Has FDI fallen out of favour in New Zealand?

These articles recently appeared in FDI magazine.

Lucia Dore | 14/12/2017 12:02 pm |


Observers fear New Zealand’s historic openness to foreign investors could be a thing of the past under new prime minister Jacinda Ardern, with property speculation coming under increased scrutiny. Lucia Dore reports.

For the most part, New Zealand has had an open and welcoming attitude towards FDI over the years, and has recognised the positive contribution that foreign investors have made to the country. However, this may be about to change. 

The country could see a reduction in FDI and a fall in immigration numbers under the policies of the new government that was sworn in in the last week of October. It is a minority coalition government between the Labour Party and New Zealand First, with Labour holding a further ‘confidence and supply’ arrangement with the Green Party. The country's 37-year old prime minister, Jacinda Ardern, is the third woman to hold the position.

So far, the government has announced a ban on foreign speculators buying houses from early 2018. “We are determined to make it easier for Kiwis [the people of New Zealand] to buy their first home so we are stopping foreign speculators buying houses and driving up prices,” Ms Arden said in a statement, though concern has been expressed about how this ban will be enforced. 

Many New Zealanders feel a sense of alienation because farmland and houses in particular are perceived as being bought by foreigners, pushing up prices. As former prime minister John Key put it in 2010: “Looking four, five, 10 years into the future, I’d hate to see New Zealanders as tenants in their own country, and that is a risk I think if we sell out our entire productive base.” 

Yet only 3% of New Zealand farmland is owned by foreign investors and about 13% of residential property, according to deputy chief executive of the New Zealand Institute of Economic Research (NZIER), John Ballingall.

Buyer beware

According to figures from the New Zealand Treasury, FDI from 2013 to the end of June 2015 totalled NZ$100.6bn ($689.1bn). Australia and the US are the largest contributors to total FDI, with overall investment worth NZ$52.2bn and NZ$8.2bn, respectively. The UK is the third largest investor with a total of NZ$5bn, while Singapore, Japan and the Netherlands follow closely behind with NZ$5.8bn, NZ$4.8bn and NZ$3.5bn, respectively.

Under the legislation enacted by the new government, non-residents or non-citizens cannot purchase existing residential dwellings. Australians will be exempt, as New Zealanders are in Australia. Australia already has a similar policy in place, but house prices in the country are still considered to be high. 

Legislation will be introduced by the end of 2017 and will take effect immediately once passed in early 2018. The government says the new legislation will not affect the country’s free-trade agreement with South Korea, nor the Trans-Pacific Partnership (TPP), from which the US has pulled out, if legislation is passed before the TPP takes effect. The legislation may present challenges with Singapore, but Ms Ardern insists these can be worked through. The previous government said such changes could not be made.

To enact this legislation, the government is introducing an amendment to the Overseas Investment Act (OIA) to reclassify residential properties as ‘sensitive’. At the moment, overseas investments in New Zealand assets are only screened if they are defined as sensitive within the OIA 2005. Three broad classes of asset are defined as sensitive within the act: acquisition of 25% or more ownership interest in business assets valued at more than NZ$100m; all fishing quota investments; and investment in sensitive land as defined in schedule one of the act. Examples of sensitive land include rural land of more than five hectares in size or land bordering or containing foreshore, seabed, river or the bed of a lake. 

A real change? 

“The move is largely symbolic,” says Ashley Church, CEO of the Property Institute of New Zealand. “It’s not a ban, it’s a redirection of investment. Foreign investors who want to invest in New Zealandresidential property can still do so, but they’ve got to invest in the construction of new buildings.” 

Mr Ballingall adds: “We will see some changes around the margins. We won’t see the shutters go up. The government will be pragmatic. New Zealand doesn’t have a domestic savings pool that is large enough.” 

Economic consultant Shamubeel Eaqub largely agrees, but adds that FDI has lost credibility in New Zealand. “FDI has not added significant value to New Zealand. The hidden story is that not everything has shifted offshore,” he says. Investors are seen as ‘queue-jumpers’ because they are perceived to have the money to buy their way into the country. 

Nevertheless, an NZIER report estimates that New Zealand needs up to NZ$200bn of additional investment to support government export, growth and R&D targets. "We need [FDI] to ensure investment, innovation and productivity,” says Mr Ballingall. 

Election fallout

A report by KPMG shows that approximately 59% of FDI into New Zealand comes from North America, Australia and Europe, based on approvals by the New Zealand Overseas Investment Office (OIO) between 2013 and 2015. Asia accounted for 33% of total investment. The US was the biggest investor in dairy land in 2013 to 2014, accounting for 56% of the freehold hectares sold and 26% of the consideration paid. China accounted for only one of the 24 transactions for dairy land approved by the OIO.

In the recent election, Labour and its historic rival the National Party both failed to win the minimum 61 seats necessary to form a government. The Green Party secured 6.3% of the vote and three ministers outside of the cabinet. New Zealand could be facing an interesting three years, given that the Greens’ vote is imperative to passing any legislation that the coalition government puts forth. As to how this will affect FDI, time will tell. As Mr Ballingall says: “We should be celebrating FDI, not demonising it.” 

New Zealand First’s Peters likely kingmaker in hung parliament


Lucia Dore | 19/10/2017 12:00 pm |

New Zealand’s general election in September resulted in a hung parliament between the National party and Labour. The poor showing of minor parties leaves only New Zealand First as a credible coalition partner. But which party will it support? Lucia Dore reports.

New Zealand was still waiting for a government to be formed weeks after the general election on September 23. The right-wing National party won 58 seats (with 46% of the vote), while left-wing Labour won 45 seats (36%). Any party or coalition partnership requires 61 seats to form a government, so there was no outright winner.

Under the country’s mixed member proportional (MMP) system, introduced in 1993, the result means either Labour or the National party can form a government together with a coalition partner, which is likely to be one or two of the smaller parties.

Of these, the populist New Zealand First party – led by political veteran Winston Peters – took nine seats (7.5% share), while the Green party, which has left-leaning and environmental policies, gained seven (5.9%).

The right-leaning ACT party, led by David Seymour, won only one seat. It is a previous coalition partner with National party, led by Sir John Key, and then Bill English. But the Maori party, another former National partner, gained no seats this time round (1.1%), while United Future’s leader Peter Dunn, who had helped prop up a National-led government, has retired and his seat was not held.

The Greens have ruled themselves out of a coalition with the National party, no matter how sensible it might appear, because it campaigned on a change of government. Hence, Mr Peters has now been dubbed ‘kingmaker’, since he gets to form the next government with either Labour or the Nationals.

A Labour-Green-NZ First coalition is possible, but it would depend on what Mr Peters gets out of the deal, such as the job of deputy prime minister. The other option is a National-NZ First coalition, which will mean that a National-led government will secure more seats than Labour.

But the government that is formed will depend on the special votes (such as overseas) that are counted on October 7. Negotiations are expected to be complex and have to be completed by October 12, when results are presented to the governor-general. It will be a tight deadline.


Has FDI fallen out of favour in New Zealand?
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