The Condo that Got Away

How are you doing? Starting to get bored sitting around waiting for COVID-19 to find you? Me, too. So I decided to write a few more blog entries about our time in New Zealand.

Almost immediately after landing in Auckland, we headed north to a small town called Tutukaka. We were looking forward to a return visit to a resort that we like called Pacific Rendezvous.

There's nothing much to do around Tutukaka other than hike, swim, lie on a beautiful beach or engage in some of the world's best sport fishing, snorkeling and diving. In other words, there's lots to do if those activities suit you.

We discovered that the rooms at Pacific Rendezvous are individually owned, much as a condo would be in the States. The thirty owners each also own a 1/30 share of a corporation that owns the entire peninsula that the resort occupies, along with common items like the tennis courts, pool, hot tub, small store, and a home for the on-site managers who run the motel.

We asked the motel manager, Ian, whether units ever came up for sale. "Three are for sale now", he said. It turns out that one was Unit 19, which is generally considered to have the best location on the property.

Why would we want to buy property in a foreign country? Good question. There are certainly headaches involved. If this was, say, a stand-alone house we would not have considered buying. Think about it. We might be there a month or so a year and the rest of the time it would be empty. Or we'd try to AirBnB it and have to worry about who was there and in what condition they left it.

But Pacific Rendezvous is different. There are full time on-site managers and daily cleanings. Better - the Unit returns about NZ$25,000 to NZ$30,000 profit per year. And we could call Ian and reserve it for our use, or the use of friends, whenever we wanted.

So I called the owner, negotiated a price, and emailed an offer to purchase, which was accepted.

Done, right? A happy ending for all concerned - buyers and sellers.

Sure, except for something called the New Zealand Overseas Investment Act of 2005 (as amended in 2018). The Act basically says "New Zealand property is to be owned by New Zealand citizens and residents." There are good reasons for this as anyone who knows about the housing situation in Vancouver, BC, or London or any number of other places will understand. Basically, rich foreigners come to a place where real estate is relatively inexpensive and buy up as much as they can, then go back home and are rarely seen again. What they leave behind are inflated prices and depleted inventory, preventing locals from finding affordable housing.

So, the Act is not a bad thing. But Pacific Rendezvous is not housing, it's tourist accommodation. What does it matter whether a foreigner owns a unit? It turns out that the Act agrees. Section 5 addresses exactly this case, where a unit is owned but returned to a corporation to be used for nightly rental. The only restriction is that an overseas owner cannot use the unit for more than 30 days a year. Great, we're in!

Or so we thought. Section 5 does not apply to "sensitive" land. What's sensitive? It's kind of poorly defined, but definitely includes land that abuts the shoreline. But Unit 19 is high above the sea and we would only have title to the land under the unit. Great, we're in!

Not so fast! We would also own 1/30 of the corporation. And the corporation owns the peninsula. And the peninsula is surrounded by the sea.

We hired a law firm in Auckland that specializes in Property law to present our case to the Overseas Investment Office. Alas, the law says nothing about how small a share one owns of land next to the ocean. A small share of a corporation that owns a pennsula is enough to make it impossible for them to approve the deal.

But, there's an appeal process that would be able to take these unusual circumstances into account and might approve the purchase. "Would likely approve", so our expensive lawyer said. All we had to do was pay the application fee, which was not refunded if the appeal were to be denied.

And the fee? NZ$25,000.

The End.

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