Thursday, November 17, 2005

Editorial: Decision more than just a fine

There is more than a whiff of irrationality about the demands we place on foreigners who wish to buy land in this country.

New Zealanders can buy a pristine block near Queenstown and develop it any way they want, for good or for bad, within planning rules. Yet a foreigner wishing to gain consent to buy the same property must file a development plan chock-full of goodies that suggest the purchase will benefit New Zealand.

Further, as Atlanta businessman Lance Weller has discovered, the overseas investment rules include penalties if that commitment is not honoured.

Weller said he would develop a chestnut orchard and a Douglas fir plantation. Instead, in three years, his property witnessed only roading and foundation work for a luxurious holiday home. Then he sold the land, making a $1 million profit. For this, he has become the first person convicted of breaching rules for foreign investors. In Queenstown District Court, under the forerunner of the 2005 Overseas Investment Act, he was fined $17,000 for non-compliance with the conditions of the purchase consent.

Scorn has been poured on the level of the fine. It should not be. The conviction puts foreign investors on notice, as do the far tougher penalties in the new act and the heightened scrutiny of the Overseas Investment Office.

The office says it has about 30 investigations under way in Auckland and the southern lakes area. Those convicted of non-compliance can now be fined up to $300,000 (a ten-fold increase on the old law) and face up to 12 months in prison. Alternatively, they could lose the entire profit made on their investment, and the High Court can order the disposal of property.

It is easy to see why the Government acted. The likes of Lance Weller could cause considerable embarrassment.

For reasons of nationalism, if no other, people are wary of the activities of foreign investors. As much was highlighted during the sale of Young Nicks Head.

It surfaced again when Shania Twain sought to buy two high country stations near Wanaka. A prolonged process resulted in the singer committing to a $1.6 million farm management programme and public access, including the development of a tramping track, that was undeniably of national benefit - and much more than would have been delivered by all but the most altruistic of New Zealand buyers.

Yet if we are to have such rules, they should be policed. The Government impressed this point on the Overseas Investment Office when the new act came into force in August. The task has been made much easier by the legislation's requirement for foreign investors to report annually (through a statutory declaration) for five years on how they have complied with the terms of their consent.

This is important. The Overseas Investment Act may have heightened the monitoring of foreign buyers and increased the penalties for those who err, but its aim was not to deter overseas investment. On the contrary, the main objective was to encourage such investment, partly through reduced compliance costs.

Central to the Government's thinking was the growth benefits that foreign investment brings, through the likes of job creation, new technology and export receipts.

The task for the Overseas Investment Office, therefore, is to maintain a welcoming approach to foreign investors while ensuring compliance. It is a balancing act of sorts. But it is a balance the regulator seems ready to strike. For the benefit of all.

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