Infometrics senior economist John Carran has come out in support of liberalised foreign investment rules. Whilst I support liberal foreign investment rules, his arguments need to be considered in context, though I support the conclusion of his arguments.
1. It is true that foreign investment restrictions will alter the perceptions of foreigners; however a great many countries have them, so NZ need not worry. Should NZ worry about foreigners owning 'their' land. No, because they are subject to the same rules as you, and those rules are set by government, who is elected by New Zealanders.
2. He is correct in arguing that restrictions on foreigners buying large tracts of NZ will take the premiums out of the NZ property market for premium farm assets. That is of course a problem for Kiwis selling out, but good for Kiwis accumulating farm assets. We have heard that many farmers are having trouble acquiring land because of the high prices. This is because of foreign buyers, as well as a shift from low value farming like sheep grazing to higher value woodchip plantations. If foreigners are sponsoring such efforts than it is a good thing. NZ might like to place contingencies upon property sales. You can only buy a property if you utilise it for ...., or you can only buy if you earn returns greater than the existing property. This is generally not required. People generally buy farms to improve their utilisation...not with the intent of losing money. This might not always be the case if companies are able to 'mine' tax concessions...but that is a failing of 'other government policies', and not foreign investment rules per se.
3. Carran suggests restricting farm sales will raise NZ's cost of capital. I disagree with this statement because farming is just one industry in NZ, and only a portion of the property sector. It would have only a minor impact. Other sectors of the NZ economy will not be affected. It might also be argued that it would cost NZ more if foreigners were able to profit by acquiring NZ properties when the NZ was low....gaining on the currency...potentially at New Zealander's expense. I think this impact is present, but not so significant. As he indicates, the number of foreign sales is not so significant, and one needs to acknowledge the prospect for transfer pricing if Chinese companies are able to export value by using offshore processing facilities. It has to be acknowledged that if the cost of capital in NZ were to go up, that would actually be a positive incentive to save. After all, it was the low interest rates in NZ which blew out the debt. Of course, this would be a problem moving forward because the debt levels are now excessive. There is no reason to think NZ can't attract foreign funding for technology, oil & gas, though of course those sectors have their own issues. Looking at the broader policy mix, NZ has more to worry about with its attitude to mining, particularly the 'sea bed', though my understanding is that that policy only affects nearshore environments.
4. The suggestion that 'sector' restrictions on foreign investment will impact upon the broader ability of NZ business to attract foreign finance is nonsense. If this were true, this would be a problem because it would mean more NZ business ideas would go offshore for development.
The reality is that foreign investment in NZ land is small. In fact, it might be considered a 'lifestyle acquisition' rather than a commercial endeavour. The obstacle is the low returns, with NZ population growth quite stagnant compared to foreign markets. Australia, the USA, Britain make far more sense. The returns on farming are not great. Might some Chinese firms be expecting a turnaround? Maybe, but at 1% foreign land ownership, need anyone be worried. Foreigners own 9% of NZ manufacturing, 61% of the insurance business, most of the banking sector. Is there reason for concern here? In fact, once foreigners are given improved access to foreign land, NZ might rue the day they could sell their farms for so much more. Foreign land has far lower labour costs. Might we rue the day that NZ is competing with African farming costs. We might be glad we sold. Don't we need to trust that NZ farmers are able to make better informed decisions about their million-dollar investments than us...given our huge stake in their future.