a project who seeks to attract foreign investment under this visa programme.
This includes structuring compliant entities to receive funds under the new rules, and helping to ensure that developments meet the requirements to be deemed acceptable.
Whether you’re already in the development or managed fund industries or are looking to break into them, we are here to help you take advantage of this unique opportunity.
