New Zealand needs to consider promoting passive overseas investment in developed assets. We are pleased to see that the New Zealand Government has signalled changes to allow for foreign investment in established build-to-rent developments (while still retaining the residential restrictions more generally).^[1]

The Government should go further to provide more certainty to foreign investors wanting to invest in already established assets, particularly in the current solar farm investment market, where developers will be considering divestment opportunities once their projects have been completed.

Any overseas person or entity who seeks to invest in sensitive land in New Zealand needs to pass the Benefit to New Zealand Test and show that the overseas investment will, or is likely to, benefit New Zealand. This may be demonstrated through economic or other benefits. For developed assets, these benefits are likely to have already arisen during the initial development phase, leaving little for a future passive investor to contribute once renewable energy developments are operational. This means such future investors would be unlikely to pass the Benefit to New Zealand Test based on most of the relevant benefits such as capital expenditure and creation of jobs. 

The liquidity benefit

It has been the position for some time that a “reduced risk of illiquid assets” can be considered when determining the economic benefits to New Zealand (liquidity benefit). The OIO has recently signalled that, in the context of a developed asset, this could be the sole benefit if it was strong enough.

Recognition of the liquidity benefit by the OIO indicates that overseas investment is an option for assets that might otherwise be stranded. This consideration is likely to be relevant for large assets that cannot be sold in parts or assets that require industry specialisation to operate, resulting in a heightened risk of illiquidity in the New Zealand market.

To date, the OIO has not granted consent based solely on the liquidity benefit, but we understand the OIO is open to receiving a test case. Given the fees involved, and this being an untested area of the overseas consenting process, we do not expect many investors are willing to be that test case.

A passive investment pathway

The Government should give greater consideration to formalising a pathway for passive investment, providing greater certainty for investors.

Solar and other renewable energy development projects are key to New Zealand’s target of net zero emissions by 2050. To encourage this, and ensure overseas investment in the renewable energy sector (and potentially other infrastructure projects), we should actively promote the passive investment market in New Zealand. Of course, disposal of New Zealand’s sensitive assets must be considered, but as many renewable energy developments are established from a property perspective by way of a lease, the overseas investment would be for a limited time.

The benefit of creating a more certain investment pathway for passive investment and actively encouraging overseas investors into the New Zealand energy market (while limiting the investment term) would strike the right balance between protecting our sensitive land and enabling investment in assets that may otherwise be stranded.

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Special thanks to Sarah Heslin for her assistance in writing this article.