Significant changes to New Zealand’s overseas investment regime are now in force. The changes represent a deliberate shift toward faster decision‑making and more proportionate screening for lower‑risk investments, in keeping with the Government’s “Going for Growth” programme.

This alert outlines what the new overseas investment regime means in practice for foreign investors, including the operation of the national interest test, expected timeframes, and areas of continued scrutiny.

One test to rule them all (almost)

The reforms consolidate the previous tests for most investment classes into a single “national interest test”. The exceptions are farmland, residential land, and fishing quota, which continue under the existing pathways. You can read about this in more detail in our previous alert here.

There are now three consent stages; most applications will be processed in Stage 1:

• Stage 1: Initial risk assessment. If an investment poses no or low national risk with a focus on national security and public order, consent should be granted quickly without further investigation.

• Stage 2: National interest assessment. If the conclusion from Stage 1 is that there may be a risk to national interest, a further assessment is undertaken to determine if the investment poses a risk to national security. 

• Stage 3: Ministerial assessment. In the rare event that the OIO considers there is unresolved national interest risk, only the Minister may reject it. 

National interest risks remains open to interpretation

The materiality settings for the new regime will take time to bed down. In particular, it remains to be seen how far beyond existing national interest categories the OIO will assess potential transactions. The Directive Letter is light on guidance and provides little direct certainty to foreign investors as to what is and is not in the national interest. 

The Directive letter directs the OIO to consider:

• The Asset: The inherent sensitivity or characteristics of the asset (e.g. links to critical infrastructure or Strategically Important Businesses, or a firm holding large amounts of personal data), and whether the asset can be used in a way contrary to New Zealand’s national interest;

• The Investor: The investor, its operations, history in New Zealand or abroad, and governance. This includes the structure used to make the investment – opaque structures will receive more scrutiny; repeat investors with a clean track record will receive less scrutiny.

• International risk: Adverse effects New Zealand's international relations or reputation;

• Important land risk: Adverse effects on land that may have national significance (e.g. significant conservation value, Te Tiriti o Waitangi claims, heritage places);

• Aggregation risk: Aggregation of ownership in sensitive sectors, with horizontal and vertical integration of supply chains, and foreign governments singled out as higher risk;

• Countervailing benefits: Whether the benefits, including other Government priorities, offsets the risk arising from the transaction. 

Despite messaging that Stage Two will be rare, scrutiny may extend wider than prior to the reform to businesses that service or sit alongside strategic assets (e.g., service providers to strategic businesses or land adjoining Defence Force land). 

Nonetheless, the guidance on materiality in the Directive Letter does indicate the following: 

• National interest not regulatory risk: The OIO must consider whether the risk be managed by other domestic regulatory regimes; 

• ‘National’ risk: The risk must be material to New Zealand as a whole;

• National security and public order: Actual threats to security and order remain the highest triggers; 

• Practical considerations: The directive that 80% of applications be approved within five working days does hint at the level of materiality to which the regime is intended to work. This directive necessarily prohibits exhaustive reviews of all applications, reflecting that foreign investment is generally in New Zealand’s interests, with resources focussed on high risk transactions; and 

• Trust the investor: A corollary of the above is that the OIO will rely on the information provided by the investor unless there is reason to question it (e.g. evasive or incomplete responses). 

Fast-track consenting does not mean light-touch applications

The OIO has been tasked with processing 80% of all Stage One applications in five working days. Even the most streamlined of existing categories – such as investments in significant business assets and existing production forestry – should benefit from this accelerated approach. 

This will be welcome news to most investors, but it is dependent on clearly articulated applications, based on appropriate due diligence, on why the transaction is low or no risk. The examples of potential national interest risk above may not pose a sufficient level of risk to the national interest to be escalated to Stage Two, but the OIO is expecting applicants to front-foot all potential risks in their application. 

Grocery, forestry and residential get special call-outs

The legislative changes and Directive Letter provide more detail around certain sector-specific investments.

• Grocery: The Directive Letter has told the OIO to streamline approvals for investments in the grocery sector and co-ordinate with other regulatory regimes including the fast-track regime under the Resource Management Act. This is in keeping with the Government’s legislative and policy changes designed to remove barriers to competitor supermarkets in New Zealand, but it is unclear how much this really adds to the way the OIO is now expected to process all applications.
• Forestry: Forestry investors get some good news. While in practice there will be little change with existing production forestry moving from the special forestry test to the national interest test, there is recognition that in some cases, conversion from production forestry to permanent forestry should be allowed. We also understand that investments into existing permanent forestry will also be dealt with under the national interest test, not the Benefit to New Zealand test. The OIO has also been directed to engage with the Ministry for Primary Industries to develop guidance on investments in other types of forestry.
• Investor visa holders: This pathway – allowing those who have qualifying investment visas to purchase residential land at a total price point of more than $5m – is now live. Investment visa holders should be aware that:

  • "residential land" has a specific meaning under the Act – it does not encompass all land on which a residence is situated, and specifically excludes land that is classified as "sensitive” on other grounds; and

  • if they are buying bare land, their investment will be subject to a condition to build a house, though in the timeframe and reporting requirements for such conditions are likely to be determined on a case-by-case basis. 

The focus is cutting bureaucracy and cost

The Directive Letter is clear: “Low risk applications should be consented as quickly as possible in a way that reduces cost and delay for these investors”.

Timeframes: As noted, the OIO has been given ambitious timeframes to complete:

• 80% of Stage One screenings in five working days – a third of the 15 working-day statutory timeframe

• 80% of all consent decisions (including Stage 2 / 3) in half the 55 working-day statutory review timeframe.

For those who have been through the previous regime, these are lightning-quick turnaround times. It may require a different approach to condition timeframes in sale agreements; the OIO has made it clear that it will not delay issuing decisions to suit commercial timing.

Costs are still to be finalised, but for investments that previously would have been processed under the Benefit to NZ pathway and are not escalated to Stage Two, the fees - $22,800 (including GST) – are significantly less, and may be further reduced once the regime beds in.

If you have any questions or would like to discuss how the new overseas investment reforms may affect a current or proposed transaction, please contact one of our experts.