The rate at which potential foreign buyers of New Zealand farms subsequently withdrew their applications to the Overseas Investment Office tripled in the past 12 months, OIO figures show.
The data captures the period since the government's directive to the OIO to tighten rules for overseas applications to buy sensitive New Zealand land (which means any farmland over 5 hectares). The ministerial directive in a letter from Finance Minister Grant Robertson last November to Land Information NZ chief Andrew Crisp said the government aims to ensure any benefits from overseas investment in rural land "are genuinely substantial and identifiable" and economic benefits must be considered alongside environmental, social and cultural goals. Owning sensitive New Zealand assets was "a privilege, not a right." The directive came into effect on Dec. 15 last year.
It shows that 13 applications to buy sensitive land were withdrawn between Jan. 1 and June 18 this year and 11 in the preceding six months - a total of 24. In the same two periods a year earlier (but with a full month of June), eight were withdrawn, and in the same period of 2015-2016 there were 14.
"The reality is there have been very few consents granted, specifically in the agri space over the last 12 months now, possibly even longer," said Duncan Ross, national country manager at Bayleys Realty Group. "We've got a number of contracts awaiting consent that needed to be extended on the way through and yes, a number of contracts terminated on the back of withdrawals."
Assuming the sales were large, as was often the case with those involving the OIO, at say $10 million apiece, withdrawals in the past 12 months would amount to $240 million, he said, declining to comment on Bayleys' own position. The firm had $1.4 billion of rural transactions in its latest year, making it a market leader. The OIO said it didn't keep data on the value of withdrawn applications.
"There's a price band for locals and neighbours to pick things up but the market for big-dollar properties is limited," Ross said. "There's no shortage of offshore parties looking to invest here. They're still encouraged to look in this part of the world but the reality is when they come to put up offers then the vendor has a big decision to make. You're going to take the risk that it is six-to-18 months before the OIO responds and then it is declined."
There has been more uncertainty about what's likely to be approved under the current regime, he said. "We're still waiting to know where the OIO review will land. Certainly, the OIO is not providing guidance to offshore parties and those with contracts currently awaiting OIO approval."
Other estate agents have said the new government's approach to foreign investors was having a chilling effect on the rural property market.
Chapman Tripp, the busiest law firm in terms of M&A in 2017, said the directive raised the benefit test threshold for consent for rural land applications. While the letter didn't elevate environmental factors above economic, social and cultural goals, "given one of the consenting Ministers is a Green MP, we anticipate that focusing on the environment in investment plans will be influential in securing consent," the firm said. Green MP Eugenie Sage is Minister of Land Information, which includes the OIO.
"No doubt offshore investors are more nervous about the regulator and the ministers that sit above it," said Tim Tubman, a Chapman Tripp partner. He said it was likely applications have been withdrawn since the directive. He did welcome the directive for the OIO to speed up its processing of applications.
The most expensive rural property currently on sale in New Zealand is a 1,363 ha dairy farm at Mossburn, Southland, with an asking price of $38 million, according to Trade Me. The milk platform carries about 1,600 cows that produced 645,000 kilograms of milk solids last season. The property was listed on Nov. 10 last year. Another four farms are on offer for prices of more than $10 million, although there were more large dairy farms offered by negotiation, with no asking price given.
The government is currently overhauling the Overseas Investment Act and its amending bill was reported back to parliament from the finance and expenditure select committee this week although the most contentious details are around investment in residential property.