Changes set to ease consent for overseas investment

Recently the government’s policy to attract increased overseas investment became clearer.

Associate Finance Minister David Seymour announced a new streamlined pathway for all investments except residential land, farmland and fishing quota. Despite the status quo remaining for overseas investment in farmland, this change may impact on the rural property market, where much of the foreign investment that comes to New Zealand is focused.

How will this affect farmers considering selling rural land?

After the 2023 general election the National and ACT coalition agreement signalled that the new government intended to amend the Overseas Investment Act 2005. Since then, decision making power on granting consent for overseas investment has been passed from ministers to Toitū Te Whenua – Land Information New Zealand (LINZ), the government has signalled ‘that New Zealand is open for business and is outwardly engaged,’ and that it will reverse ‘the presumption that investing in New Zealand is a privilege and that investors must justify their transaction to the government.’

LINZ incorporates what was formerly the Overseas Investment Office.

A ministerial directive letter, likely to be issued later in the year, is set to substantiate this new approach, clarifying how officials will apply overseas investment regulations in future.

As the basis for this, investment should proceed unless a risk is identified, and low-risk applications will receive consent with a rapid turnaround.

While this ‘open for business’ stance clearly intends to make New Zealand more attractive to overseas investors, the basic process for granting overseas investment, via LINZ, is unlikely to change, other than speeding it up and making consent easier to achieve.

While in general residential land accounts for most consent applications from overseas investors, where transactions of rural property are concerned, non-urban land larger than five hectares is most frequently the focus. For those on the other end of these sales, offering such farms to the market where interested parties are likely to include overseas buyers, understanding the process is useful.

In recent years overseas investment in New Zealand rural land has most frequently been on forestry property, marginal farms with potential to convert to forestry, and land with potential for solar power generation. Forestry and solar investment account for more than half of LINZ decisions. Few transactions of dairy or sheep and beef farms have sought LINZ approval recently: such properties have not attracted much interest from overseas capital for several years, though if they did consent would be required. Meanwhile interest in viticulture land, or farms suited to growing grapes, has fluctuated. While not previously attracting much attention, as the new regulatory guidelines take effect, horticulture land, particularly kiwifruit, may generate interest from overseas investors.

Under the Overseas Investment Act 2005, which outlines how LINZ decisions are made, in order to gauge local interest farmland must be offered to New Zealanders on the open market before an overseas transaction can occur. No longer than 12 months before a landowner seeks consent from the LINZ to sell a farm to an overseas investor, the property for sale must be advertised for at least 30 working days on a website that is generally used to advertise real estate; and in print in at least one edition of the property section of a local newspaper or real estate publication.

To gain consent, the overseas purchaser must also demonstrate that their investment will generate economic benefit greater than the status quo: that the land they intend to buy will become more productive than it presently is. While LINZ also takes account of several other benefits, such as the investment proposal’s potential to advance a significant government policy, benefit the natural environment, or protect historic heritage, most weight is put on economic benefit, specifically projected revenue generation, particularly export revenue, alongside job creation.

As noted, in recent years conversion of farmland to forestry has been the focus of many applications from overseas investors. With these LINZ will typically consider the comparative revenue from existing and proposed land uses, the number of people employed on the existing farm compared to the number if it were to become forestry, the planned spend on development, which in this case would be investment in planting trees, and the carbon sequestration. Gauging those benefits determine whether LINZ would support the application. Conversion of land use class six or seven farmland, where consent would be conditional on using the land for production forestry, will generally gain LINZ consent, while proposals on more productive land will likely be rejected.

Another proposed use that overseas investors have sought consent for from LINZ, particularly since 2022, is land suitable for solar farm development. An investor seeking to develop a solar farm needs land that meets several criteria, including sufficient exposure to sunlight, easy contour, proximity to the power grid, and the scope to minimise the visual impact any development would have on the surrounding area. In the past three years such applications from overseas investors have become increasingly frequent.

With these applications LINZ will consider the investment necessary to construct the farm, including local contractor costs and the cost to import panels; the number of homes able to be powered from the energy the farm would produce; improved energy security achieved from the farm’s development; and the increased competition for energy generation and supply that would also result. If the plans mean the land would retain some capacity to graze livestock, that will also count in favour of the application.

Unlike most rural property transactions, purchases where the objective is to develop a solar farm are generally initiated by the purchaser, not the vendor. Developers usually identify the topography of suitable property and approach the landowner directly. Assuming the owner is willing to sell, and the purchaser is an overseas investor, to meet LINZ criteria the owner will first need to advertise for 30 days that the property is for sale, as noted above. Because such a transaction differs from the norm, overseas investors in solar farms tend to seek an exemption from the advertising requirement.

For the sale of farmland to an overseas investor, while this process is unlikely to change, all indications are that decisions will be made more quickly, by officials rather than ministers, and with the emphasis on granting consent unless there is risk, or the possibility of risk, to the national interest. Making decisions within 15 days, as specified by all the announcements on this to date, will remove much of the doubt previously associated with overseas investment. 

Anyone offering land that might attract overseas investment should work closely with a suitably experienced rural property consultant, and a lawyer well versed in LINZ processes. Although in the past overseas investors have faced barriers to purchasing New Zealand rural property, and the government has ruled out changes to the regulations for farmland, with broader change now occurring, those who own such property may have greater opportunities to maximise its sale value. For those with the criteria to seek overseas investment, good preparation, including seeking out appropriately qualified advice, will pay off.