5 July 2019
The High Court yesterday ordered the overseas owners of two rural properties at Warkworth, north of Auckland, to pay $2.95 million to the Crown after an Overseas Investment Office (OIO) investigation found they were bought without consent. The properties were bought in 2012 and 2014.
The court ordered the owners to sell the properties and pay penalties, costs and the gain made on the investment.
The overseas owners – Chinese businessmen Zhongliang Hong and Xueli Ke, and IRL Investment Limited and Grand Energetic Company Limited – should have applied to the OIO for consent to buy both properties because they are rural land of more than five 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 Overseas Investment 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.”
The two properties illegally bought are:
- 185 Sandspit Road. In January 2014 IRL (ultimately owned by Mr Hong and Mr Ke) bought the land for $4,480,000. On 18 June 2019 the property sold for $10,100,000, following the OIO investigation. A gain of $2,335,256 was made on the sale after deducting expenses such as legal costs and interest.
- Kourawhero Lodge at 471 Wyllie Road. In July 2012 Mr Hong and Mr Ke bought the lodge for $2,550,000 through an associate. In April 2014 they transferred the land to Grand Energetic Company (ultimately owned by Mr Hong and Mr Ke). The lodge is due to be settled on 16 September 2019 for $3,250,000. No gain will be made on the sale after deducting expenses.
The OIO began its investigation of the transactions in October 2016. Mr Hong and Mr 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.
At the time of the breaches, the Overseas Investment 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 Mr Hong and Mr 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.
The settlement agreement is available on the enforcement action taken page.
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