A solution for overseas sales of agricultural land – make it all leasehold

The danger that New Zealanders could become tenants in their own land has encouraged ex-pat kiwi, David Mahon, to suggest that all agricultural land should be changed from freehold to leasehold.

This would enable New Zealand to fairly and rationally deal not just with Chinese interest in agricultural assets, but also foreign ownership in general says the Beijing-based advisor (Mahon China Investment Management Ltd.), who also chairman of the China advisory board for NZ Trade & Enterprise’s Beachheads programme.

“The question before New Zealand is not how to block foreign investment in the agricultural sector, but rather how to prevent the purchase of agricultural land by interests that will not develop it to its full potential,” he says. “As long as land can be purchased without the obligation to use it for the common good of all New Zealanders, the country’s economic future, which depends so much upon agriculture, is in doubt.”

The challenge is to find a structure that follows the principle that agricultural land should be purchased for its productivity, not just expected increases in capital gain. Increasingly it is becoming harder to realise the value of land investments through farming. Ironically, because of New Zealand’s inability to create deep and varied financial markets, kiwis have been forced to concentrate on land as one of the few reliable assets in which to invest.

A change to laws preventing foreign interests from the right to purchase farmland would undermine NZ’s compliance with the WTO and the very principles of free markets themselves. A return to anti-China type laws of the previous century would be “an irrational, retrograde and racist act,” Mahon says. “New Zealand must not even suggest a return to those paranoid years.”

Laws regarding residential property ownership could remain, but NZ could change the universal laws regarding ownership of agricultural land. “To do this, New Zealand farmers must decide whether they are custodians of farmland for future generations, or short-term profit takers,” Mahon says.

Changing to leasehold land held in an independent trust for domestic and international buyers alike (with lease terms of up to 100 years) would cause land to fall in value initially, Mahon says.
“But the focus of investors would shift from capital gain to the land’s productivity,” he says. “Both domestic and international investors would have lower barriers to entry in acquiring farms, but farmers would be in a better position to generate profits from those farms and the country would retain ownership.”

Such a change in ownership laws could be come by pointing out the Maori culture’s principle’s in this regard Mahon says. Under an obligation of custodianship, land is held in perpetuity for the common good of the people.

“New Zealand must come up with some mechanism to avoid either mortgaging or selling its birthright outright,” Mahon says. “New Zealand is a conservative country, but it has been able to overcome its innate cautiousness to meet challenges in the past and has the potential to do so again.”