Blog - Cooper & Co

Client Advisory - Anti-Money Laundering

The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act) has applied to financial institutions and casinos in New Zealand since 2013.The Act is designed to prevent money obtained through illegal means from entering the New Zealand financial system to be “laundered”. Although New Zealand is considered to be a relatively clean market it currently falls prey to an estimated $1.35b in money laundering activities each year.

Since 2013, other non-financial businesses and professions have been captured by the act.  Lawyers and Conveyancers and some businesses forming trusts have had to comply since 1 July 2018 and Accountants from 1 October 2018.

From 1 January 2019 entities carrying out Real Estate activities will be required to:

  • have appointed a compliance officer;
  • have assessed and documented the money laundering and terrorist financing risks the business faces;
  • have established a programme to detect and manage any risks identified; and undertake a number of other specific tasks, including but not limited to performing customer due diligence when they enter a relationship with their customers (or vendors as described by the Real Estate Agents Act 2008).

At its core, Real Estate Agents need to identify who their customers (vendors) are and this is required before the agency work commences.  When the property is in the name of an individual, proof of identity is relatively simple to collect and is straight forward.

For properties that are held in companies, trusts or a combination of both, a more enhanced suite of requirements for due diligence is required. Where the Real Estate Agent cannot perform the prescribed level of due diligence, then the customer must not be onboarded and the listing cannot be accepted.

Following the inclusion of Lawyers and Conveyancers from July 1, property transactions have already been captured under Anti-Money Laundering/Countering Finance of Tourism legislation. From this date members of the legal profession are required to perform to the same compliance regime and perform the same levels of due diligence as mentioned above to the buyers of property.

Fast forward to 1 January 2019, due diligence will be required to be performed on the buyers and sellers of property. This will result in property transactions, particularly commercial property which often involves complex ownership structures, to become more onerous to navigate and more time consuming.

In the meantime, it is important real estate agents have systems in place by 1 January 2019 to ensure compliance with the obligations imposed them.  Additionally, buyers and sellers of property, especially commercial property need to fully appreciate the new requirements of this Act and the impact it will have on their businesses.

Crombie Lockwood has worked through the process of obtaining cover under the Act for Solicitors and Accountants. Most insurers have provided some sub-limited cover for defence costs and civil pecuniary penalties arising from an alleged breach of the obligations imposed by the legislation. We will be looking to obtain similar cover for Real Estate Agents ahead of the compliance date of 1 January 2019.

What you need to know about the Overseas Investment Act changes?

How do the changes to the Overseas Investment Act affect me?

The implications of the Overseas Investment Amendment Act 2018 (“Act”) have been widely discussed and, in particular, its effect on ‘overseas persons’ acquiring residential property in New Zealand. As of 22 October 2018, new laws prevent certain overseas persons from acquiring residential property in New Zealand.

The Act will not apply to transactions entered into before 22 October 2018.

Residential Land

The new laws apply to land that is categorised as ‘residential’ or ‘lifestyle’ under the District Valuation Roll.

Overseas Persons

An ‘overseas person’ means a person who is neither a New Zealand citizen nor ‘ordinarily resident in New Zealand’.  A person is ‘ordinarily resident in New Zealand’ if they:

  • hold a residence class visa; and
  • have lived in New Zealand for the last 12 months; and
  • have been present in New Zealand for at least 183 days in the last 12 months; and
  • are a New Zealand tax resident.

The restrictions do not apply to citizens or permanent residents of Australia or Singapore who live in New Zealand.

 

Overseas Investment Office Consent

The new laws are not a complete ban on overseas persons acquiring residential property in New Zealand, but (subject to certain exemptions) such acquisitions will now require the consent of the Overseas Investment Office (“OIO”).

There are some exemptions from the requirement to obtain OIO consent, such as if an overseas person acquires an apartment ‘off the plan’ within a multi-storey development of 20 or more apartments.  Developers of these properties can apply to the OIO for an exemption to sell a certain percentage of such properties to overseas purchasers.

Eligibility Statement

Another change under the new laws is that every person acquiring residential land will be required to complete a Residential Land Statement form which can be provided by a conveyancer (usually a lawyer). It is an offence to make a false or misleading statement and the penalties are significant.

Get more than a first impression from open homes

Open homes give you a great first impression of a property and you’ll know almost immediately if it’s one you want to pursue. But that first visit can be much more than a “once over lightly” impression. How do you make sure you’re getting as much information from it as possible.

Use the time to perform a thorough first property inspection. Later on, you’ll want to engage professionals to inspect the building’s structure and health, but it’s a good idea to use your initial tour of the home to see some things for yourself.

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The structure

When inspecting a property, chances are the current owners are going to present the interior of the property in the best possible light. They will have cleaned and tidied, perhaps added a new coat of paint, or even had the home styled with beautiful furniture. Whilst these things will help you to appreciate what the home could look like for you, at this stage, it’s more important to focus on the dwelling’s structure.

Look for

1. Damage from pests. Recent termite damage in wooden structures is a huge red flag. Have a look for bores through wooden frames, or dirt tubes in the foundation or exterior walls that hint to borer infestation.

2. Poor construction. Windows and doors that jar, or cracks in the walls around doors and windows are both signs of poor construction.

3. Wet spots on walls or ceilings. Condensation within the home can lead to mould build-up, timber decay, leaks, corrosion and even loss of structural integrity.

4. Cracks in the foundation. Some small cracks in a home’s foundation can be harmless, but large cracks either running down the foundation or across could mean a home is shifting, which can cause significant structural damage over time.

If you see anything through this process make a note of it, and make sure to mention it when you have a professional building inspector go through the property.

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The location

Location means more than the general neighbourhood. You may be attracted to the area, but take a look at the property’s exact location for things that may bother you over the long-term, hurt re-sale value, or cause lifestyle issues.

1. Is it on a busy main road? Houses on main roads can attract lower prices than those on quieter, private and less congested roads. You’ll also have to get used to the noise of heavy traffic.

2. Is it next to a retail or commercial space. This can create high levels of traffic and additional noise, depending on the type of business and its operating hours. Also be mindful of properties next to land that may be zoned as retail or commercial. Talk to your sales consultant about what zoning around the property means for potential development.

3. Is the property near railway lines? A home close to public transport is always convenient, but a home that shares a border with a train line, for example can cause a lot of excess noise, potentially hurt re-sale value, and cause safety issues for young family members depending on fencing around the property.

4. Are there power lines over the land/property? Sometimes found on larger parcels of land, power lines have been known to drop property prices.

5. Is the property on a flood plain? Depending on the city, the climate and the proximity to dams, lakes and watercourses, the potential of flooding on the property will be different. Be aware that houses within the same street can be impacted differently by flood waters. If you have concerns talk to you sales consultant, property inspector and the local council.

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The surroundings

1. Take note of the neighbouring properties on each adjoining border for any clues you might not be comfortable long term.

2. Are the neighbours’ yards neat and tidy? It might not directly impact on the property you’re considering, but what about when it comes time to sell the property? Would untidy yards next to yours reflect poorly on the area?

3. Do they have pets? It might not be an issue, particularly if you have pets of your own. But look for problem pets. Is a neighbour’s dog barking non-stop during the inspection? Are animals loose or roaming? Is there evidence of pet damage to shared fences or common areas?

4. Do you have a comfortable level of privacy? Take a look at different angles around the home, particularly on smaller blocks or apartments. Are you too close to neighbours? Can you easily hear them through the walls? Are certain windows placed directly opposite a neighbour’s window? Is the property fenced off from neighbours?

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It’s important to remember that none of these things always have to be immediate deal breakers on a property you’re interested in. It’s about arming yourself with as much information as possible so you can make an informed decision and end up with a property you are happy with, for an amount you feel is reasonable.

Once you have made your first visit and if you decide you wish to proceed in making an offer, seek good legal, building and financial advice from the experts.

Choose your property investment strategy

Having goals in place is a great start, now what is your strategy for achieving them?

There are many different property investing strategies you can follow, which include:

1. Purchasing at a discount
This strategy involves purchasing investment properties below valuation. The valuation is the amount the bank and lenders see as the property’s value. If purchased below valuation you immediately create equity – the difference between the current market value of the property and the amount owing on the mortgage.

2. Positive cash flow
Positive cash flow investing is contrasted with negative gearing, this is when the income returns do not offset holding costs, and the investor uses the tax treatment of loses to their advantage. Proponents of the positive cash flow strategy point to the advantages of owning income-generating assets. Some benefits of the cash flow strategy include:

3. Having access to a monthly income stream
Cash flow properties can balance your portfolio as the extra cash can be used to pay the shortfall that may be associated with holding properties with high capital growth potential. Positive cash flow properties can increase your serviceability and can make you more attractive to lenders.

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4. Sub-division
Sub-division is dividing an existing area of land into more segments with individual titles, allowing separate properties to be built on the new segments. This works on the principle the split pieces of land are worth more than the single lot.

5. Off-the-plan
Purchasing property off-the-plan means entering a contract to buy the property before or during its construction. However, you won’t be able to inspect the finished property until construction is complete. Property investors can put down a deposit and speculate that the market will rise before they actually need to settle on the property – meaning there is potential to obtain capital growth over the settlement period.

6. Renovation
The renovation strategy is adding value by improving a property’s condition or adding new features. The key is targeting properties with potential that you make improvements and add value to, for the type of buyer or tenant looking to reside in that area. Look for poorly presented investment property below the suburb median price that you can add value to.