Last week’s conclusion to the Trans-Pacific Partnership (TPP) negotiations saw the overseas investment regime back in the headlines.
Although the full details of the TPP will not be released for several weeks, it has been reported that the threshold for Overseas Investment Office (OIO) consent for investments in ‘significant business assets’ will be increased.
Under the current regime, foreigners seeking to make an investment of NZ$100 million or more need to pass the OIO’s good character and business acumen tests in order to gain approval. For nationals of countries signed up to the TPP, (which include many of New Zealand’s major trading partners), this threshold will increase to NZ$200 million. New Zealand already has a higher threshold for Australian non-government investors of NZ$496 million as a result of the Closer Economic Ties Agreement. Nothing reported on the TPP so far indicates that there will be any change to the sensitive land test, which requires foreign investors to show that the proposed investment results in a benefit to New Zealand.
Economic Development Minister Steven Joyce stated that the higher threshold for significant business assets was “not a particularly contentious issue” for New Zealand’s negotiators when it was proposed by other TPP countries. It has been reported that 52% of significant business assets applications over the past five years were for investments between NZ$100 million and NZ$200 million. Considering that the bulk of overseas investment applications involve sensitive land, we doubt that changes to the significant business assets thresholds will result in a material change in the OIO’s workload.
The ramifications of the Lochinver Station decision
In our previous update we covered the decision by Government Ministers Paula Bennett and Louise Upston to decline consent to Chinese-owned Pure 100 Farm Limited to buy the Lochinver Station. Yesterday’s announcement that Daking New Zealand Farm Group (Daking) (55% owned by Shanghai Pengxin) has withdrawn its proposed NZ$42.7 million acquisition of farm land shows the first real impact of the Lochinver Station decision.
The deal for 10 farms covering almost 3300ha of land in the Bay of Islands’ Mangakahia Valley was struck in January this year and OIO consent was sought in April. Daking’s Chief Executive has been quoted stating that “we simply are not confident enough of a favourable outcome to warrant putting the Northland vendors through a similar experience [to Lochinver]”.
In addition to highlighting the immediate chilling effect of the Lochinver Station decision, Daking’s decision to discontinue its purchase, demonstrates the concerns over the timing of the OIO’s process. The OIO does not have any obligation in relation to timing and instead aims to reach 90% of its decisions within:
50 working days of active consideration for ‘Category 2’ applications (which includes investments in significant business assets and sensitive land); and
70 working days of active consideration for ‘Category 3’ applications (which covers applications where there is foreshore, sea bed, river bed or lake bed involved).
OIO statistics show that in the period from July 2015 to September 2015 decisions in only 56% of “Category 2” applications and 50% of “Category 3” applications were met within these self-imposed deadlines. However, the statistics also show that the OIO is currently considering a higher than usual number of applications.
Consultation on fee increases
The OIO is currently undertaking a consultation with stakeholders on increasing its fees, as one measure to address the lengthy timeframes. Land Information New Zealand’s position is that higher fees will increase resources to enable the OIO to more quickly assess applications. However, businesses may take exception to the proposed increases (which range from 44% to as much as 150% depending on the type of application) on fees that are already relatively substantial for a regulatory process.
Submissions are due by
5pm, Wednesday 21 October 2015.
Bell Gully intends to make a submission and welcomes comments on the proposals. Please let us know if you would like a copy of the consultation document.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.