Illegal property purchases lead to record penalty

The owners of two rural properties in Warkworth have been ordered to pay $2.95 million to the Crown after an Overseas Investment Office (OIO) investigation found they were bought without consent.

The penalty is more than three times the previous highest amount awarded by the High Court for the same type of overseas investment breach.

The properties – Kourawhero Lodge at 471 Wyllie Road and 185 Sandspit Road (the chestnut farm) – were bought without OIO consent in 2012 and 2014 by Chinese businessmen Zhongliang Hong and Xueli Ke, and IRL Investment and Grand Energetic Company. The purchases required OIO consent because they were rural land of more than five hectares.

Mr Hong and Mr Ke bought the lodge for $2.55 million through an associate. In April 2014 they transferred the land to Grand Energetic Company (ultimately owned by Mr Hong and Mr Ke). The lodge was due to settle in September this year for $3.25 million. The High Court was told that no gain would be made on the sale after deducting expenses.

The Sandspit Road property was bought in January 2014 and ultimately owned by Mr Hong and Mr Ke.

The purchase price was $4.48 million. The property sold in June this year for just over $10 million following the OIO investigation. The High Court was told that a gain of $2,335,256 was made on the sale after deducting expenses such as legal costs and interest.

The court ordered the owners to sell the properties and pay penalties, costs and the gain made on the investment.

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,” Ms Horne said.

The OIO started 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 Act allowed a maximum penalty of $300,000 or the quantifiable gain made on the sale of the property, whichever was higher. Since the Act was amended last year, the available penalty was 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.


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