Are farms different from other property?
Stuff reports:
An average of 82 hectares of agricultural land per day has been approved for sale to offshore investors, pushing the Government close to deciding on rules to tighten farm sales to foreigners.
Prime Minister John Key says the figures prove “significant foreign purchases” have taken place. The lion’s share of investment has come from the United States, the United Kingdom and elsewhere in Europe.
Key yesterday held talks with Finance Minister Bill English on possible changes to the Overseas Investment Act to protect farms.
“I think we’re making progress in this area,” Key said.
“My concern is about what I see potentially unfolding and that is quite large tracts of New Zealand land coming available for sale rapidly and the consolidation of those farms in foreign hands and whether that’s in New Zealand’s best interests, and my view is, it’s not.”
Foreign investment is generally beneficial to New Zealand. If you restrict foreign owners from purchasing land in NZ, there are two potential negative impacts:
- The current owner of the land is unable to sell the land for as much as they otherwise would have got. This means less wealth in NZ.
- The foreign owner of the land, as they valued it more highly, may be able to put it to better economic use (as they need higher returns to cover the higher capital) and this can contribute to a more efficient economy.
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August 4th, 2010 at 1:11 pm
what about
3) some of the income that the foreign owner earns from the property goes overseas meaning less wealth for NZ.
August 4th, 2010 at 1:11 pm
Nailed it, DPF. The additional surplus the efficient landowner can create has to be shared with the current owner to convince her to sell. The current land owner, presumably a NZer, is made wealthier by the better future land use, and captures some and perhaps most of the surplus created.
It would be nice if Key could explain what the problem is here. The land does not go anywhere. It is still subject to any number of regulatory controls and processes. The only difference, actually, is… what exactly? The skin colour of foreigners? The language? Remind me, Mr Key – what is the problem here?
The true answer, one presumes, is “there was a consensus in the focus groups…”
Ah, leadership.
August 4th, 2010 at 1:16 pm
Is this a Hone Key moment “I’m not comfortable with foreigners buying our farms”
August 4th, 2010 at 1:18 pm
What about NZ inflation being affected by the buying power of the overseas investors?
Both of those points you make mean that the price of both the land and the goods produced using that land inflate faster than they otherwise would have.
I think Key is on the money here.
August 4th, 2010 at 1:23 pm
When will the spotlight be put on foreigners buying residential property that is apparently fueling the property boom and making it less affordable for NZers to buy their own homes?
Oh…that’s right, Key doesn’t want NZers residential property to decrease in value the amount Bernard Hickey has been predicting for the past two years…., might make him unelectable…….
August 4th, 2010 at 1:26 pm
Foreign banks effectively hold title to a heap of NZ now anyway, via mortgages.
August 4th, 2010 at 1:28 pm
“When will the spotlight be put on foreigners buying residential property that is apparently fueling the property boom and making it less affordable for NZers to buy their own homes?”
I’m happy to take a large wodge of used currency for mine, if anyone would like to maintain the ethnic purity of the domestic housing market. And I’ve got some land that I’m happy to sell at a grossly inflated price to that nice Mr Key.
August 4th, 2010 at 1:33 pm
Here’s what happens folks, when foolish people rant about things they really don’t understand.
When the good folk at Nestle or Hoo Flung Dung Dairies decide to take out their hated competition in NZ, they flock in here and buy up very large chunks of the productive base and establish their own processing factories. Then they ‘sell’ the product at a loss to their sister companies on the home front who then on-sell to the public (our previously hard won market) at huge profits.
It’s called transfer pricing dear children.
No tax paid in NZ. No wealth retained in NZ.
That’s why John Key, Bill English et al are absolutely right to be recognising the warning signals.
August 4th, 2010 at 1:33 pm
That better economic use and greater efficiency in (2) DPF, who does it serve?
Surely a Chinese-owned dairy farm in the Waikato is making a profit for the Chinese investors, not for anyone in this country?
[DPF: But they are paying tax on those profits and also potentially reinvesting some of them into capital. But you are missing the other part of the equation - that the person who managed to sell the farm for a higher price is investing their proceeds in NZ]
August 4th, 2010 at 1:34 pm
Pete George – correct. Bearhunter……ethnic purity? wtf? So it’s okay for say Samoans and other Pacific Islanders to own a home in NZ but not Chinese because the Chinese are richer? Do explain?
August 4th, 2010 at 1:35 pm
RRM – it’s probably not making much of a profit to anyone (or paying that much tax) if it’s efficiently leveraged to an Australian bank and has a tax accountant running its books. All about the capital gain.
August 4th, 2010 at 1:36 pm
jinpy; actually its the exact opposite. Some of the additional income the new owner earns stays right here, through a premium in the purchase price, and then of course through company and land taxes.
August 4th, 2010 at 1:39 pm
What about NZ inflation being affected by the buying power of the overseas investors?
No. Inflation is a monetary phenomenon. To the extent higher land prices reflect higher productivity, as we should expect (that’s why efficient owner, whether a foreigner or a local, can pay more), there can be no inflation problem.
August 4th, 2010 at 1:41 pm
When will the spotlight be put on foreigners buying residential property that is apparently fueling the property boom and making it less affordable for NZers to buy their own homes?
The fundamental reason property is so expensive in NZ is because regulations are stifling supply. Where the rules are tightest, land prices have grown the most. Blaming house prices on demand from people born on the other side of a political border is bizarre.
August 4th, 2010 at 1:47 pm
When the good folk at Nestle or Hoo Flung Dung Dairies decide to take out their hated competition in NZ, they flock in here and buy up very large chunks of the productive base and establish their own processing factories. Then they ‘sell’ the product at a loss to their sister companies on the home front who then on-sell to the public (our previously hard won market) at huge profits.
Is this really the nonsense that sustains the xenophobes? Is this it?
Under your own argument, Adolf, both the loss and the artificial profits that result are internalised i.e. born by the company. So what has transfer pricing got to do with anything? Of course New Zealand is made better off if that transfer pricing scheme causes the foreign company to pay too much for the land. So your point is what exactly?
Except no company is going to stay in business if it allows internal transfer prices to cause it to pay too much for its inputs. So your imaginary scenario isn’t great because it requires a company that should be broke to enrich New Zealanders! Duh.
August 4th, 2010 at 1:50 pm
That better economic use and greater efficiency in (2) DPF, who does it serve?
Surely a Chinese-owned dairy farm in the Waikato is making a profit for the Chinese investors, not for anyone in this country?
It enriches New Zealand in a number of ways.
a) some or all of the future increased profits have to be included in the buying price to outcompete other buyers. So the current owner is enriched.
b) NZ governments captures some of the additional surplus through higher rates, high income and company tax takes. Also note: foreign owners pay higher wages.
c) the efficiencies and processes that produce the higher returns spillover to other land owners who can then deploy those processes on their own land to raise their own surplus.
August 4th, 2010 at 1:52 pm
I also agree with John KEY..There are many overseas nabobs who can purchase large areas of land and then leave it idle in order to enjoy lifestyle occasionally..For instance I enjoy Shania’s music but how much does her 27,000 acres contribute to our G.D.P. There is a danger that too many local and international landowners are converting productive land to lifestyle leisure purposes. I know many of the Pacific countries used to have a criminal offence of owning unproductive land and in my opinion it was soundly based. Non residents should be able to lease not own land.
August 4th, 2010 at 1:54 pm
Ahoy Cactus Kate!
If you are based in Hong Kong have you heard anything about the background of Natural Dairy, who want the Crafar dairy farms?
Do you known anything of its previous existence when it was a supplier of engineering equipment to Macau?
Also, can NZers still buy land easily (if not cheaply) in Hong Kong under the present political regime?
August 4th, 2010 at 1:55 pm
Pretty smart looking theory you’ve got there Ben. Only problem is it ignores the hard facts of precisely how the Poms robbed the blacks blind for a hundred years. Transfer pricing, old chap. Except they did it with oil, cotton, sugar, tea, tobacco etc etc.
Now you’d better hurry along or you’ll be late for your next lecture.
August 4th, 2010 at 2:02 pm
jinpy, actually its the exact opposite. Some of the additional income the new owner earns stays right here, through a premium in the purchase price, and then of course through company and land taxes.
Appreciate reply, this is all new stuff to me. Surely there’s no guarantees that the premium the new owner has paid will cover the extra amount that person will take away as after-tax profit as an overseas owner–they only have to beat the price of NZ investors. In a NZ-owner vs foreign-owner situation won’t the best price be governed by other factors such as the relative wealth of countries at the particular time of sale? i.e. NZ land is cheap for foreigners but expensive for NZers.
August 4th, 2010 at 2:05 pm
I am reminded that in the 1980′s Japanese developers bought up any suitable Oz they could get their hands on for tourist projects. But, later, when the Japanese economy tanked they quit their assets and sold the land back to locals.
Surely the answer for us is to lease land to overseas interests rather than outright sale. If capital gain is their only incentive they are unlikely to follow through.
In the present situation re the Crafar farms I would venture that the front people are assisting to set up a proposition that will be floated to Chinese investors (with a prospectus illustrated with fat cows and green grass); it will be oversubscribed and the promoters will walk away with pockets full.
August 4th, 2010 at 2:11 pm
Ben – ‘Also note: foreign owners pay higher wages.’
Says who?? It was well documented that when Bunnings opened stores in NZ they were paying their NZ workers less than the Australian workers for doing the same job. The foreign company here in NZ will pay the market wage for the job in NZ.
As for the ‘NZ governments captures some of the additional surplus through higher rates, high income and company tax takes.’ You’re missing the point that once the profits are exported that money is lost to our economy. Billions of dollars leave NZ every year as profit for foreign owned companies. That is money not being spent in NZ.
Sure there are some positives from foreign ownership and investment but we have to carefully manage this process or the rest of NZ will end up like our banking sector.
August 4th, 2010 at 2:14 pm
DPF – soon there will be a million millionaires in China. Think about it.
August 4th, 2010 at 2:19 pm
Adolf – The situation you referring to regards the Poms would work when you buy the said Cotton cheap in the place of origin and sell it for huge profit in Britain.
I suspect the opposite would happen in New Zealand.
The overseas companies would sell the product to their sisters companies for a loss who would then sell it at a further loss as the cost to produce the product overseas would match or be very similar to cost price in NZ
Not a lot of economic sense in that.
August 4th, 2010 at 2:27 pm
Adolf: nice. Turn up with a ludicrous theory that supports the exact opposite you think it does, and then shift the goal posts dangerously close to Godwin and pull out an ad hominem while you’re at it. Classy stuff.
Transfer pricing doesn’t matter a whit outside in the real world, and your theory simply shows that any firm so completely misusing said pricing to pay too much for land is going to make New Zealand better off anyway.
YesWeDid “Ben – ‘Also note: foreign owners pay higher wages.’ Says who??”
Says Martin Wolf in “Why Globalization Works,” 2004. Forgive me I don’t have the page number handy. From memory foreign owners pay double the local wage in developing countries, 50% more in middle income countries and 10% more in high income countries. So no they don’t pay the market wage, they pay a lot more. And its not because they’re sitting around with piles of money to throw away. Its because they have processes and innovations that make them productive. Furthermore, those ideas spill over to locals, to the great benefit of the recipient country.
You’re missing the point that once the profits are exported that money is lost to our economy. Billions of dollars leave NZ every year as profit for foreign owned companies. That is money not being spent in NZ.
Nope, wrong again. That money does ultimately come back to New Zealand, through the purchase of exports and further capital investment. It has to: NZ dollars buy absolutely nothing in China.
August 4th, 2010 at 2:27 pm
Honest John posted at 2.14:
Hell at the current exchange rate a millionaire in yuan has about 200,000 kiwi dollars.
We must have more than a million yuan millionaires in little NZ.
August 4th, 2010 at 2:31 pm
trout (341) Says:
August 4th, 2010 at 2:05 pm
I am reminded that in the 1980′s Japanese developers bought up any suitable Oz they could get their hands on for tourist projects. But, later, when the Japanese economy tanked they quit their assets and sold the land back to locals.
==========
the Yakuza were prominent in that process.
August 4th, 2010 at 2:33 pm
To answer DPF’s headline – the Government certainly thinks so. It has just decided that it will charge lessees of high country pastoral leases less rent than the market will bear because – um – well – because. They like farmers. But not enough to let them sell their farms to the highest bidder, of course.
http://www.stuff.co.nz/business/farming/3990160/Farmers-back-rent-proposal
August 4th, 2010 at 2:35 pm
Jinpy:
Appreciate reply, this is all new stuff to me. Surely there’s no guarantees that the premium the new owner has paid will cover the extra amount that person will take away as after-tax profit as an overseas owner–they only have to beat the price of NZ investors.
Sure, but what if there are multiple competing foreign buyers? Then the winner has to outbid the second highest bidder. In the limit, the NZ owners captures all the surplus the second highest bidder would earn. The only question is getting enough local and foreign interest to capture that surplus.
This whole debate is the product of some combination of xenophobia and mercantilism, this sort of policy expropriates landowners without compensation, and yet is supported by the side of the political spectrum that traditionally rails against government intrusion, which is exactly what anti-foreigner legislation is. Is there no part of the political spectrum that thinks property matters?
August 4th, 2010 at 2:36 pm
YesWeDid
“You’re missing the point that once the profits are exported that money is lost to our economy. Billions of dollars leave NZ every year as profit for foreign owned companies.”
What you are saying YesWeDid – is that you would rather recoup 100% of nothing generated by no overseaes investment = $0
rather than a % of millions generated by the overseas invesment = <$0
August 4th, 2010 at 2:36 pm
The issue begs the question: why can’t New Zealanders compete with people from overseas when buying property – residential or farms?
August 4th, 2010 at 2:37 pm
“The foreign owner of the land, as they valued it more highly, may be able to put it to better economic use (as they need higher returns to cover the higher capital) and this can contribute to a more efficient economy.”
===========
I can think of one example :tea. But we can also grow tea.
August 4th, 2010 at 2:41 pm
@ CK: Never mentioned Chinese, but then neither did you in your original post. I was just saying that as one of those “foreigners” coming over here and causing property price rises, I’m quite happy to be bought out.
August 4th, 2010 at 2:54 pm
“The current owner of the land is unable to sell the land for as much as they otherwise would have got. This means less wealth in NZ.”
there’s the problem right there. you assume land prices should be high to indicate wealth.
August 4th, 2010 at 2:58 pm
Fucking ill educated morons who have NO FUCKING idea of what “beg the question” means! No wonnder the country’s fucked and being sold wholsale and no wonder dumbarsed questions like “why can’t New Zealanders compete with people from overseas when buying property – residential or farms?” are being asked.
Contrary to the spin, the world is NOT a level playing field and NZ is stuck in a low wage time warp,
/rant
The real issue here is not the land per se, but the use and abuse by Ching Chongs. Under the FTA with China the chinks could buy Crafar Farms, sack the local workers and import low(er) paid chinks. Very little of that money woul;d be spent in NZ, most of it repatriated to support the family in China. The product would be exported to China, and paid for in China in Chinese currency, not NZ. Farm machinery, etc, would be brought in direct from China, no cut for local farm suppliers. At best, the local council would ge t afew bob in rates.
And you FUCKWITS think that THIS is investment!
August 4th, 2010 at 3:00 pm
If the answer is for foreign interests to only be allowed to lease the land, who is willing to buy the land and then lease it, and where would the money come from to finance that? Foreign investors?
August 4th, 2010 at 3:03 pm
Trout is onto it. I’d put a further spin on it and suggest that when May Wang sells down the Crafar Farms she will do so in a minimum investment of 1 mio each and that way the buyers will also get citizenship……
August 4th, 2010 at 3:05 pm
Jack – US dollars.
August 4th, 2010 at 3:06 pm
I think Robert Mapplethorpe puts his finger on the problem, which is that there are people like Robert Mapplethorpe who will support any legislation that does in people who don’t look like a New Zealander, whatever that means.
To many Robert Mapplethorpes, each one of them getting a vote, methinks.
August 4th, 2010 at 3:10 pm
I can sense that multiple buyers from overseas has an effect on raising the price but I don’t understand what you mean by “the NZ owners capture all the surplus the second highest bidder would earn.” What surplus are you referring to and by what mechanism is it captured?
also, another thought which may or not be about the transfer pricing given I don’t quite understand that yet. But as a scenario couldn’t a foreign company minimize what it has to pay in taxes here by selling to a sister company on home soil at a low price and then sell in foreign market at market price. If their govt. had a lower tax rate wouldn’t they save on tax and also reduce the amount of money that NZ earns from that productive asset?
August 4th, 2010 at 3:11 pm
Robert Mapplethorpe – Ching Chongs? Chinks? Do you spell “black” with two gs?
August 4th, 2010 at 3:15 pm
You guys have to think long-term and big picture (hard for the parochial National types often i know). What happens after 20 years of food prices increasing along with global population. Think a little, Key seems to be able to.
August 4th, 2010 at 3:22 pm
“Ahoy Cactus Kate!
If you are based in Hong Kong have you heard anything about the background of Natural Dairy, who want the Crafar dairy farms?
Do you known anything of its previous existence when it was a supplier of engineering equipment to Macau?
Also, can NZers still buy land easily (if not cheaply) in Hong Kong under the present political regime?”
- Natural Dairy is somewhat of a shelf company I understand hence it doesn’t really matter what it did before. It seems to be funded by rip-roaringly gazillionaires from China. There was a feature in the papers over the weekend. Wang, is a shelf or nominee in herself, the fact she seems to have no money doesn’t matter. Gazillionaires are funding it.
- I can buy an apartment in Hong Kong in a bout 2 seconds flat. I don’t think the land is best for dairy but I could buy that as well, yes and if I was crazy enough, stick cows on it for dairy produce. All land is a light form of leasehold (hard to believe when in 2047 the leases are up for renewal and the property keeps inflating in value)….but yearly owners pay the equivalent what NZers sort of do in rates and they have property tax.
Most of HK however is owned by HSBC and SCB…well and a few very large property development companies. Some are foreigners – that is in HK the highest bidder ca nbuy anything they like. Which is why HK people can’t understand a system where approvals are required.
NZers are crying about who owns the land but it is far more important as to what the land is used for and the return on that land to its owners. If the land sits there doing nothing, who cares what nationality the owner is? If the land is used inefficiently then it needs to change ownership. Plenty of dairying is horribly inefficient in NZ, not all is profitable and a hell of a lot over-leveraged and with it – not paying anywhere near its share of tax…. a thin cap regime would be useful….but thats another issue to what we are discussing here.
August 4th, 2010 at 3:30 pm
“I like Chinese, they only come up to your knees”
What’s the big deal, we’re a liberal democracy, what wrong with non New Zealanders buying tons of our land and property after all we can do the same at their place can’t we?
We are treated fairly and in a non discriminatory way in their countries aren’t we?
It’s a bit like the Islamists (like Saudis) financing Mosques and chairs in interfaith religion at our Uni’s, what’s wrong with it as we can do the same (but with churches) in Islamic countries (Saudi) can’t we?
August 4th, 2010 at 3:35 pm
bearhunter, the English language has a vast repertoire of useful words and I like to use them all. is that OK with you, or are you too squeamish? I make no secret for my dislike of chinks outside China, and I will not appologise for holding an opinion. What do you hide?
August 4th, 2010 at 3:43 pm
trout suggests:
What, you mean apply the same rules to them as they apply to us?
Ah, but when they do it they’re being sensible stewards of their own finite resources and building economies that we sit round wishing we could emulate.
But when we do it, we’re being racist Hone Hawawira types, doncha know? Just look at some of the comments above.
August 4th, 2010 at 3:46 pm
RObert Mapplethorpe – Squeamishness has nothing to do with it, simply manners. Your opinion is your own, thankfully, but I’d be interested in hearing why you believe “Ching Chong” to be a useful term. Although, on second thoughts perhaps not.
And all I ever try to hide is my true weight.
August 4th, 2010 at 3:50 pm
bearhunter, ever tried getting on public transport (or worse, getting off) when a bunch of chinks are trying to get on? No fucking manners at all, so don’t come crying to me about manners.
I believe in China for the Chinaman, and he can fucking well stay there.
August 4th, 2010 at 3:55 pm
Sorry Robert, This is Kiwiland, tough titty mate as we live in a multicultural (NOT BI CULTURAL) society that is going to get even more so.
What we don’t need is racism and dhimmitude in our land.
August 4th, 2010 at 4:00 pm
Hate to prick your bubble Adolf but in the world of commodity exports, it isn’t quite so easy to relocate profits through transfer pricing. NZ IRD protect their tax base very jealously and with milk products in particular where international pricing is well known, it would be next to impossible to do it on any scale. Some bright sparks tried it a few years back (remember powdergate) but got pinged when they classified A1 product as stockfood grade partly to beat the Dairy Board monopoly but also partly to take profit offshore.
There is a whole accounting regime around transfer pricing and major exporters are regularly audited particularly when exporting to related parties.
The whole farm land price thing is interesting though.
Presumably prices are set by reference to the value of production achievable off it but for years in has been widely known that farm land in New Zealand is priced significantly beyond its productive vale in an economic sense and we are still getting durned furriners willig to pay even more.
Capital gain may be part of the answer but I feel that there are other issues in play.
Firstly there is the matter of “securing future supply” where there are expected to be scarcities and thus inability to operate or sharply rising prices which will make it difficult to compete for limited supply of raw materials.
Secondly I suspect ther are cultural issues where people with a vast amount of disposable cash don’t value their money in an economic sense and therefore will pay whatever it takes for a piece of paradise. Think Shania Twain on this one.
Back to supply security though, the new ownner will be caught up in either being a crook to beat the IRD or will operate a legitimate business. Yes, dividends may be repatriated but then this has been the case since the beginning of the meat industry here and really only broke down when the foreign owners became either too old to care or unwilling to fund the capital works required to keep up with hygiene and quality requirements – this heralded the growth of the co-op where the producers became the business owners.
As far as a NZ seller is concerned he will sell for a price that reflects either the intensity of his desire to exit the business or it will be a purely economic decision based on the alternatives for his capital. That capital will come from offshore and will be put to further use in NZ as will the wages, rates, fertiliser, vet services, fencing and plant supplies etc etc. These things happen regardless of who iowns the business so we are only talking about the after tax surplus or profit that may be repatriated (possibly interest on borrowed funds also). If the seller was motivated by the price to sell (ie he could do better with the capital elsewhere) NZ is a net winner.
So it boils down to controlling the crooks at the end of the day as much as we comfort ourselves by thinking of NZ’s farmlands as “ours”
August 4th, 2010 at 4:00 pm
“I believe in China for the Chinaman, and he can fucking well stay there.”
All of them? What about ones who have been here for a few generations? Should we repatriate them?
August 4th, 2010 at 4:01 pm
MikeNZ, I don’t give a tinker’s fuck for MultiCulti. And if Ching Chongs don’t like being called ching chongs, they can stay in China for all I care. Why should Hone Harawera be the only one allowed to get away with an opinion on race?
Look, as individuals the Chinese I know are OK, but I wouldn’t want one to marry Hone’s daughter and as a mob they are vile and filthy. Just look at the filth in any area where Chinese owned shops predominate. Give me a good, clean and civilised indian over the chow any day.
But back to topic, just how does selling the farm for 30 pieces of silver advance NZ’s interests?
August 4th, 2010 at 4:01 pm
Rex
China is a communistic-ish dictatorship. They believe in collective ownership as a principle. I don’t think they are driven by sensible stewardship issues except in terms of how it links to overriding political dogma.
Have you noticed that the US does allow private ownership and they are a lot richer?
August 4th, 2010 at 4:11 pm
@david
Agree on IRD keeping close watch on transfer pricing. They know how it can be done and the signs. I thought they stung some companies around professional fees too eg intercountry charges for shared services and consulting.
The big opportunity between countries IMO is to play off tax regimes so you maximise costs in the high tax country to minimise earnings and so maximise profit in the low tax location, like HK or Singapore, rather than play with pricing. It would be very risky to do unrealistic market prices on an ongoing basis though. The risk of overloading costs is also that you end up making the high tax business financially unviable. A private company might do it but a listed one might find it hard.
August 4th, 2010 at 4:21 pm
David,
Well, if I understand it, I’m happy with one half — NZ through the IRD can effectively control whether a foreign company is selling at an appropriate price or not.
And I can see that NZ owner makes capital gain on the sale, and that otherwise it should be business as usual, Nzers emplyed, NZ farm products purchased. But as you mention dividends flow overseas. Why is there any necessity for the one-off capital gain to take into account future earnings? How far into the future can a price predict? Once the asset is sold there is no opportunity to make that capital gain again (for NZ) so isn’t there a time-lag problem in that all the NZ gain is made up front, but the loss of divident drainage occurs over time. I mean if we extrapolate the situation where all our productive farm land is owned by foreigners, is it guaranteed that previous owners will be using their capital as well as when they were farmers, or is their some risk attached?
On today’s postings though, I don’t automatically assume its a bad thing.
August 4th, 2010 at 4:32 pm
jinpy
What if the company bought by the foreigner in 2005 was Feltex?
What if the sale of my farm had funded a startup investment in Google or Trade Me or Xero?
August 4th, 2010 at 4:32 pm
IRDs like ours have very good databases that quickly identify any attempts at transfer pricing. I was working in a particular industry in the 1990s when the IRD started to do work in this area. They gathered up some raw data thru GST audits and got a idea of what was going on and simply wrote to all the foreign owned companies that dominated that industry and gave us all an amnesty. Six months to sort our selves out.
It worked a treat. All the foreign owned companies HOs offshore had a chat with each other and agreed to all play the game.
IRD does random audits from time to time to keep everyone honest.
August 4th, 2010 at 4:44 pm
Hell’s teeth Robert Mapplethorpe! Your derogatory terms for Chinese are disgusting.
No wonder it’s hard to have a rational debate about immigration and population policy in NZ.
August 4th, 2010 at 4:48 pm
Insider posted at 4.32
It was… Aussie private equity fund, Asian funds. Thousands of NZ mum and dad investors then suckered in, and hundreds of jobs of family breadwinners axed.
August 4th, 2010 at 4:49 pm
jinpy
Land prices can fall as well as rise so Capital Gains (particularly for Corporates) are not a real issue.
You ask ” … Why is there any necessity for the one-off capital gain to take into account future earnings? … ” The answer to this lies in the most common method of valuing a capital asset. Net Present Value of a future earnings stream which are discounted for interest as a proxy for inflation. This is the classic methodology for assessing whether a dam might be viable or a piece of plant should be purchased.
In a way it is also a bit like some Councils (eg Auckland City) value your property for rates – it is grossed up rents.
The 2 variables that people play with are the discount rate and the term included. The idea I am playing with here is that some cultures may be satisfied with considerably different time horizons and certainly the value of cash is different in other parts of the world.
We know the Chinese traditionally take a long view and having been deprived of owning land by the state for so long there is a value attached to that fact alone whereas here in NZ we take it foir granted so there is little or no value attached to ownership per se. NZ’ers also tend to value things on today’s economic circumstances and are scared of punting too far into the future.
The one constant is that land is only worth what someone is prepared to pay for it on the day. Who gets capital gains is largely irrelevant, if capital gains occur or not is irrelevant. The ongoing benefit of receiveing a large capital sum from a furriner for your farm today will depend on what you do with it and what economic spin-off benefit occurs to NZ from that use. If you buy a string of Condos on the Gold Coast, NZ gets zip until your heirs get sick of the non-performing assets and repatriate the dosh to NZ and start a business or invest on a productive activity.
Are there guarantees? Of course not, nothing is guaranteeed (except death and taxes of course) but a high level of certainty of overall outcomes will occur if you have a lot of occurrences in the experiment.
August 4th, 2010 at 4:51 pm
Jack5 – by that time of course there was no value left in the company for a New Zealand buyer. It was already gone.
August 4th, 2010 at 4:59 pm
Re David at 4.51…
the overseas guys bought in, pumped up the price, floated the company, got their money out, and NZers lost heaps, in money and jobs. Net value to NZ of this foreign investment minus a few hundred millions.
August 4th, 2010 at 4:59 pm
In my answer to jinpy above I said that capital gains are irrelevant.
a qualification to that bald statement.
They are only in as much as they are factored into the purhaser’s valuation model. From an economic perspective their value is almost nil until the property is sold again at which time they should reflect the increased value of output through either productive efficiency gains, increased prices for the output or the development of new high value alternative land uses.
August 4th, 2010 at 4:59 pm
insider:
I accept China’s restrictions are primarily ideological though I suspect if the political system were to change tomorrow the restrictions would continue, as the Chinese are astute businesspeople. But look outside China to other Asian economies – and even some in Europe – and you’ll find similar restrictions (albeit the EU has diluted inter-EU restrictions, but I’m talking about restrictions on citizens of non-EU countries).
In Vietnam, for instance, a foreigner is limited to ownership of one apartment and if it’s bigger than 120 sq metres (for a four person family) you pay an ongoing tax on it’s value.
Thailand, IIRC, has varying caps depending on the type of business (up to 60%) but agriculture is limited to minority foreign ownership only, and there is no machinery to apply for majority foreign ownership. Rice farming, fisheries, forestry are also capped at a minority but there is provision to apply to have this lifted.
In Indonesia, foreign individuals are still severely restricted in their access to the Indonesian property market. They can purchase titles to state-owned land or enter into long-term leases for residential (but not commercial) purposes. A foreign individual is permitted to purchase only one residence.
India even has different rules for non-resident Indians and other foreign investors.
Director of the Centre for AusAsia Business Studies at James Cook University, Professor Zhangyue Zhou, warned Australians recently the Chinese Government was aiming to acquire land for its own food security. Food security is something that’s never mentioned in the context of the sale of NZ farm land but it represents an enormous potential danger.
In terms of land, Australia seesm to have woken up and has just announced new rules:
- a requirement for pre-screening; notification to the Foreign Investment Review Board (currently farm land only comes to the FIRB notice if it’s worth over $230 million).
- when a temporary entrant leaves the country they will now be required to sell that property back into the Australia housing market.
- in the event of vacant land they will be required to build within 24 months and if they don’t they will then have to sell the land back in to the market.
I’d be interested to hear how you think the US is “a lot richer” due to foreign ownership. It has a large trade deficit and an enormous foreign debt, whereas countries with restrictions either do not, or have lesser problems.
August 4th, 2010 at 5:06 pm
Sell the family farm.
Its worth far more than it could ever produce.
Retire on the Gold Coast.
August 4th, 2010 at 5:10 pm
Global UN government. President of the planet, Helen Clark.
One currency,
Totally multicultural,
Even playing field,
Peace and harmony,
NZ will show you how its done….
August 4th, 2010 at 5:21 pm
@ Rex. Ah you can take the man out of NZF but you can;t take NZF out of the man
I’m pretty sceptical about this food security stuff. Same for oil security. All you have is the illusion of security and so perhaps can kid yourself to sleep at night. And the astute Chinese is racial stereotype. If they’re so astute why are there so many poor people in China eh?
There is no security in having your vital assets within another country’s borders and controlled by their laws, unless you have the military might to protect it or a co-dependency with the host country. China is a great example of a country that continually undermines foreign investment through lack of legal protections, while forced nationalisation is practised elsewhere.
China’s investments will be worth squat financially and in security terms if for instance the Aus govt changes the rules on food exports or if China’s govt changes focus. So any security premium paid would be wasted.
What you really want is supply reliability. And there are plenty of ways to get that cheaper than buying farms.
Re the US, the point was the old correlation and causation being not always the same. While the US is indisputably financially wealthier than nearly every other country on Earth I didn’t say it was because of foreign ownership.
PS Do the countries with ownership restrictions have lesser or lessor problems?
August 4th, 2010 at 5:21 pm
David,
I’ll have to go away and absorb some of that Net present value stuff etc. but it all seems reasonable to me. If I’ve got it right, and I’m not sure I have, money from dividends that now goes overseas is accounted for in an extra gain in market price for the NZ seller, the value of which should be retained in NZ on the whole. For a fairly absurd example, china might buy all our farming land and thus take all the after-tax profits of our dairy industry, but because of the fact that they have had to pay too much for the land means that our economy uses this extra capital to earn what we were earning before, perhaps better…? Maybe I haven’t got it…
still isn’t there the problem that we can’t guarantee we’ll outperform the foreign-owned farming sector even if we get given extra capital? that is, could we lose that extra capital on various ‘condos’ all around the world. Or is this why we’re so reliant on dairy to begin with, fear of doing anything different?
August 4th, 2010 at 5:28 pm
@jack5 the point was, if the chinese had bought Feltex at a market price from local shareholders in 05 and gone bust in 06 would we collectively have said it was an outrage or given a sigh of relief that we were not given a bath. I suspect the latter.
@ jinpy
Think about Trade Me. Fairfax paid $700m for a business making much less than that. They effectively prepaid a large chunk of the profit Sam Morgan expected to make over the next 10 or so years. There is a big risk in that. What if Facebook took over world commerce or profits weren’t that good?
August 4th, 2010 at 6:05 pm
Robert Mapplethorpe: Your derogatory generalisations about Chinese people are in extremely poor taste, even if they do represent your opinion. They probably say more about the quality of your opinion (or lack of it) than about the Chinese. As a New Zealander, I’m not prepared to have my Chinese friends and acquaintances insulted gratuitously by you without registering my protest.
I would be interested to know, though, where you come from. With primitive attitudes such as yours you do not strike me as “one of us”.
August 4th, 2010 at 6:16 pm
CalGal, if you want to defend chinks then I am surely not one of your lot. I care nothing for you or your supposed chinese friends, fairweather friends, no doubt. The country is being over run by chinese scum and its about time we made a stand. How many more chinese takeaways do we need? Give me a Greek Ouzeria or Kafeneon, an Italian pizzeria, even a Lebanese kebab bar. I might even welcome and English Curry shop
. It is time to make a stand and say “Enough!” or watch white NZ go the way of maoridom.
August 4th, 2010 at 8:12 pm
Robert, some early Chinese families ( Chew Chong 1840 )were dairy pioneers in Taranaki and were instrumental in establishing the dairy industry and ultimately Fonterra. We owe them a debt of gratitude.
August 4th, 2010 at 8:23 pm
I’ll take my Chinese friends any day in preference to your vulgar prejudice, R Mapplethorpe. We don’t need in our country your blind hatred of fellow human beings.
I note that you won’t divulge your country of origin, but your attitudes (and food preferences?) smack of what is quaintly referred to as the “first world”.
August 4th, 2010 at 8:34 pm
@Adolf August 4th, 2010 at 1:33 pm
Funnily enough, transfer pricing is not under the radar. IRD have a dedicated unit that takes multinationals to task for non-market pricing. You won’t ever hear of how much they save the country because of taxpayer secrecy but given the penalties, use of money interest and back taxes they can claw back, it’s a pretty stupid corporate taxpayer who thinks they can get away with it.
August 4th, 2010 at 11:11 pm
Re Insider at 5.26:
Insider, I agree that sometimes foreign investors can take a bath on NZ investment. Among them are those who bought into Telecom in the year or two before Labour Cunliffe’s confiscation of the company’s property rights by ordering unbundling without compensation. Some forestry investors were also caught. NZ broadband users may or may not benefit from this sting on American investors.
However, in the Feltex case, a good viable NZ industrial company was bought cheap by Australian and Chinese investors, ramped up, rooted, and sold dear to Kiwi, mainly mum and dad investors. This overseas investment brought less than zero benefit to NZ.