Foreign Asset Sales: Are they worth it?
By Hayden Dillon The current sale of Lochinver Station and the wider debate around foreign investment in land assets (both rural and residential), has the issue of direct foreign investment in land at the top of the queue of hot issues. Much of the discussion has been emotive, and that is entirely legitimate, but it’s the economic debate that seems to have been lost. We pose the question, “What is the economic return to NZ Inc. by allowing foreign direct investment in land?” Many of the public offerings in the NZ market place that are targeting an investment in farming, offer returns of around 3-4% cash return, and an 8-9% capital return. Importantly, the capital return (if treated appropriately) is tax free. Given that much of the NZ Inc. Agribusiness value is tied up in the value of our rural land, it seems the first major test appears to fail. Profits from a gain in the value of land are not taxed, (if managed appropriately) so there is no return for NZ Inc., particularly if those funds are repatriated and not invested into better (i.e. greater than 3-4%) cash-returning assets. Of course, there is the counter argument that if the capital is released and applied to a better returning asset, then there is some value. Using the Lochinver Station example, it can be argued that NZ Inc. is releasing capital from one lower performing asset to invest in a higher performing asset, which has a better outcome for NZ Inc. But in the Crafar farms example, that capital simply repaid debt. What is done with the Lochinver purchase from an economic perspective in the future, will be the final determinant as to whether NZ Inc. benefits. As yet, we don’t have that information. The Crafar example also showed another factor to […]