The integral policy of the new Labour coalition Government to review foreign ownership in New Zealand and place restrictions on foreign buyers is a hotly debated topic right now. A Ministerial Directive letter to the Overseas Investment Office (OIO) means that investors in farmland, lifestyle blocks, and non-urban land will soon face additional challenges in obtaining OIO approval. Following on from our recent special bulletin about the upcoming ban on foreign owners of existing residential homes it is useful to take a broad look at how this directive might affect rural land moving forward.
This directive letter came into force on 15 December 2017. Currently, land larger than 5 hectares is subject to approval from the Overseas Investment Office for an overseas person. As a reminder, overseas persons are people who are not New Zealand citizens or ordinarily resident in New Zealand. Generally speaking, organisations are considered legally overseas persons where more than 25% of control or ownership is derived from individuals who are themselves overseas persons.
In deciding whether to approve an overseas investment, the OIO will assess the benefit the land sale will have on New Zealand as a whole. However the directive also suggests that overseas investors are more likely to see their applications approved where their investment will:
- Provide a high level of benefit to New Zealand;
- Create new productive assets;
- Be environmentally sustainable and encourage positive, long lasting environmental benefits; and
- Significantly increase value-added activity in New Zealand.
For the sale of rural land to receive consent from the OIO, investors must be able to show substantial and identifiable benefits to New Zealand. Such benefits could include the creation of jobs, new technology or business skills, increased export receipts, and oversight and participation by New Zealanders in the investment.
Land which is principally used for forestry activities is likely to be exempt from these new proposed restrictions. Specific conditions of consent may be imposed upon overseas investors looking to invest in “forest land.” The directive gives the example of a requirement to enter into a supply agreement with local processors. Important factors to be considered by the OIO are:
- The increased processing of primary products; and
- Advancement of significant Government strategies or policies.
Sponsorship and community projects
The directive makes it more difficult for the benefit of the overseas investment to be directly proven. Benefit to New Zealand can still be shown consequentially by the sponsorship of community projects or donations. However these are to be deemed less important and beneficial under the previous 2010 directive.
What does this mean for foreign buyers?
Overseas investors wanting to purchase lifestyle blocks over 5 hectares will continue to be restricted by the OIO. When the situation arises, the OIO will “balance the need for highly beneficial overseas investment and the need for New Zealand to maintain ownership and control of sensitive New Zealand assets.”
When working with an overseas investor, we suggest encouraging them to obtain legal advice from the outset for how to best combat these new restrictions and indeed whether they will be able to purchase non-urban land at all. Our property and immigration teams would be happy to answer any queries on this.