Update on the new Government’s foreign investment policy direction

Wednesday 29 November 2017

Authors: Andrew Petersen, Willy Sussman and Elena Chang

​​The New Zealand Government has published the first of its changes aimed at strengthening the Overseas Investment Act 2005 (OIA) by issuing a new Directive Letter (Letter) to the Overseas Investment Office (OIO). This will affect foreigners looking to purchase sensitive land in New Zealand. 

The legislation itself has not changed. The Letter simply shifts the OIO's emphasis when considering certain applications (especially "rural land" and "forest land").  The previous reference to "large farm land" is now removed and the Letter applies to any rural land over 5 ha.

Background

A range of changes targeted at overseas investment and the forestry industry were outlined in the new Government's Coalition Agreement.  

The Letter does not cover the proposed ban on foreigners buying existing residential housing. The details of those restrictions are still to come.  The key issue will be what "existing residential houses" means.  

Directive Letter

The Letter acknowledges that overseas investment remains important for New Zealand's economic growth. In this regard, the overall policy statement from the new Government is largely consistent with the previous Government. 

The Letter makes it clear that the Government is focused on high quality overseas investment that:

  • Generates high levels of benefits to New Zealand
  • Creates new productive assets (e.g., greenfield investments)
  • Is environmentally sustainable, minimising adverse impacts on the natural environment (we expect this is driven by the arrangement between the Labour Party and the Green Party)
  • Provides economic, environmental, social and cultural benefits to regional communities (which talks to one of the policies put forward by the New Zealand First Party)
  • Significantly increases value added activities in New Zealand
  • Provides for significant participation and oversight by New Zealanders

The Letter also notes that the Government's overall policy is to achieve a balance between highly beneficial overseas investment and the need to maintain ownership and control of sensitive New Zealand assets. This is a significant shift in emphasis. 

The Letter helpfully acknowledges that each application must be considered having regard to its own facts. The directions are therefore general rather than strict terms.

The Letter takes effect from 15 December 2017 and will apply to all applications that are to be approved after that date.

What is important?

The Letter then deals with the following four specific areas of importance:

  • Rural land (this will include all non-urban land other than forest land)
  • Forest land
  • The concession for people intending to reside in New Zealand indefinitely
  • Foreshore, seabed, riverbed and lakebed (special land)

The Minister has directed the OIO to give a low weighting to benefits arising from donations and sponsorships offered by applicants. 

While the legislation continues to identify many factors from which New Zealand might derive benefit from a particular overseas investment, the Letter directs the OIO to give a higher weighting to:

Rural land

  • The creation of new jobs or the retention of existing jobs that might otherwise be lost
  • The introduction of new technology or business skills
  • Whether the investment will create increased export receipts
  • Whether the investment will increase the processing of primary products
  • What opportunity there is for New Zealander's to have oversight and participation in the investment.

Forest land

  • Whether the investment will increase the processing of primary products
  • Whether the investment will "advance significant Government policy" (which is likely to refer to the Government's commitment to the planting of a billion trees over the next 10 years).

In addition, the Minister generally expects the OIO to impose specific conditions of consent on overseas investors whose investment plan involves the processing of logs in New Zealand. We expect to see the OIO impose conditions on forest purchasers requiring a certain percentage of logs harvested to be processed in New Zealand. This clearly shows the focus on added value processing in New Zealand. 

Privileges for those who intend to reside in New Zealand

The obligation to meet the "benefit to New Zealand" test does not apply to those who have applied for permanent residence and who plan to live in New Zealand. The Letter tightens the time period by which such applicants must begin to live in New Zealand, from up to five years under the previous directive letter to two years. Interestingly, a footnote to the Letter suggests that a longer period may be considered for those holding an entrepreneur work visa. 

Monitoring and compliance

Anecdotally the OIO has not always monitored compliance as strictly as might be thought necessary. While the OIO has significantly increased its monitoring function in recent times, the Letter emphasises the importance of this.

Public scrutiny

The Letter requires the OIO to increase the level of information currently provided on its website about applications under assessment and decisions made under the OIA. It is unclear whether the information about applications is intended to disclose details of the application or just quantitative information about applications under consideration.

What should clients do?

Clients will have to take even greater care in preparing well-reasoned and detailed applications. 

Individuals intending to move to New Zealand will need to consider their plans and all consequential factors including their own tax positions.

If you have any questions on the proposed changes or would like to discuss how the changes may affect your current or proposed transactions, please contact us.


Disclaimer

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.

For more information
  • Andrew Petersen

    Partner Auckland
  • Willy Sussman

    Partner Auckland
  • Elena Chang

    Senior Associate Auckland
  • Glenn Shewan

    Senior Associate Auckland
Related areas of expertise
  • Overseas investment
  • Property and real estate
  • Forestry