Fears OIO changes will hit lifestyle blocks
The Government’s tougher regime for rural land sales to foreigners might ensnare large lifestyle blocks, it’s feared.
Yesterday, the Government announced it had issued a new directive letter to the Overseas Investment Office (OIO), overriding the “very permissive” regime for sales of large farms.
Land Information Minister Eugenie Sage was asked if that meant just about anything other than a lifestyle block would be looked at by the OIO, to which she answered: “Yes.”
But that simplistic answer overlooks the existing criteria for the sale of so-called sensitive land to foreigners and doesn’t stand up to scrutiny of the directive letter itself.
Under the Overseas Investment Act, the OIO must consider sales of rural land larger than five hectares, as well as smaller parcels in some conditions, such as those that are next to a lake or adjoin public conservation land.
Earlier this year, Australian billionaire Tim Roberts needed OIO approval to buy 12 hectares of rural land near Queenstown for $4.2 million.
The Government’s directive letter, penned by Finance Minister Grant Robertson, sets a higher bar for “overseas investments in rural land”, which it defines as “non-urban and over five hectares in size”. The letter only specifically excludes forestry land – to encourage foreign investors to help meet its 10-year goal of planting one billion trees and to pursue “value-added processing”.
That puts large lifestyle blocks in places like Queenstown firmly in the firing line.
Queenstown lawyer Graeme Todd has been involved in several high-profile sales of rural land to foreigners, including Hunter Valley Station’s lease to US TV presenter Matt Lauer and his wife Annette. (As an aside - Matt Lauer was today fired by NBC for inappropriate sexual behaviour in the workplace.)
After reading the directive letter, he tells Newsroom it is going to be extremely difficult for certain investments to be approved without significant improvements, such as increased investment in properties or productivity, or increased exports.
“To that end it is hard to see, for example, how lifestyle blocks in excess of five hectares – and up to, say, 150 hectares – as stand-alone investments could be approved.”
Todd doesn’t see any major changes for larger properties, other than greater weight being applied to factors that have always been important.
(Harcourts Queenstown CEO Kelvin Collins thinks there might have only been a handful of large lifestyle blocks sold in or around the resort town the last year. Who to? “It’s Australians more than anyone else.”)
Professor Natasha Hamilton-Hart, of University of Auckland’s faculty of business and economics, has little sympathy for potential hurdles for lifestyle block sales. “In the normal run of things, I fail to see what the national benefit is of selling lifestyle blocks to foreigners.”
(The directive letter hints at tougher constraints on lifestyle property sales to overseas investors. Many rural property purchases have been waved through by the OIO after promises by the buyer to donate to local trusts or causes. But the Government’s letter dictates the OIO should consider sponsorship of community projects and donations to be “generally of low relative importance” when applying the test of consequential benefits to New Zealand.)
Hamilton-Hart says it’s a positive signal for the Government to promote foreign investments that demonstrate “additionality” to the country, such as jobs, technology or access to overseas markets. The danger, as she sees it, is the move is perceived as a regressive step that makes investing in New Zealand more cumbersome than it already is.
“I would hope that it doesn't get harder for the people who we would want to be selling assets to.”
A more difficult and costly process isn't necessarily a strategic misstep by the Government but a possible consequence of how the OIO implements the directive. Another potential repercussion is the OIO refers more decisions to the minister, out of an abundance of caution.
John Ballingall, the deputy chief executive of independent economic consultancy NZIER, also worries about how the OIO will implement the changes.
“We need to see how a few high-profile cases progress through the system before we rush to any judgement about what sort of material effects it has on overall investment into New Zealand.”
He adds: “It’s reasonable to expect that responsible ministers are going to be watching the first few cases through the system very closely, because they’ve made the announcement around what they believe to be high quality investment, how they define high quality investment, and they won’t want to see the OIO approving things that aren’t consistent with that position.”
Ballingall hopes any ministerial oversight settles down to give investors consistency. “Foreign investors hate uncertainty and the concern is that if there is too much ministerial involvement then investing in New Zealand does become a much riskier proposition.”
Despite his reservations, he describes the OIO directive as a “minor tightening” which shouldn’t be a major deterrent to foreign investment.
The new Government has already proved fairly pragmatic on the international stage, considering its pursuit of a TPP deal and the softening of its position on immigration.
But New Zealand isn’t seen as the easiest place for offshore investors to do business.
The OECD’s survey of the country’s economy, released in June, said the Government should be removing barriers to foreign investment to boost “poor” productivity performance. It noted New Zealand has low rates of capital investment and decried the country’s “comprehensive foreign investment screening process” – “something that has not substantially changed in several decades and does not exist in many other countries”.
That harks back to decisions like in 2008 when the Government blocked the sale of a 40 percent stake in Auckland International Airport to a Canadian state pension fund. In 2015, ministers rejected the $88 million bid from a subsidiary of giant Chinese company Shanghai Pengxin to buy Lochinver Station, near Taupo.
The OIO directive comes into force on December 15. As previously reported, the OIO is investigating land sales to foreigners which might have needed its approval.
The Government plans to deem existing homes as “sensitive”, which would mean foreign buyers need OIO approval to buy them. To cope with its expected increased workload, the OIO now has 33 staff, up from 13 in the last financial year.