Foreign investors will soon find it much easier to invest in businesses and land in New Zealand, with the Government’s commitment late last week to reform the Overseas Investment Act 2005 (OIA) – available here.
The reform proposes to be significant: moving away from a regime that requires foreign investors to show how their investment will benefit New Zealand, towards a more permissive, risk-based approach.
The Government intends to change the current regime at its roots, by replacing the OIA’s premise that it is a privilege to own assets in New Zealand. The new starting point is that investment can proceed unless there is an identified risk to New Zealand’s interests. In Hon. Minister Seymour’s words, New Zealand should move to a position where “[Y]ou can invest in New Zealand if you've got a willing buyer, a willing seller, and there are no dangers to New Zealand's interests”.
The scope of the reform suggests a significant change to the OIA – we set out the stated key principles at the end of this article. The Government has also referenced the recently announced reforms of the Overseas Investment Office’s Australian equivalent, the Foreign Investment Review Board – see this article by MinterEllison for more detail on those reforms.
Given this context, key potential changes include:
- A change in thinking from benefits to risks: The biggest change is likely to be seen in overseas investments involving “sensitive land” under the Act. Currently foreign investors need to show a benefit proportionate to the “sensitivity” of the land being acquired. Whereas currently applicants seeking to acquire sensitive land must commit to specific economic, environmental, or other benefits, the language of overseas investment applications under a reformed regime could be as simple as undertakings that certain identified risks are not applicable. This will likely, however, depend on the nature of the asset: farm land, for example, could be an exception. But we would expect this to result in a significant improvement for renewable infrastructure investments, particularly on exit.
- A sector-specific approach: Given the focus on risk, the Government may introduce a sector-specific approach – the more critical or sensitive the asset, the higher the scrutiny. Data and technology and critical energy infrastructure will likely attract closer scrutiny in terms of national security and interest; housing and manufacturing sectors ought to face less rigour.
- Increased emphasis on monitoring and enforcement: Consistent with a higher trust model, the reformed regime may rely more heavily on its existing monitoring and enforcement powers. The refined investor test will be key for these purposes.
- A decrease in application costs: To date, these costs have been justified primarily on the basis of the OIO’s resource allocation to assessing applications.
Minister Seymour says he expects to pass changes to the legislation before the end of 2025. In our view, an overhaul of the Act based on first principles is needed given the multiple amendments made to the regime by successive governments. We will be keeping a close watch on developments and will be liaising with the relevant Government officials. If you would like to discuss any changes that you would like to be considered, please get in touch with one of our experts.There will also be a chance to make submissions on the draft bill and we will let you know when the submission period opens.
Key principles of the proposed OIA reform
- Retaining the scope of what we currently screen (including farmland), in order that the Government retains the legal option of screening all investments currently subject to screening.
- Fast-tracking the assessment process with the starting assumption that investment can proceed unless there are risk factors identified, by consolidating the Act’s core tests (investor test ([various criminal and civil penalties have not been committed], benefit test ([are proportionate benefits created for investments in sensitive land], and national interest test).
- Providing the government flexibility to call-in these investments for detailed scrutiny on a case-by-case basis, and impose conditions or block the investment where there are risks to New Zealand’s national interest.
Key contacts
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