Freeing up foreign investment

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The freedom to sell property to anybody around the world should be guaranteed unless foreign ownership triggers national security concerns, says the New Zealand Initiative in a briefing paper it has prepared to the incoming government after the 14 October election.

Thursday, September 7th 2023, 6:41AM 2 Comments

In a series of research reports in 2013 and 2014, the Initiative showed New Zealand’s foreign direct investment (FDI) regime residing in the Overseas Investment Act 2005 (OIA) is among the most hostile towards foreign investment of those measured by the Paris-based OECD, and foreigners’ ability to invest directly in New Zealand depends on decisions by bureaucrats in Wellington.

It found there is no foundation for fears about foreigners “taking over” New Zealand’s land and resources. The stock of inward FDI as a percentage of GDP is about a third lower than it was 25 years ago.

Conversely, the country’s stifling investment regime reduces the value of New Zealand’s resources, the briefing paper says. 

International data shows that well-managed FDI benefits domestic economies. Countries that invite international investors typically boost their competitiveness by attracting not just foreign capital but also the accompanying technologies, management expertise, and access to overseas markets.

Perhaps not surprisingly, other developed economies like the UK do not even have laws like our OIA, the Initiative says. Instead of broadly prohibiting foreign investment (subject to regulatory approval), other developed countries are more open to foreign investment, subject to national security interests.

The Initiative recommends:

I. Abolish the Overseas Investment Act

After abolishing the OIA, the Government should enact a limited protection regime against the kind of foreign ownership that could harm New Zealand’s national security interests.

2. Subject all investors to the same rules

All investors, domestic and foreign, should be subject to the same rules. This will create a level playing field and remove any advantage domestic investors may have over foreign investors.

This will also promote fair competition and create an environment that encourages investment and innovation.

3. Protect property rights

The freedom to sell property to whomever one wishes should be guaranteed unless foreign ownership triggers national security concerns.

Where national security is at stake, appropriate compensation should be made to would-be vendors unable to sell their property to the highest bidder. This will protect the country’s interests and respect property rights.

Changes could help build-to-rent sector

Meanwhile a shake-up of the Overseas Investment Act is being promised by National as it wants to kick-start a build-to-rent market and open it up to institutional investors.

The party says this will make a “substantive difference” to the housing crisis.

If elected, National will change the Overseas Investment Act to treat overseas institutional investors – companies that invest money on behalf of others such as pension funds and credits unions – the same as retirement homes and student accommodation in the legislation.

It will also change the Income Tax Act to ensure the build-to-rent developments are eligible for depreciation deductions like other commercial buildings.

Build-to-rent developments are typically multi-unit developments offering tenants seven-year plus tenancies that are professionally managed. The developments are owned by shareholder investors.

The Property Council has estimated 25,000 additional homes could be built in the next 10 years with the right policy settings, changes to the OIA and allowing depreciation.

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