Land sales to foreigners: NZ should consider following China's approach — AUT prof

AUT University Professor Ian Shirley

Debate this week has centred on whether China's Shangahi Pengxin should be allowed to buy Lochinver Station, or not.

AUT Professor of Public Policy Ian Shirley says it's time to for the government to take a leaf out of China's book and consider a third option: allowing foreign investors to lease land, but not buy it.

The academic also notes that the Chinese system puts a focus on land with strategic value, but says our Overseas Investment Office (OIO) does not have the policy expertise to make decisions about retaining strategic assets.

Suggesting that Chinese investment in New Zealand is essentially the same as New Zealand investment in China assumes that buying and owning land is the same as investing in or leasing land, Prof Shirley says.

Commenting on the proposed sale of Lochinver Station to the Chinese company Shanghai Pengxin, Professor Shirley says there has been a lot of heated political debate and a considerable amount of misleading information.

Responding to the New Zealand Herald editorial “We should welcome Chinese investment” he says recent research he has conducted in collaboration with the Chinese in Shanghai illustrated a radically different approach to overseas investment.

“The Chinese do not sell land to overseas interests – they lease land and they encourage overseas investment but only in strategic industries or areas of economic development that they nominate or control.

“In Shanghai for example Chinese colleagues were proud of the fact that the only land in Shanghai owned by overseas interests was the small block of land on which the Soviet Embassy stood. The Chinese do not sell strategic assets or land.”

Professor Shirley says that to suggest therefore that Fonterra “has been buying farms” in China assumes that the ownership and leasing of land is the same thing.

“You may be able to sell that line to some New Zealanders but for those of us who were raised on farms it represents a major distortion of the facts.”

Professor Shirley says the public debate suggests that the decision on the sale of strategic assets such as land should not be left to the Overseas Investment Office.

“As opinion polls over recent months have indicated a significant majority of New Zealanders do not agree with the sale of public assets. While the Prime Minister may “be happy for a Chinese company to buy Lochinver”, there is clearly a large number of New Zealand citizens who would oppose the sale.

“The Overseas Investment Office does not have the ability or the expertise to address policy decisions such as the retention of strategic assets or the sale of land to overseas investors despite changes to the overseas investment regime in 2010.

“China has ensured that it will retain its strategic assets including the domestic ownership of land. It encourages overseas investment in areas that it wants to develop rather than selling its assets to the highest bidder. Perhaps it is time to consider similar policies in New Zealand.”

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Anyone would struggle to construct a sentence describing National government policy and 'strategic'. Instead we get visionless fact free pork barreling.

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[10 July/ Rural News Group] A large sheep farm is set to be developed in a deal that Landcorp has signed with Chinese company Shanghai Pengxin. The Government-owned farming organisation and Massey University have signed a memorandum of understanding with a Shanghai Pengxin subsidiary company, with Anhui Agricultural University, Anhui Anxin Husbandry Development Limited, and the local provincial Government. The deal came at the end of a recent agricultural trade mission to China that Minister for Primary Industries, Nathan Guy led. Landcorp’s Chair Bill Bayliss and Chief Executive Chris Kelly said that Shanghai Pengxin was performing a capital raise in order to grow their agricultural aspirations in Australia, New Zealand and South Africa. Both men also indicated the intentions of Landcorp to provide the foreign company with their expertise in large scale farming and genetics.
http://www.fieldnotes.co.nz/international/landcorp-and-massey-sign-deal-...

http://www.ruralnewsgroup.co.nz/rural-news/trending/landcorp-and-massey-... 11 July 2013

- the Minister of Primary Industries knows something about it.

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And what if the vendor wants to sell the freehold? Not everyone would want to lease their land. What's-more there is really little difference. The Chinese tenure is leasehold while ours is freehold, but underlying the freehold or fee simple title, the land is owned by the crown. The title is merely the right to use and sell it within the various planning rules. As Hitler noted, ownership is irrelevant. It is control that matters.
As far as buying farms go, it's no different from buying the corner dairy or a motel business. Stock, plant and goodwill form the business, and nearly always the premises will be included, but whether it is leasehold or freehold matters not to ownership of the business

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You are absolutely correct bellbottom, but as always, the truth is just too boring and does not win votes. *sigh*

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Agree. In any case I demand the option of leasing or selling my farm to a bid of my choice. That's where I must retain control-thats what i bought 34 years ago. Anyone in a suit or slippers who thinks i didnt, well are they a mate of Mugabe?

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Perhaps when you sell, consider subdivision into smaller parcels and the lessee's interest only. These options are likely to yield a higher price for you, and provide your next generation a future income stream.

This will allow more locals to own. If you are truthful with yourself, the farm aggregation going on has been at the detriment to the local community (where farmers use to help each other one) and water ways.

Some of these modern day farmers have different objectives, and invest to avoid capital gains tax and to maximise short term profit on the way through. This ignores land husbandry and long term sustainability of present intensification.

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Nothing is stopping the vendor from selling their land. You can sell to those invested in the country's future enough to become citizens, or you can lease or rent to anyone you desire, or sell to a company 51% locally owned. Just like things work in many other countries, where foreign investment is significant.

It sounds like you're arguing for foreign ownership so you can get more money for your land, at the expense of NZers being gradually priced out of the market?

The argument doesn't make sense on any other level.

Land ownership is not required for foreign investment.

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I stated some facts - not an opinion or argument, so it's ridiculous to claim it doesn't make sense. And no, I do not own any rural land or anything at all that would appeal to overseas buyers.

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OH!! You seem to assume that those accidentally born in New Zealand are automatically better farmers than those that freely choose to invest in New Zealand farms. That is an interesting assumption. Have you anymore like it?

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Plainly incorrect reading there.

The evidence available to us from countries where foreign ownership is not permitted but foreign investment continues unabated make it clear foreign ownership is not required for foreign investment.

Hope that helps.

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And what if the vendor wants to sell his land you ask.?

Easy. Sell it but not into foreign ownership.

I could envisage purchases being syndication who purchase with a long term lease in place showing a reasonable rate of return on their investment.

Similar to what churches have been doing from year dot...

I agree ownership is irrelevant.

I do wish contributors would stop referring to or making comparisons to Hitler...

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Hunan Dakang Pasture farming Co., Ltd announced that the company planned to raise CNY 2.51 billion through private placement for the acquisition of two New Zealand dairy farms. Dakang, a company mainly engaged in production of pigs and feedstuffs, entered the dairy business in 2013. Dakang says it will issue no more than 259 million shares at a price of CNY 9.69/share, the funds of which will be used to acquire two dairy farms in North Island of New Zealand. It is expected that the annual production of solid milk in these two dairy farms will achieve 4.5 million kilogram after the acquisition is completed.
Source: http://www.boyar.cn/article/2014/06/18/562197.shtml

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Have you not considered there are way more people in China, that want to reside in this beautiful country of ours.

Once the powerful have a foot in the door, the door gets opened more. Local politicians do not have the will or power to stop this.

NZ population is not the size of Sydney. While there's an argument the country could do better with more population, it would do better if the locals controlled the situation.

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Lease is the only way to go.

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Not in China ...

According to a survey carried out in over 25 provinces including Beijing, Tianjing, Heilongjiang and Henan, smallholder dairy production accounted for 76.8% of total dairy cattle (Li 2000). Milk is a perishable product. Absence of chilling facilities, high ambient temperatures and lack of hygiene are the major problems faced by smallholder producers in marketing milk. Milk production based on smallholder producers can be sustained only if facilities are provided to process and market milk. The government and/or private entrepreneurs have supported and financed the establishment of leading enterprises that collect, process and market milk as pasteurised milk, milk powder and/or fruit milk. However, the scale of these enterprises is not as large as in the giant dairy group.

Depending on the ownership of land and animals, there are several types of institutional structure for combining the efforts of enterprise and smallholder farmers in China:
- Enterprises that do not hold land or farms
- Enterprises that possess their own land or hold leases on land
- Farmers or collectives who set up a joint-stock company as a leading enterprise
- Enterprises that hold both their own milk-processing plant and dairy farms
http://ilri.org/infoserv/Webpub/fulldocs/South_South/ch13.htm

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It is one thing to restrict future sale of crown land to foreign interests - which is something that we as a nation should debate and probably have a referendum on.
However, let us not forget that this is not crown land. It is privately owned and we all know how galling it would be if the crown forced its acquisition based on a valuation which may or may not give the owners an equivalent amount as the sale price they could achieve on the open market.
In communist China - no-one owns land - other than perhaps the politically elite - so to compare its foreign land ownership policy with our own is "apples and oranges".

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eminent domain: ... as a matter of Australian law, all land was originally owned by the Crown before it was sold, leased or granted and that, through the act of compulsory acquisition, the Crown is "resuming" possession. ... There are other countries such as the People's Republic of China that practice eminent domain whenever it is convenient to make space for new communities and government structures. (wikipedia)

An investor who wants to invest or develop land or property in China must bear in mind China's property laws, most notably the property law introduced in 2007, which for the first time protects the interest of private investors to the same extent as that of national interests ... (wikipedia)

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Article 9 requires that creation, transfer, and destruction of immovable property rights requires registration to be effective. The law covers all of the three property types within the People's Republic of China, which are state, collective, and private which are defined in Chapter 5 of the law. Chapter 4, Article 40 of the law divides property rights into three types: ownership rights, use rights, and security rights. The law goes into detail about the legal rights associated with any of these three types. The law does not change the system of land tenure by which the state owns all land. However, in formalizing existing practice, individuals can possess a land-use right, which is defined in Chapter 10 of the law. The law defines this land-use right in terms of the civil law concept of usufruct.
Some press reports have characterized this law as the first piece of legislation in the People's Republic of China to cover an individual's right to own private assets, although this is incorrect as the right to private property was written into the Constitution of the People's Republic of China in 2004. The amendment states "Citizens' lawful private property is inviolable.". The 2007 Property Law itself is directed at defining all forms of property in the PRC. (wikipedia)
- land-use rights (equivalent to lease?) are registrable rights in land.

A foreign investor is not allowed to buy land in China. The land in China belongs to the state and the collectives. ... China still retains the concept of collectively-owned farmland in the rural areas. ... While the Property Law enacted in 2007 provides some legal leverage to prevent the abuse of power by village councils, it remains to be seen if legal remedies are accessible or are even used by the villagers. (wikipedia)
- rural land - communal land rights.

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If I leased land for 50 years (as you can in china) and made $1,000 per year in rent. The present value of that at say 10% is $9,914.81 for the 50 years. the present value of the next 50 years is $84.46. beyond 100 years is 73 cents.

From a business perspective the value is in the first 50 years not after that.

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But why would you fix an annual lease fee for any significant duration, let alone 50 years ??
Plus - assuming you got your present value and redeployed that capital into productive purposes (for you and for the country) everyone is a winner - the land is presumably still being farmed and generating whatever it was prior to sale/lease AND there are 70 odd million new dollars to increase the country's productive capacity.
Foreign investment into land (be it by lease or purchase) when analysed in this way - must surely be a "no brainer".

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Sorry probably badly worded. My point is that the value of any business is largley captured in the fitst 50 years, so even if you can only lease land for that period you capture most of the value. so from an economic perspective buying the land or leasing for 50 years is not much different, certainly on day one.

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from the formulating of our country’s relevant laws to now, over 20 years have passed. With the laws and regulations of the time not excessively touching upon the issue of what would happen 70 years later, and with the “age” of many commercial real estate increasing, a problem that was originally left for the future to resolve is becoming extremely pressing and this piece of land system reform from over 20 years ago urgently needs new footnotes and a more complete system. “What happens to land-use rights after 70 years” is not just an individual problem that home-buyers are concerned with, it is a problem that must be answered for continued China land system reform and development.
http://www.chinasmack.com/2013/stories/chinese-land-use-rights-what-happ...

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Article and comments (as with much of this debate) miss the key points.
Foreign investment and ownership is fine as long as it adds value and doesn't impose costs on the resident taxpayers. Currently foreign investors in land and property can easily avoid paying any income tax in NZ. Best solution is to tax foreign land investors an annual % on the land value. Plus a capital gains tax when they sell. This is what the US does (FIRPTA).

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For some strange reason many (well-landed) Kiwis seem passionately wedded to the idea of selling to foreigners, despite this absolutely not being required for foreign investment, as demonstrated by China, Vietnam, Philippines and various others. Did Fonterra need to own land to invest in China? Of course not, how silly.

It's simply not necessary, and it is not xenophobic to limit land ownership to stakeholders with the strongest interest in a country's future - its citizens.

If it was necessary to own land for a business investment to make sense then by extension businesses would need to own their office buildings for business to make sense. Ridiculous - Auckland provides plenty of evidence that's not the case, just as other countries who protect their citizens' ownership of land demonstrate that foreign land ownership is absolutely NOT necessary for foreign business investment to make sense.

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As stated before, we are an island nation with limited land and many who wish to immigrate here to live as residents.
Leasehold is the only long term solution for non residents.

I understand the thinking that the land cannot be taken from NZ, but ask the question will NZ residents ever be able to buy the land back? Not likely is the answer, as the reason foreigners invest here in land is for profit. That's the reason my kids, your kids and their kids will become long term tenants in their own country.

If only a percentage of what I think is correct, it is enough reason to allow lease hold only to non residents.

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New Zealand’s balance of payments has been in deficit every year since 1973 and you wonder why some citizens arent always able to buy the property of their choice! Pulling down the shutters will do what again?

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Our BoP issue is because we don't earn enough or save enough. We load up on debt to buy houses and spend on imported goods. If we produced the right stuff (not reliant on commodity goods) and had better savings and investment incentives, things would be different. Until then we will be reliant on foreign capital to fund our incompetent choices. But we should still tax them for the privilege, like ALL other countries do. On this The current and prior governments have been living in a land of delusion where they think imposing taxes will drive away investment. They should wake up and get some decent advice-the USA, UK, Australia etc have all been taxi investments for decades and do much better out of foreign investment than we do.
On Lochinvar itself, the reality is that farming is a dead end for us as a country and we should be using the current environment to diversify away as quick as possible, NOT double down. Go to youtube and search "Saudi dairy farm". They are building mega farms in the desert producing billions of litres of milk per year, and the quality is exceptional. All farmers here should check it out. It's a 5 minute video.
All you need is water (underground aquifers), energy (abundant), feedstock (imported) and cows (not a scarce resource). We should WAKE UP! Anyone can grow a cow and produce milk and our competitors are doing it at vast scale. And much more environmentally friendly as they aren't pasture grazing and polluting rivers!
Here's a question: given this backdrop and already falling milk prices (down 40% this year and still falling), should we be happy to sell out at peak prices? Then tax the new owner and buy it back cheap in a few years time...

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Giant dairy groups: With reorganisation and conformity of the dairy industry that was characterised by recombination of assets, some giant dairy groups have been formed and have become the leading enterprises regionally or nation-wide. Among them are the Shanghai Dairy Corporation (Group), the Shijiazhuang Sanlu Dairy Company, the Heilongjiang Wandashan Dairy Factory and the Inner Mongolian Yili Industrial Corporation Ltd. Due to their abundant capital, advanced technology and numerous trained personnel, these giant leading enterprises (groups) deal with their business not only inside the group, but they also invest in other industries in different regions, combine and annex other enterprises, and extend industrial chains. Their business covers almost all areas of agriculture, industry and commerce, and processing and marketing. With the formation of specialised systems of production and management within the leading enterprises, national dairy resources have been reasonably configured and assets of the dairy groups have expanded rapidly. At present, national dairy brands such as Guangmin, Sanlu, Yili, Wandashan and Sanyuan can compete with foreign brands.
http://ilri.org/infoserv/Webpub/fulldocs/South_South/ch13.htm

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Don Nicolson's thinking is very blinkered. It's perhaps only natural that someone wanting to sell a farm wants the highest possible price for it.

But any good farmer knows he is only the guardian of the land - and what happens to it has repercussions which go past the question of ownership.

Nicholson is fudging the issue. It's not a question of an all-controlling State usurping property rights. It''s a question of New Zealanders being priced out of our own country.

The excellent article above, even if somewhat late in the day, makes a a good point - the OIO has long admitted it is not in any position to consider the downsides to New Zealanders of the ongoing buying up of our land and strategic assets.

It wasn't given this ability by government.

Who believes this is accidental?

And who believes that two ministers (under the eye of the party leader) are really an independent body fit to decide?!

I doubt that most of the country give two hoots about how "relaxed" John key is. The fact is that New Zealand does not belong to him, and he is not listening to New Zealanders. He always thinks he knows best. It's called hubris...

Nothing new here. Time for him to go - and those National Party patsies who always do as they are told.

Labour doesn't have to be the alternative. There is still one party long wedded to one law for all ( essential in any democracy, but now ridiculously bad-mouthed as" racist" ) and the protection of our country.

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Problem with property ownership policies is that we are attempting to make one policy that fits all and this just doesn't work or leaves us vulnerable to social and more importantly economical development.

I believe we should offer like for like policies to other nations like china and indiA where if we are not able to buy their land assets they likewise they should not be allowed either... This same policy should also apply to our industries and. Commercial assets.... Else neW Zealand will be robbed of its assets.

However there is also a risk in this policy in that there are countries like Uk and USA who offer more free ownership rights Nd the problem is if these countries are interested in investing in New Zealand or not.... Most likely they will, but at what level of influence.

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Xinhuanet Beijing October 4 report — After the 70-year lease/land-use rights for commercial residential housing expires, what do we do about our homes? Are the land-use rights automatically renewed/extended for several decades, or must a land transfer fee based on the land prices of the time be paid, or are there other new ways? With the “using the home for elderly income” [reverse mortgage] policy beginning to be tested in certain areas, the “what happens to houses after 70 years” problem has once again become an urgent and real issue. Chen Zhuoy, who just recently purchased a commercial residential property in Beijing, originally didn’t think about what happens in 70 years, until she inadvertently saw the “Beijing State-Owned Construction Land Supply Procedures (Trial Implementations)”. ... Chen Zhuo’s heart was filled with worry. “In 70 years, is my home still my own? Or to put another way, what do I have to do for it to continue being mine?” This is a question that every commercial residential property owner has to face.
http://www.chinasmack.com/2013/stories/chinese-land-use-rights-what-happ...

A 99-year lease was, under historic common law, the longest possible term of a lease of real property. It is no longer the law in most common law jurisdictions today, yet 99-year leases continue to be common as a matter of business practice and conventional wisdom.
http://en.wikipedia.org/wiki/99-year_lease

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Such a no brainer to lease rather than to sell.

Still have all the rights of full ownership as long as the terms and conditions of the lease are meet.

Why do any foreign investors need ownership of the land?

The Chinese are unfairly in my view being singled out in this land ownership debate.

They have contributed so much to the NZ economy over the last 150 years and we Kiwis tend to forget or overlook that fact.

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The first immigration to New Zealand took place on the strength of two invitations from New Zealand's Otago goldmining region to potential goldminers of Guangdong province in 1865. These original goldmining communities suffered discrimination due to racist ideology, the economic competition they represented to the Europeans, and because of the implied 'disloyalty' within their transient, sojourner outlook. While many believe there was a 'White New Zealand' policy similar to Australia's, New Zealand never had such a policy openly sanctioned and was open to Pacific Island immigration from its early history. However in the 1880s, openly sinophobic political ideology resulted in the New Zealand head tax, also known as the 'Poll Tax', aimed specifically at Chinese migrants. Despite official barriers the Chinese still managed to develop their communities in this period, and numbers were bolstered when some wives and children from Guangdong Province were allowed in as refugees just before World War II. Chain migration from Guangdong continued until the new Communist Chinese regime stopped emigration. This original group of Cantonese migrants and their descendants are referred to in New Zealand as 'Old Generation' Chinese, and are now a minority within the overall Chinese population. Ethnic Chinese communities from countries other than China began establishing themselves in New Zealand between the 1960s and 1980s. (wikipedia)

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Fascinating to see the Left recommending we adopt communist China's nationalising of all land and destruction of property rights. Oh, just for foreigners to start with (and Kiwis who want to sell to them) but why on earth stop there? After all, who can trust NZ farmers to act in the national interest - lots of them vote for the evil Nats.

And the justification for choosing communist China's laws ahead of those of the UK, US and Australia whose citizens buy the most of our land? Absolutely none except for sinophobia mixed with left-wing ideology.

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Silly. That's an argument no one is making.

Ever heard of a straw man?

There are plenty of countries that don't allow foreign ownership yet continue to have plenty of foreign investment? Ever noticed that plenty of businesses lease their land and offices and can conduct business effectively?

Land ownership is not required for foreign investment. Hope that is clear enough now.

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Is the debate about commercial property (including farms) or residential property?

Commercial property: If investment is not dependent on ownership then the demand for leasehold land will continue and that will still drive up the value of the land. Arguably, NZ residents won't see any cheaper land prices.

Residnetial property: If non-residents are not allowed to purchase land then the obvious response is for foreign investors to get "sleeping partners" to take a nominal 51% in a NZ registered company and then purchase the property.

So ultimately, I can't see how banning foreign ownership will do anything for NZ residents wanting lower porperty prices.

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