The Government has recently announced that it will be adding forestry rights to the list of investments that will require approval from the Overseas Investment Office (‘OIO’), pursuant to the Overseas Investment Act 2005 (‘Act’). Forestry rights are a mechanism by which a landowner can give another entity the right to grow and harvest trees on their land, without conceding ownership of the underlying land (otherwise known as a profit à prendre). These were specifically exempted when the Act was first drafted in 2005.
OIO consent now needed
The proposed changes to the Act will require overseas investors to make an application to the OIO where they wish to enter into forestry rights, subject to certain exceptions (including where the forestry right is for an area less than 1,000 hectares over one year).
Other proposed changes to the Act relating to forestry include:
The Government has proposed a supplementary order paper to address these changes, which has been referred to the Select Committee. A deadline of 10 April 2018 has been set for public submissions. The Government has also indicated that it will consult separately with Māori, but has not yet specified the manner in which it will do this.
Further particulars on the proposed amendments can be found in the draft supplementary order paper.
How will this affect Māori
Māori interests are estimated to account for 40% of New Zealand’s forestry production,  and we know that many Māori businesses currently hold forestry rights with overseas investors (some with arrangements for renewal on their expiry). Inevitably these changes will have important implications for Māori collectives that currently operate in the forestry sector, as well as collectives that will do so once they have settled with the Crown for historical breaches of the Treaty of Waitangi.
The Government has assured Māori that these changes will not prejudice their rights obtained through the settlement process, or fundamentally change Māori rights and interests in relation to their land.  This may be so, however this restriction on foreign investment will likely see a reduction in the level of overseas participation in New Zealand forestry, which will limit the market for Māori when assessing potential investors.
The combination of increased regulation and a more limited pool of international forestry investors may affect market rental, and ultimately the underlying value of Māori land. For other asset classes, limitation of investment might tilt the owner towards alternative land uses, however in the case of forestry, it is difficult to determine the alternative land uses that might be available.
There may be domestic capacity to ‘fill the void’ left by deterred overseas investors. However, it is unlikely (particularly in respect of larger forests) that domestic players are willing or able to match the rental provided by overseas investors to date. The increased financial capacity of overseas investors has provided large-scale employment opportunities in the regions and positive contributions to the regional economy (through the use of local sawmills etc.). However, there is a risk that the imposition of the proposed changes will alter this dramatically.
If you wish to know more about this proposed reform and the implications that they may have for you, or if you want to be involved in the process for public input, please let us know.