The Directive Letter demonstrates the coalition Government’s commitment to minimising the regulatory burden for investments into New Zealand. It is the latest in a series of developments that have streamlined the Overseas Investment Act consent process for investors. While investors must still consider the application of the overseas investment regime and, where necessary, go through the approval process, we would expect this will only rarely inhibit inbound investment. Overall, the coalition Government continues to signal to investors that New Zealand is ‘open for business’ and encouraging of overseas investment. We set out below the key aspects of the Directive Letter and other beneficial developments for investors which have recently been implemented.
Key aspects of the Ministerial Directive Letter
Under New Zealand’s Overseas Investment Act regime, Ministers hold ultimate decision-making power over consent applications and notifications (although they can and often do delegate these functions to the Overseas Investment Office (OIO), which is the part of LINZ responsible for regulating the Overseas Investment Act regime. Accordingly, while a Ministerial Directive Letter does not have the force of law, it sends a very strong signal to the OIO as to how the Government expects it to administer the legislation and execute its functions.
This Directive Letter is consistent with the current coalition Government’s business and investor friendly approach and should give investors greater comfort around the process and outcomes of OIO applications. The main highlights of the Directive Letter are directions to LINZ to:
- Risk-based approach: adopt a risk-based approach to administering the Overseas Investment Act regime and assessing consent applications by focusing on higher-risk transactions. Specifically, LINZ is directed to carry out less verification of investors claims in low-risk cases and ensure any consent conditions imposed on a transaction be no broader than necessary (and avoid duplicating or imposing requirements over and above those set out in other legislation);
- Assessment timeframes: reduce the assessment timeframes for low-risk transactions. Specifically, LINZ is directed to assess 80% of consent applications within half the relevant statutory assessment timeframe for those consent applications. For example, the vast majority of significant business assets consent applications which have a 35 working day statutory assessment timeframe are now expected to be decided in less than four weeks;
- Benefit to New Zealand: take into account the current government’s policies and the objectives set out in the Coalition Agreements when applying the “Benefit to New Zealand” test. The Directive Letter also expressly recognises that where an investment demonstrates strong benefits under one or two benefit factors, other factors may require less consideration if the threshold for meeting the benefit test is clearly met without reference to them. This is a welcome development for investors in “sensitive land” and should also assist the OIO in meeting the new timeframe directive set out above.
Other beneficial developments
The Directive Letter follows a number of other beneficial developments in the Overseas Investment Act regime for investors, which have arisen through legislative change, earlier Ministerial intervention and improvements the OIO has itself made to its internal processes. A few of the key improvements are set out below.
- Delegated decisions: Well before the issue of the Directive Letter, and following signals in the ACT and National Coalition Agreement (see here), the Ministers delegated to LINZ, decision making for all consents, variations and exemptions. The exception is those relating to national interest assessments, and decisions relating to notifications under the national security and public order regime. This itself had material timing benefits for applicants.
- Low risk applications: The OIO introduced a new streamlined pathway for low-risk and straightforward consent applications. This has resulted in faster decisions, particularly on significant business assets consent applications.
- EU and UK monetary thresholds: Following the entry into force of the Free Trade Agreement between New Zealand and the United Kingdom, and the Free Trade Agreement between New Zealand and the European Union, the Overseas Investment Act regime has been updated to extend the benefit of an increased monetary threshold of NZ$200 million for investments in significant business assets (but not sensitive land or fishing quota) to non-government investors from the European Union and the United Kingdom.
- New application forms: The OIO introduced new consent application forms which are intended to streamline the application process. These forms will enable the OIO to undertake faster and more efficient assessments.
Build-to-Rent Developments
Finally, the Government has been keen to ensure that the Overseas Investment Act regime does not inhibit inbound investment into new housing development. To this end, the coalition Government earlier this year issued a supplementary Ministerial Directive Letter to LINZ relating to the Build to Rent sector (the BTR Directive Letter), which is now annexed to the Directive Letter. Under the BTR Directive Letter, LINZ is directed to be flexible in the interpretation of being “in the business of providing new residential dwellings”. This is to expand the pool of potential investors and strongly consider investments that support housing supply and the continued operation of existing large-scale housing developments as a benefit, when assessing the “Benefit to New Zealand” test.
The BTR Directive Letter also reconfirms that the benefit of reducing the risk of illiquid assets in New Zealand will continue to apply to Build-to-Rent developments, but goes a step further in saying that this benefit may be sufficient to satisfy the “Benefit to New Zealand” test, even if no other benefits will result from such investments.
The OIO is currently preparing interim guidance on Build-to-Rent developments and expects the new pathway to come into effect later this year or early next year.
Overall, the above developments send a strong signal that increasing productive foreign direct investment and the flow of capital into New Zealand is a priority for the current coalition Government. The Associate Minister of Finance also indicated yesterday that the next step is to rewrite the Overseas Investment Act. The extent of such a rewrite is unknown at this stage. We will release further updates on further developments in the Overseas Investment Act regime as they progress.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.