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NZ hands tied on foreign home buyers under Korea FTA "bungle"

NZ hands tied on foreign home buyers under Korea FTA "bungle"

By Vernon Small

24 May 2015

South Korea-based buyers may have open access to New Zealand’s housing market assured under a new trade deal, prompting warnings it could undermine New Zealand’s sovereignty.

Labour says the wording in the NZ-South Korea FTA is a blunder that could tie a future government’s hands and allow challenges if New Zealand adopted the sort of measures applied to foreign buyers by Australia.

It wants to block non-resident buyers acquiring residential homes here, unless they are new builds or apartments, as a way to take some of the heat out of the Auckland market.

But Labour trade and export spokesman David Parker said the deal with the Republic of Korea, announced in November, had been "botched up" by National.

"National doesn’t want to ban foreign buyers of New Zealand houses, but Labour does. Now National is limiting the freedom of the next government to ban house sales to foreigners or to introduce stamp duties targeting foreign buyers," he said.

"That’s why the prime minister last week said stamp duty on foreign buyers of New Zealand land may now breach FTAs," he said.

Advice from Ministry of Foreign Affairs and Trade (MFAT) officials to a parliamentary committee appeared to confirm that imposing restrictions on overseas buyers of houses would not be straightforward, in contrast with extensions to existing controls on the sale of rural or sensitive land.

They also drew a distinction between arrangements for foreign home buyers and other areas where the Government could more easily take action under the FTA, such as changes to environmental and public health laws.

MFAT said joining the FTA "would not impede the Government’s right to implement tobacco plain packaging requirements". However, in regard to stamp duty being imposed on non-residents they would only say that it would have to be reviewed against the general provisions and exceptions of the FTA and that the consistency of a new measure "would need to be reviewed in light of the facts".

The select committee considering the FTA also heard from arbitration expert and Auckland University lawyer Amokura Kawharu on the "carve out" measures, which preserve the right to impose future controls such as on the sale of residential land to overseas buyers.

Labour MPs, in a dissenting minority view to the select committee’s report published on Friday, pointed to Kawharu’s advice that new categories of land, such as residential houses, could not be added. That could also limit the government’s ability to amend the Overseas Investment Act - a problem that already existed with other FTAs.

But existing restrictions on the sale of farms and other "sensitive" land were not breached by the FTA.

In her submission Kawharu said she did not expect difficulties, but noted "New Zealand will not be unfettered in its ability to control the admission of foreign investments" in its use of overseas investment control laws.

"In contrast, the Korea-Australia FTA has a complete carve-out of screening decisions under the Australian legislation from the investor state dispute settlement mechanism."

Labour MPs said from the advice the committee received, officials "could not assure the committee a future government could introduce stamp duty on purchases of land by overseas buyers".

They also noted that the Australian practice, to include bans and stamp duties, "was able to be negotiated with South Korea".

However, a future ban on overseas land purchases was unlikely to spark a challenge from a foreign house buyer, using the investor state disputes settlement system, in the FTA because of the costs and the difficulty of proving loss.

"Nevertheless, we believe that it is important that future governments be unambiguously left with the unrestricted sovereignty or power to do so," Labour said.

They called for a "side letter" to the FTA to clarify the effects of the relevant clause.

The FTA was announced by Prime Minister John Key and President Park Geun-hye in November and has been signed. A small number of amendments to existing New Zealand laws will be needed to align them with the FTA.

The Government has rebuffed calls for a register of foreign house buyers, to help monitor the extent of overseas ownership. But last week it said overseas buyers would in future require an IRD number and a local bank account. There are also plans to impose a withholding tax on the capital gains of foreign sellers.