Would-be foreign buyers of rural and forest land will face tougher requirements under new government directives to the Overseas Investment Office :
Today’s announcements will apply from Dec. 15 and will catch any land sale applications already before the OIO that have not been approved by that date. They do not change the rules regarding acquisitions of significant business assets, Parker said in a statement.
Buyers claiming they intend to move to New Zealand will need to do so within 12 months of purchase rather than the current five years and buyers’ donations to local causes to ease their applications will be treated as a less significant factor than in the past. Criteria for consent do not change although today’s statement notes that can be achieved “by amending the (Overseas Investment) Act”.
Forestry Minister Shane Jones would shortly make announcements to strengthen the requirement of foreign investors in forestry assets to “support New Zealand wood processing and manufacturing, which will also support regional communities”.
Parker said the existing directive to the OIO was “too loose”, applying only to “very large farms more than 10 times the average farm size”.
“In practice this meant restrictions in sales generally applied to sheep and beef farms over 7,146 hectares or a dairy farm more than 1,987ha. This new directive tightens how we assess overseas investment in New Zealand to ensure authorised purchases provide genuine benefits.
“Too often we see investors buy a New Zealand farm, and then use existing systems, technology and management practices which don’t substantially add anything new, or create additional value to our economy.
“We want to make it clear that it is a privilege to own or control New Zealand’s sensitive assets, and this privilege must be earned. We campaigned on these changes and they won’t come as a surprise to potential investors,” said Parker.
All applications which are being assessed by the OIO at, and from, Dec. 15 will be subject to the new directive letter, with all applications not determined by that date being given a “fair opportunity to make additional submissions under the new approach”. . .
This will be popular with those who don’t like foreign ownership of land.
It will also be popular with those wanting to purchase farms if, as is likely, it depresses prices, at least in the short-term:
. . . A specialist farm accountant based in Christchurch, Pita Alexander, said he supported the rules but warned the move was likely to affect the farm property market.
“In principle I’m not against the main thrust of the new directive, I think it tightens up the existing arrangements and I’m not uncomfortable with that.
“But if you take these overseas buyers out – and let’s face it, they’re not completely out or banned – but if you take them out of the system you’ve got less purchasers so it would have a downwards effect probably on values over time, on the bigger farms in particular.”
He said having fewer potential buyers would affect the land value.
“It would be a downwards effect [on the values] because they are the ones who bring in bigger money.” . .
A real estate agent told us there are 60 Southland dairy farms on or coming on to the market soon. That number alone is likely to depress prices. Taking potential buyers out of the market will have an even more depressing affect on values.
While those wanting to buy a farm will be happy about this, the move will be unpopular with anyone wanting to sell a farm, especially any whose equity was low.
It will certainly make a difference to how much they get and, if prices drop too far, could be enough to leave some sellers with nothing or even owing money.
The directive will also be unpopular with those who have signed up to sell to foreigners under the old rules for whom the goal posts have been moved.
The OIO process was already a difficult and time-consuming process with no certainty about the outcome.
This change will make the process more difficult and even less uncertain.
Whether it will have any longer term impact on prices and sales is doubtful.
The number of sales to people from overseas isn’t known but it was estimated as being only about 2% of total sales, and that would have included sales from foreigners to foreigners.
But it will mean less foreign exchange comes in to New Zealand, and some sellers will be forced to accept less for their farms and therefore have less to invest elsewhere.
It also opens the country up to accusations of hypocrisy.
Individuals and businesses own farms in other countries, amongst them is the New Zealand Superannuation Fund.
If it’s fine for our pension fund to own farmland in foreign countries, why is it wrong for foreign pension funds to own farms here?