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New Zealand: New Government Proposes Changes To Foreign Investment Consent Rules Impacting Cross-Border M&A Deals

David James Quigg, Asha Stewart, and Matt Woolley

New Zealand: New Government Proposes Changes To Foreign Investment Consent Rules Impacting Cross-Border M&A Deals

Following over a month of negotiations, a three-way coalition Government for New Zealand was announced on 24 November 2023.  The new Government has announced important changes to New Zealand’s strict foreign investment consent and notification regime.  Anyone considering an acquisition involving a New Zealand business should be alert to New Zealand’s foreign investment rules and the proposed changes.  The proposed changes are summarised in this update.

Background to the proposed foreign investment changes

A political party’s representation in the New Zealand parliament broadly reflects the proportion of votes cast for that party nationally, with the major parties usually requiring the support of one or more smaller parties to be able to secure a majority and form a government.  This was illustrated in the most recent general election held on 14 October 2023, with the National Party (with 38.1% of the popular vote) forming a coalition government with New Zealand First (6.1% of the popular vote) and the Act Party (at 8.6% of the popular vote).  

A consequence of New Zealand’s electoral system is that smaller parties (especially New Zealand First, which positions itself as being able to support either of New Zealand’s two major parties) can exercise significant influence over government policy, and this is particularly the case in respect of foreign investment policy.  As will be seen below, forming the three-way coalition Government has required concessions from each of the parties in respect of their foreign investment policies.  This is not surprising given that New Zealand First generally has more restrictive views on foreign direct and indirect investment than the National Party and Act Party.

Changes to restrictions on foreign investment in residential land

Foreigners are effectively prohibited from acquiring residential land in New Zealand, subject to limited exceptions.  The new Government has released an action plan of policy changes it will implement in its first 100 days of governing, including the National Party’s proposed changes to the foreign investment rules “to make it easier for Build-to-Rent housing to be developed in New Zealand”.  Build-to-Rent developments are typically large residential developments that comprise a number of dwellings to be held long-term for rental investment rather than for sale on completion.  The existing foreign investment exemption for Build-to-Rent developments has been criticized for applying too narrowly, as it only applies to retirement villages, rest homes, and certain student accommodations.

The National Party (being the main party comprising the coalition Government) had also campaigned on an exemption to the restriction on foreigners acquiring residential land in New Zealand if the residential land was worth NZ$2 million (being approximately US$1.23 million) or more and a “foreign buyer tax” of 15% is paid at the point of purchase.  This proposal was not supported by New Zealand First during the coalition negotiations, and will therefore not proceed.

Changes to limit ministerial decision making

New Zealand’s foreign investment regime specifies ministers as decision-makers on consent applications.  In practice, ministers in prior Governments have delegated such decision-making power over at least some consent decisions to the Overseas Investment Office, being the foreign investment regulator.  The coalition agreement between the National Party and the Act Party includes a commitment to changing New Zealand’s foreign investment rules to “limit ministerial decision making to national security.”

The coalition agreement does not detail what decisions would relate to national security, and while the existing consent rules include a “national interest test,” that test applies more broadly than just national security concerns.  Where consent is not required for an investment, the National Security and Public Order regime may apply, meaning that a mandatory or voluntary notification of the investment could be triggered.  It remains to be seen whether the changes announced will only apply to the consent regime, or whether they will also apply to the notification regime.  In any case, it can be expected that the proposal should streamline the foreign investment process for investors in New Zealand businesses.

The Act Party had previously proposed exempting Organization for Economic Cooperation and Development (OECD) member countries from New Zealand’s foreign investment regime, except in cases of “important national security assets.”  This proposal will not proceed.

Detail for the above changes yet to be announced

At the time of writing, the details of the proposed changes outlined above and how they might operate in practice is not yet known, but are expected to become clearer once the legislation to give effect to the proposals has been released.  It is hoped that there will be an opportunity for consultation on the detail during the bill’s passage through the New Zealand Parliament.