Since 2010, the amount of Chinese investment in the New Zealand commercial real estate market has been growing. This trend has been matched by similar trading partner growth both in the Chinese and emerging Asian markets from 2009 onwards. With the rise of China as New Zealand's major trading partner, and smaller increases from our traditional foreign direct investment (FDI) regions (including Australia, US and the European Union) our relationship with the Asian superpower is indeed in expansion mode.
The increased investment from China into New Zealand is an exceedingly positive thing, and when combined with the matching growth in China as our major trading partner, it highlights the deepening, mutually beneficial, trade relationship between the two countries. This is a positive indication that our now major trading partner sees the New Zealand commercial property sector as internationally competitive.
What is it about the New Zealand commercial property sector that appeals to Chinese investors?
My initial observation is that what motivates a high proportion of Chinese investors is the desire to diversify their portfolio and have an alternative property asset base outside mainland China. However, that in itself is not sufficient to turn initial investor interest into positive investment action in New Zealand.
There are many options around the world that would provide these same benefits to the average Chinese investor. The good news is that our property sector is standing up to international comparison. New Zealand has a less complex tax regime than Australia, no stamp duty regime, an ease of doing business which ranks very highly, very low levels of corruption, and a stable system of government with high transparency in the governmental and judiciary processes. The fundamentals in attracting investors into our commercial property market have been and continue to be positive.
So how easy is it to invest in New Zealand if you are from China?
The operation of the Overseas Investment Act (OIA) has a large role to play in an offshore investor's decision to invest into New Zealand.
Large commercial property assets can be caught under the OIA but are not the focus of the legislation. My observation is that New Zealanders and the media are generally not worried about the foreign direct investment in commercial property assets (particularly in Auckland).
So why do we not care about Chinese investment in the new hotel to be constructed in the Wynyard Quarter, but we do care about farms in lower-populated parts of the country and the purchase of homes in our largest city?
It is undeniable there is something emotive about foreign purchases of large tracts of land, and some people tend to blame rising house prices on offshore buyers.
With respect to farmland I feel we have a robust regulatory framework governed by the Overseas Investment Act (OIA) which is rigorously applied by the Overseas Investment Office (OIO).
We have seen some changes in the last few years over how the OIA is interpreted and the test is now even more robust than previously.
In 2012 the High Court considered that the appropriate counter-factual in that 2012 Crafar Farms decision in that case and indeed the test to be applied in all future cases was "what would likely happen under the ownership of an alternative NZ purchaser who would operate and invest in farms in a manner that could be expected of a reasonably competent dairy farmer".
Why do we not care about Chinese investment in the new hotel to be constructed in Auckland's Wynyard Quarter, but we care about farms in lower-populated parts of the country and the purchase of homes in our largest city?
Put simply - the court held that a 'with and without' counter-factual analysis is required. It is a matter of asking whether the benefit is likely to happen if there was no overseas investment.
The OIA also provides that if there is a proposed purchase of non-urban land that exceeds 5 hectares (which includes farmland), the applicant must show, and the relevant Ministers must determine, that a benefit will be, or is likely to be, substantial and identifiable.
As someone who deals with OIA process on a daily basis I can assure you it is a robust system.
This is in contrast to the obligation for all other forms of sensitive land (land that includes foreshore, land that is of heritage value or land that has significant conservation values for example) which must show that the overseas investment will/or is likely to benefit New Zealand. So in essence it is easier to buy land adjoining our foreshore or lakes or of heritage value than it is to buy a farm.
So what about foreign investment in our housing market?
This is a topic that comes with significant public and media concern. The views of commentators in this area vary widely from comments that it is less than 10 per cent of the current housing market, to statements that it appears that the current market is heavily weighted by non-resident foreign buyers.
The truth is that we just don't know for sure. Unfortunately New Zealand does not gather information on foreign non-resident acquirers of residential property (unlike Australia) so there is no empirical evidence to support either view.
Our OIA focuses on the concept of sensitive land which in almost all circumstances excludes an average family home or apartment.
Contrast that to the position in Australia where foreign non-residents are required to seek approval to purchase a residential property, with approval only given for new-build properties.
Foreign non-residents are not permitted to purchase any interest in an established or second-hand residential property.
In addition to that current position, the Australian government has proposed to increase the application fees for residential property from the current no application fee to $5000 for a property under A$1 million and $10,000 for each extra A$1 million in the purchase price, and to create a new register so the Australians will know how many foreign residential and agricultural property owners there are in Australia.
It would be advantageous for NZ to begin to find solutions by creating a register of non-resident foreign investors into the residential housing market.
We would then have that empirical data to confirm or end speculation that foreign FDI is having a material adverse impact on residential housing prices in New Zealand.
It is my opinion that New Zealand needs to continue to be an attractive place for Chinese investment.
We seem to have the appropriate measures in place with regards to investment in large tracts of land, however it would be advantageous for any policy setting and debate on foreign direct investment in residential real estate to be able to draw on empirical data much as our Australian neighbours are doing.
• David Gilbert is a Real Estate Partner for law firm Minter Ellison Rudd Watts.