OIO probe forces foreigners to sell property for no profit and pay nearly $3m

Friday, 5 July 2019

An illegal land purchase by foreigners had a sequel in the Auckland High Court.

The overseas owners of two rural properties at Warkworth, north of Auckland, have been ordered by the High Court to pay $2.95 million to the Crown after an investigation by the Overseas Investment Office (OIO).

They must sell the properties they bought in 2012 and 2014 without OIO consent, and pay penalties, costs and any gain made on the investment.

The properties included Kourawhero Lodge on the Matakana coast, and 185 Sandspit Rd, a large greenfield development block.

A company called IRL owned by Chinese businessmen Zhongliang Hong and Xueli Ke bought the Sandspit Rd property in January 2014 for $4.4m but after the OIO probe they were forced to sell it this year for $10m - without benefiting from the gain in price.

* What is the Overseas Investment Office and why is it controversial?

* Foreign buyers breaching overseas investment laws**

The quantifiable gain on the Sandspit farm was approximately $2,747,360, which was the difference between the purchase price of $4,480,000 and the sale price of $10m, less agreed expenses such as agents' fees, subdivision, legal costs, rates, tax, insurance, repair and maintenance, valuation fees, and interest on funding.

Kourawhero Lodge at 471 Wyllie Rd was bought in 2012 by an associate of Hong and Ke for $2.55m.

In April 2014 they transferred the land to Grand Energetic Company, ultimately owned by them.

The lodge was required to be sold and settlement to the new owner for $3.25m will be completed in September. No gain will be made on the sale after deducting expenses.

The OIO began investigating in October 2016. Hong and Ke changed lawyers three times during settlement negotiation with the OIO, which caused delay as each new set of solicitors had to be re-instructed and negotiations re-started.

The overseas owners should have applied to the OIO for consent to buy both properties because they were rural land of more than 5 hectares.

Land Information New Zealand group manager, Overseas Investment Office, Vanessa Horne said the penalties recognised the significant breach of the Overseas Investment Act.

'Our rural land has special protections under the Act to ensure that overseas investors meet certain requirements to be able to buy it.

'The OIO will continue to investigate people and companies that do not respect the safeguards the Act provides for this sensitive land.'

At the time of the breaches, the Act allowed a maximum penalty of $300,000 or the quantifiable gain made on the sale of the property, whichever is higher.

Since the Overseas Investment Act was amended last year, the available penalty is now $300,000 or three times the quantifiable gain.

During the investigation Hong and Ke applied for retrospective consent to buy the properties.

However, the OIO declined to grant consent because the investment did not provide enough benefits to New Zealand under the test to buy rural land.