Siah Hwee Ang on investors buying their way into NZ through scholarships for school kids, the [in]efficiency of the OIO & concerns over the yuan becoming a reserve currency

An Asian business expert is warning the Government to be clearer about what it wants from foreign investors keen to buy property in New Zealand.

The BNZ Chair in Business in Asia at Victoria University, Professor Siah Hwee Ang, says the Government should tread with caution, before permitting foreigners to buy sensitive land on the basis they show their commitment to the community by giving school kids scholarships, for example.

His call comes further to the Overseas Investment Office (OIO) this week making headlines for the way it permitted a man in China to buy a lifestyle block on Paremoremo Road in Northern Auckland, for his family to use when they visit New Zealand.

Maohua Ye bought the 3.9ha property for $8 million, despite it only being valued at $2 million in July 2014.

He also pledged to give local low-decile schools scholarships and employ a caretaker to look after the property during his absence to meet the Office’s ‘benefit to New Zealand’ criteria.

Ang isn’t surprised Ye paid a potentially inflated price for the property.

“They [Chinese buyers] will just pay their way through the system to come here, so I don’t think so called ‘fair market value’ actually works for them,” he says.

However he questions the purpose of all the deal’s trimmings.

“In some ways we have to be careful – how much is considered enough as a contribution to the country?” Ang says.

He says the Government needs a more definitive criteria on what investors need to pledge to do, to prove they’ll make a valuable contribution to New Zealand.

“If money can solve all the problems then why bother to ask them to use the money to pay for the scholarships?… Just ask them for cash?” he says.

Furthermore, Ang points out scholarships usually represent or commemorate something special, and have lasting meanings or connotations attached to them.   

“We also don’t want to start taking out scholarships for the sake of taking our scholarships because someone has the cash,” he says.

Being slow and steady may not always win the race

Ang also warns the OIO needs to pick up its pace processing applications from foreign buyers, if it wants to attract investment.

He makes this comment further to the OIO and government ministers taking 14 months to decide to reject Shanghai Pengxin’s Pure 100 Farm bid to acquire the Lochinver Station.

The decision has prompted Pure Farm 100 to seek a judicial review on the decision and a Pengxin International director, Terry Lee, to slate New Zealand for treating overseas investors as “privileged” as opposed to being the bearers of opportunity.

“I don’t understand what is going on inside there that takes 14 months,” says Ang.

“A lot of Asian countries in particular, they work at a very fast pace, so for them they really need to get things done in a month or two. It’s very difficult to tell them they have to wait for over a year to get a bad position.

“It’s no surprise they quickly turn away and do other things.”

Ang suggests the OIO say no to investors that don’t meet its criteria from day one, rather than going back and forth, so they don’t waste their time and hold on to false hope.

He says the process needs to be streamlined.  

“It’s a long process that starts to kill investment… A lot of big companies make major acquisitions of a few hundred millions to a couple of billions of dollars, within a couple of weeks. That’s the kind of pace we’re talking about,” he says.

Ang maintains New Zealand take a more consultative approach to foreign investors than our international counterparts.

He notes the OIO’s slower pace could also be a resourcing issue.

While he describes investors as “impatient” and ready to invest, he says it’s a matter of meeting somewhere in the middle.

He believes that once the process is improved, all the talk around its problems will stop.

Bright-line rules helping curb Auckland property speculation

Ang says anecdotal evidence China investors are retreating from the Auckland property market, indicates the new bright-line rule is curbing speculation in the property market.

He says it’s no surprise the law, which taxes residential property buyers who on-sell within two years of purchase, is slowing down the market and adjusting prices.

He says investor interest may pick up again once people start to make sense of the new regulatory environment.  

Will China take a more hands-off approach to the economy now that the yuan has reserve currency status?

Ang says there’s too much at stake for the People’s Bank of China to take a hands-off approach in its management of the economy, as the yuan’s been included in the International Monetary Fund’s basket of reserve currencies.

The IMF this week granted the yuan reserve currency status, leaving it more exposed to the market and subject to fluctuations.  

While this is a milestone for China – a country that’s been contributing about 28% of the world’s GDP growth – Ang says it’s still sparked concerns.

“The Chinese economy is all planned market oriented. It’s not a free market flow, but it’s planned within a certain bandwidth.”

Ang says therefore the PBoC can’t suddenly change tact in its management of the economy.

He points to the collapse in the capital markets as evidence of this.

“Hands off is hard unless they keep printing money to suppress it,” he says.

“The scale of it makes it so difficult to manage, without managing it.

“I am sure they will be trying to do a bit of a managed planned approach, as opposed of letting loose. It will be very brave of them to do it, because we’ve seen the yuan come down quite significantly, affecting everyone in the world.”