On 24 February 2022, the Associate Minister of Finance Hon David Parker announced that the Government will be making changes to the Overseas Investment Act 2005 (Act) to ensure forestry conversions by overseas investors “are of better benefit to New Zealand”.

Overseas investors who are looking to acquire land interests for conversion to production forestry for harvesting are likely to be impacted by the proposed changes.

Introduction

In October 2018, the Government introduced a ‘special forestry test’ which changed the way in which overseas investments are screened under the Act. In a bid to encourage more forestry activities and in support of the Government’s broader forestry priorities, the test provided a streamlined consent pathway for overseas investments in New Zealand production forestry. The test applied to existing forests, as well as non-urban land that would be converted to forestry.

After its introduction, the ‘special forestry test’ was met with concerns about the negative spillovers from whole farm forestry conversions, particularly in relation to the use of pastoral land.

Proposed changes

Proposed changes to the Act will remove forestry conversions from the ‘special forestry test’. This will mean that overseas investors who are intending to acquire an interest in farm land for conversion into forestry can no longer apply for consent under the ‘special forestry test’ pathway. Investors will instead be required to apply under the ‘benefit to New Zealand test’ – which is a more onerous test that applies to most other types of ‘sensitive land’ under the Act. Based on our experience, consent applications made under the ‘benefit to New Zealand’ test will take much longer to process than those made under the ‘special forestry test’.

The status quo will continue for overseas investments in pre-existing forests. That is, the ‘special forestry test’ remains applicable where the proposed investment does not involve a change in land use.

As part of this latest round of changes, some technical improvements to the Act will also be introduced to improve the operation and effectiveness of the Act’s existing consent framework relating to forestry-related investments.

What’s next?

A Bill for the proposed changes is expected to be introduced to Parliament in a few months. We encourage foreign-owned forestry operators and investors to plan ahead, and be prepared for more scrutiny from the Overseas Investment Office when applying to invest in forestry assets.