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Business Migration
Review
and the Property Sector
Presented by
Marcus N. Beveridge
Principal, Queen City Law – www.queencitylaw.co.nz
Chairman
New Zealand Association of Migration and Investment
(“NZAMI” www.nzami.co.nz)
LEXISNEXIS IMMIGRATION LAW CONFERENCE 22 JUNE 2006
This session examines:
• Trends in Business Migration
• Have we got it right?
• Changes to the Investor Category (IC)
• Examination and critique of the IC in practice
• Critique of requirements
• Review of other business categories
• Intersection between business migration and
property
• Recent Tax Changes
• Conclusion/Summary/Recommendations
Trends in Business Migration
• At the end of this presentation one can
draw one’s own conclusion - here is some
data which may assist.
• LTBV Start up funds indicated were:
2001 NZ$140,707,237
2002 NZ$316,736,589
Trends in Business Migration
• Number of LTBV Applications
2001 856
2002 3218
2003 1817
2004 581
2006 116 (applications rcvd
76 approved Jan 06 – Jun
06)
Investor Category
• Funds indicated
2001 $1,132,000,000
2002 $1,203,400,000
• Number of Investor Applications
2001 1008
2002 1087
2006 39 (YTD)
Investor Category
• Total Business Applications
2001 2551
2002 3359
Investor Category
• 2006 YTD Expressions of Interest and
Investor Category
39 EOI’s were received of which 31
invitations to apply ITA were issued. 8
EOI’s have been declined, 17 Investor
Applications have been received. 11
approved in principle – 6 in progress
• 2 Applications have been approved since
inception of new Investor Category in 2005.
Investor Category
• Total investment funds indicated for LTBV
& Investor Category
2001 $1,272,707,237
2002 $1,520,136,589
Have we got it right?
• Total business applications
2001 2551
2002 3359
2006 (YTD) 1208 (see overleaf)
Other Recent BMB Activities/Issues
• New Branch Manager Jock Gilray is now on
board.
• Managed queue will be cleared as of 1 July
2006.
• From 1 July, all applications to be allocated
to a processing officer immediately once
accepted.
• Applicants can expect applications to be
decided within a 3 month timeframe.
Other Recent BMB Activities/Issues
Outcomes:
• NZIS believes it is seeing higher quality
applicants.
• NZIS would expect improved settlement
outcomes for New Zealand.
Entrepreneur Category
Key Stats
• For the 05/06 Financial Year to 09 June
2006:
1. A total of 815 of 907 decided
Entrepreneur Category applications have
been approved.
2. BMB currently has a total of 318
Entrepreneur applications on hand, 68 of
these are currently held in our managed
queue.
• 39% of decided Entrepreneur applications
received from South Korean nationals, 30%
China, 9% UK, 4% Fiji, 1% India, 1% Hong
Kong, 16% Other.
Interim LTBV
Key Stats
• For the period January 2006 to 9 June
2006, 76 of 116 decided Interim LTBV
applications have been approved.
• For the 05/06 financial year thus far: 41%
of decided Interim LTBV applications
received from UK nationals, 9% UK, 9%
China, 7% South Korea, 6% India, 28%
Other.
• BMB currently has 43 Interim LTBV
applications on hand. None of these are
held in the managed queue.
Work to Residence
• A total of 146 Residence Applications have
been received and approved under this
category for the financial year to 31 May
2006. This breaks down as follows:
1. Talent – Accredited Employer: 129
2. Talent – Arts and Culture: 8
3. Talent – Sport: 6
4. Long Term Skill Shortage List Occupation:
3
Work to Residence
• For the 05/06 Financial Year thus far: 33%
decided applications received from UK
nationals, 16% South Africa, 11% South
Korea, 5% India, 5% USA, 4% China, 3%
Germany, 3% Fiji, 20% Other.
• BMB currently has 21 Residence Category
Work to Residence Applications on hand.
Dare to Compare
How do our figures compare to Australian figures.
All business sub-class visas for Australia are as follows:
Applications Rcvd
• 2001-2002 2152
2004/2005 2257
2005/2006 (YTD applications received) 2174
• New Zealand
2001 2511
2002 3359
2006 (YTD decisions made) 1208
• Adopting crude mathematics and adding all Investor,
Entrepreneur, Interim LTBV and Work to Residence
Applications this would give a sum total of 1,208
applications submitted to NZIS/BMB in 2005 – 2006 YTD.
Trends in Business Migration -
Have we got it right?
• In one word the answer is NO
• In summary we have:
1. Fallen way back against Australia;
2. Last calendar year numbers of applications
under the Investor and LTBV Categories are
woefully low;
3. NZ has probably captured less than 2% of the
investment funds it gained in say 2001/2002.
4. The new Investor Category is a waste of time
and resources. It has been poorly designed.
It is commercially naïve. It is unattractive. It
will not and is not working.
Have we got right?
• NZ Business Immigration Policy
• Objective – to contribute to New Zealand’s
economic growth through:
a) Increasing New Zealand’s level of human
capital;
b) Encourage enterprise and innovation;
and
c) Fostering external links.
Changes to the Investor
Category (IC)
• Two step process similar to Skilled Migrant Category
• Complete an “Expression of Interest”
• NZIS make selection based upon information disclosed
in the “EOI”
• Successful applicants invited to lodge Residence
application under Investor Category. After verification,
approval in principle is issued and investments funds
transferred to New Zealand
• To be eligible, applicant’s need to invest NZ$2 million in
Government approved infrastructure projects for 5
years. Security and return of the funds is guaranteed by
the Government and administered by the Treasury.
• Other conditions are required to be met before
conditional 5 year Residence is granted including
standard criteria: health, age, character, English
language, evidence of source of funds and other criteria
Examination and critique of the
IC in practice
• NZIS Business Migration Branch (“BMB”) have just
indicated that “applicants can expect applications to be
decided within a 3 month timeframe”.
• IC does not guarantee indefinite RRV status until $18A
requisition uplifted 5 years later.
• Introduction of English language requirement has
effectively stopped the flow of predominantly North Asian
business migrants, but has not resulted in any significant
increase in business migrants from the U.S.A, U.K, Canada
or other English speaking countries
• An objective of the new IC is to increase economic growth
and also development through the injection of funds into our
economy. This vision is sound, however the reality is that
solid numbers of experienced entrepreneurs with overseas
business networks along with their investment dollars are
just not materialising.
Critique of IC
• The IC is more likely to attract older or retired migrants who
can afford to have NZ$2 million tied up for 5 years, and it
follows that these migrants are less likely to subsequently
become actively involved in our economy because of their
stage in life.
• To qualify, the maximum age at the time of application (EOI), is
less than 55 years, hence persons aged 54 will be 59 years old
before their unconditional Residence status in NZ can ultimately
be assessed. Reality dictates that not many applicants in this
age group would risk leaving their future in abeyance for 5
years.
• It is interesting that NRWT at zero percent is expressly
permissible for non NZ tax residents and that policy provides
“The investment funds are a registered security for the
purposes of the Approved Issuer Levy regime”(BI13). This
may well cause headaches for applicants and their advisors in
light of the requirement pursuant to policy BI12.10 that an
applicant either spends significant time in NZ (BI12.10.1) or has
a base established in NZ (BI12.10.2) in order to ultimately
obtain full and unrestricted PR status 5 years thereafter.
Critique of IC
• It is probably fair to assume that many potential applicants
are aware of how previous NZ business immigration policy
decisions were made retrospectively and without notice or
prior consultation or without proper consideration of the
financial impact upon applicants. Understandably, there is
therefore a lot of nervousness over unilateral changes
which can be made by the Government at any time. The
North Asian or non-English speaking applicants affected by
the overnight English languages changes of 20 November
2002 may still view NZ in a dim light.
• It is planned that the Treasury Department will become
caretaker of Investor funds and administer the funds for
capacity building, sustainable growth, innovation and
infrastructure projects through the budget process.
Critique of IC
• The control of IC funds by the Government and Government
agencies raises the question of whether or not this control
or channelling of funding will undermine free-market
enterprise upon which many financial institutions and
lenders rely upon for their businesses. Could it be that
SOE’s like Air New Zealand, Telecom and others have a
commercial advantage by having access to better rates of
interest than say private sector organisations?
• Since the Government is going to invest in “capacity
building”, “sustainable growth”, “innovation and
infrastructure projects” do we really know what these are?
• From a taxation point of view, the top end tax rate of 39
percent is unattractive and may act as a significant
deterrent notwithstanding that this will only be applicable
for immigrants who actually elect to live in NZ. As noted
above non (tax) residents will NOT pay any income tax on
the CPI adjusted return they receive from the Government
after the expiry of the 5 year term.
Critique of requirements
• Another big ask is the requirement that assets must be
liquidated or converted into cash for the NZ$2 million
investment. This has serious consequences given that once
assets are liquidated it is often difficult to ultimately turn
the cash into income producing assets again without paying
a premium for inflation. Many investors are likely to prefer
borrowing the investment funds using their leveraged
assets as collateral and in most cases, they would likely be
able to borrow the money cheaper overseas than the
interest rate the Government is able to offer.
• Another thorn in the IC is the paper trail process of
assessing the source of funding and also the bank transfer,
after the approval in principle, hence an applicant may
liquidate his or her assets and then fail the next part of the
assessment process. One cannot disagree that risk
management is necessary, but the process should surely by
now move from being “cart before the horse”.
Critique of requirements
• Applicants are required to make New Zealand their home by
the end of the 5 year journey. This is not an unreasonable
expectation however, once again, applicants are required to
commit to New Zealand by building up a life in this country
and getting well settled before New Zealand has made any
meaningful commitment to them.
• It is reasonable to expect that business entrepreneurs will
be able to achieve a higher return from a business venture
than say the modest return promised by the Government.
Applicants may elect to withdraw 50% of their investment
(maximum therefore NZ$1M) after two years so why is it
that applicant’s may take the risk of withdrawing their
investment after two years , lodge another application along
with the required business plan and pay more fees.
Critique of requirements
If the business plan is rejected or declined, does the
applicant then lose out entirely? No. BI11.25b provides “If
the requirements of this policy have not been met the
business proposal will be declined and the Government will
continue to hold the investment funds” – some may see an
inherent conflict here. At this stage, given the depressing
number of applications a lot of this will be of academic
interest only.
• The IC road is complex, the Minister of Immigration’s
proposal that some of the appeal processes should be
abolished raises the question as to what recourse will be
open to an applicant who has been here for 5 years but then
is assessed to have failed some or the final stage of the IC
process. It would not be ideal if NZIS was judge and jury.
The IC Category must provide access to meaningful appeal
rights.
Review of other business
categories
1. Entrepreneur figures featured earlier – great and welcome
news.
2. Work to Residence numbers low but growing – would hope
that this will continue.
3. Lack of LTBV numbers alarming and policy should
therefore be relaxed.
4. Paucity of IC applications means policy must be
redesigned.
5. To avoid redundancy I would also refer attendees to 2
papers presented and provided at last year’s conference:
i. Policy and Practice Update given by myself and
Michael Carley (Former Branch Manager BMB); and
ii. Case Law Review Business Residence Categories
(David Ryken).
These 2 papers are still highly relevant to all practitioners
dealing with Business Migration.
Review of other business
categories
6. Other issues:
a) Interim Permits under LTBV policy – NZAMI
members are not at all happy with these
arrangements and are in correspondence with
the Ombudsman’s office.
b) Residence status of (pre-existing) Investor
cases where applicants borrowed their
investment funds. Although precise numbers are
scarce, it is thought a couple of hundred cases
may still be in the Minister’s hands. In some
cases interim RRV’s have now issued for 4 or 5
years and s.18A requisitions have still not been
uplifted.
c) Several thousand former Investor Category
applications from PRC have now been very much
declined and are now off the radar screen.
Review of other business
categories
d) BMB current process is that the PA provides
evidence of English that he or she considers to
demonstrate that he/she meets minimum English
language standards, then their Entrepreneur
Category application will be accepted for
processing as long as all other lodgement
requirements have been met. This is a welcome
change as a few months ago BMB had been
rejecting such applications failed lodgement one
consequence of which meant there was no ability to
appeal to RRB.
e) Definition adopted by BMB of “relevant business
experience” (please refer to attachment 21) still
problematic and should be modified.
f) Same applies if LTBV applicant wants to try new
business in NZ – the test of “transportability of
business skills” should be user friendly given that
the subsequent PR application will, in any event,
depend on how well the business has performed
and the benefit to NZ (see last year’s paper).
Intersection between business
migration and property
• Without question, business migration has been a
significant driver of economic development of
our economy in recent years. However, it is
safe to say that this development has come to an
end for the foreseeable future. Business
immigration investment can only take place when
there is confidence and stability in our business
migration policy. Unfortunately for New Zealand,
the Government has perhaps ignored the red
lights as we have approached this intersection
and the resulting drop in our economic
confidence is now a reality.
Nevertheless, as we all know things change and
sensible policy adjustments would result in more
business immigration traffic to NZ.
Intersection between business
migration and property
Let’s quickly look back at 2001-
• In the BNZ Weekly overview of June 2001 consumer
confidence was steady with inflation expectations
easing to 2.84% from 2.99%.
• The construction sector employment intentions lifted
from 4.1% to 14%.
• The volume of residential building work was down
16.8% but in contrast non-residential building activity
was up by 0.6%. In essence the building industry had
not moved much since 1994.
• It was forecast that over 2001, there would be
strength in construction of farm buildings, factories,
hotels & motels, retail especially malls and retail
upgrades.
Intersection between business
migration and property
• Let’s now look at June 2002 and June 2003
• Retailing was strong, housing strong, business
investment strong – good prospects. There was firm
domestic growth in housing and business investment.
• Non-residential building work was up by 11% -
however, consents data showed that this trend would
reverse to strong housing and weak non-residential in
the June quarter.
• Retail sales were 11% stronger than in the previous
year - however, consumer confidence went up to 35%
feeling that things were heading in the right direction,
up from 32%.
• House building was equal to 5% of NZ GDP, very
strong housing construction, there was good turnover
from surging migration resulting in accommodation
building, growing student numbers, investor interest,
jobs and real wages growth.
Intersection between business
migration and property
And now a glance at June 2004
• An NBNZ Business Outlook survey found that in May,
a net 22% of businesses felt pessimistic about the
economy over the next 12 months. In April, it was
36% and 42% in March.
• The annual total of 31,677 units was 35% above the
average for the past 10 years and the highest annual
total since the year to April 1976.
• The value of consents issued for construction of non-
residential buildings was NZ$239 million in April.
Over the preceding 3 months to April consent values
were up 19%, led by the construction of offices +105,
shops etc +75, and hotels & motels 63% increase.
Factory consent values were up by a healthy 34% and
farm buildings 2%. In the year to April total consents
were up 12% at NZ$3billion.
Intersection between business
migration and property
• Finally June 2006
• The economy has clearly ended its recent period of
unusually strong growth and is now tracking along at
below average pace. The housing market is cooling
and it is freezing cold!!
• Consumer confidence is deteriorating. The One News
Colmar Brunton poll revealed that during May,
consumer confidence about the economy over the
next 12 months dropped to a net 38% pessimistic
from net 29% pessimistic in the last survey taken in
March.
• There has been a downward trend in the number of
dwelling consents. In April, the total number of
dwelling consents issued was 25,330 and this was
down from 29,329 from a year ago. It is expected that
there will be some property developer casualties.
Intersection between business
migration and property
• During April, the value of non-residential building
consents issued was NZ$209M - this was an 8.3%
decrease from a year earlier. The value of factory
consents was down by almost 28% from the year
before whilst consents values for office buildings
were down by 9% while shops and restaurants were
down by 16%.
• The monthly Business Outlook survey from NBNZ
shows a net 31% of businesses in May expected the
economy to get worse over the coming 12 months.
• The correlation between the significant drop in
business migration and the drop in property
development is compelling and although there are a
number of other economic factors which contribute to
the downturn including the high New Zealand dollar,
interest rates and suchlike, it appears that there is a
direct and tangible nexus between business
immigration and NZ’s property sector.
Intersection between business
migration and property
• What is also not always understood by our economists
is that in excess of 2000 pre-existing Investor cases
approved between 2001 and 2003 would have
resulted in an estimated NZ$4B of investment funds
being placed on term deposits for 2 years with our
primary funding trading banks. The business of banks
is to make money from money (which banks have
considerable expertise in) hence these trading banks
have been awash with capital which they have
aggressively put back into circulation further fuelling
the major residential property boom NZ has
experienced over the last few years – there is no
question therefore that business immigration has to
date had a significant impact on our property sector.
In the next part of this presentation you will also see
that major housing cycles are driven most by net
migration.
“Construction
& property sector outlook”
Rodney Dickens – ASB Bank
23 March 2006
Key points
Underlying demand for housing will be below average for the
next couple of years driven by below average net migration
(in turn driven by a strong international labour market).
Low interest rates, developers, investors and spec builders
have created mega-booms in urban, coastal and lifestyle
subdivisions, meaning we face major oversupply in all three
areas and material negative risks ahead.
Economists have their heads in the sand over inflation risks,
while interest rates are not high enough to mount a serious
battle against inflation (i.e. despite all the talk to the
contrary, upside risk still remains for interest rates).
Some other stuff.
Major housing cycles driven
most by net migration
RESIDENTIAL BUILDING CONSENTS & NET MIGRATION NET MIGRATION & HOUSE PRICE INFLATION
Tw o-year average number New Zealand
Correlation = 0.75 80000 24 60
33000
QV Prices *
60000 20 %Q/Q-4 Net migration ** 50
30000 Consents right scale
left scale
left scale 16 40
40000
27000
12 30
24000 20000
8 20
21000 0
4 10
18000 -20000
Net Migration 0 0
15000 Adv. 15 months -40000
right scale -4 -10
* Source: QV
12000 -60000 -8 ** Rolling three months seasonally adjusted and annualised, '000 -20
Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06
But downside risk to house
prices still some way off
REINZ NZ EXISTING HOUSE SALES REINZ HOUSE SALES & LISTINGS
& MEDIAN DAYS TO SELL
11000 11000
11000 2-month average, seasonally adjusted number 80
House Sales
House 10000 Seas. Adj. 10000
10000 Sales 70 2 mth ave
left scale Days to Sell 9000 9000
9000 right scale Listings *
60 8000 8000
8000
50 7000 7000
7000
6000 6000
40
6000 5000 5000
5000 30
4000 4000
* Source: Barfoot & Thompson, seasonally adjusted by ASB Bank
4000 20 3000 3000
Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06
Net migration driven most by
the global labour market
MIGRATION
('000, seasonally adjusted 3 month average, annualised) NET MIGRATION G7 UNEMPLOYMENT RATE
105 105 50 G7 Unemployment * 8.5
right scale
Net Migration
90 Emigration 90 40 Annual total '000 8
left scale
75 Immigration 75 30 7.5
60 60 20 7
45 45
10 6.5
30 30
Net migration 0 6
15 15
-10 5.5
0 0
-20 5
-15 -15
-30 * GDP-weighted average for G7 countries 4.5
-30 -30
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04
Quantifying the oversupply of
coastal sections
REINZ SECTION SALES PROCEEDING SECTIONS
Annual number of sales
1200 24000 Number
114
1100 22000 144
Northland, left scale
1000 20000 202 Mangaw hai Area
New Zealand, right scale
900 18000
One Tree Point
800 16000 202
Northern Beaches
700 14000
1375
600 12000 Whangarei Heads
500 10000 386 Ruakaka Area
400 8000
Waipu Area
300 6000
200 4000
Langs
100 2000
Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 617
Urban subdivisions, investors &
spec builders
TAURANGA DISTRICT
Section resales & spec building PAPAMOA SUBDIVISION
Status of sections
40 Empty (4
Sections 4 resale New houses 4 sale resale)
35 Built on (not 4
13%
30 sale)
38%
25 Built on (4
20 sale)
13%
15
10
5 Empty (not 4
sale)
0 Empty (4
16%
Papamoa Bethlehem Pyes Pa sale)
Subdivision Subdivision Subdivision 20%
Oversupply of apartments in
Auckland, Mt Maunganui, Nelson,
Whitianga, Whatakane etc
Auckland CBD Apartment Stock RESIDENTIAL BUILDING CONSENTS
12-month rolling total number of consents for new dw elling
20,000
Total Number of Apartments
36000 7000
16,000 6000
32000 Apartments
12,000 5000
28000
Non-apartments
4000
8,000 24000
3000
4,000 20000
2000
0 16000 1000
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
12000 0
F
F
F
Source: Bayleys Research (1989-2004), ASB (2005-2007) Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05
Provincial angle of the
residential building boom
RESIDENTIAL BUILDING CONSENTS PROVINCIAL RESIDENTIAL BUILDING CONSENTS
Seasonally adjusted tw o month average number & CBA NZD EXPORT PRICE INDEX
2000 170 1300
Five 1300
Provincial Main 160 Provincial Export 1200
1800 Building 1200 Building Price
Centres
Consents * left scale 150 Consents * Index 1100
1100
1600 right scale right scale left scale
140 1000
1000
1400 130 900
900
1200 800 120 800
700 110 700
1000
600 100 600
800 90 500
500 * New Zealand excluding five main urban centres
* New Zealand excluding five main urban centres
600 400 80 400
Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06
The hospital pass Dr Bollard
got from the economists
CPI INFLATION & CONSENSUS FORECASTS CPI INFLATION COMPONENTS
%Q/Q-4 %Q/Q-4
5 5 10 10
Source: SNZ/RBNZ
Mar. '06
Non-
4 4 8 8
tradables
Tradables
3 3 6 6
2 2 4 4
Dec. '04
Dec. '03
1 1 2 2
0 0 0 0
-1 -1 -2 -2
Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06
Interest rates are not high
enough to battle inflation
INTEREST RATES & DOMESTIC INFLATION LABOUR COST INDEX & UNEMPLOYMENT RATE
6 5 -2
11 -1
4.5
Domestic Labour Cost Index 0
10 5 4
Inflation * Annual %change Unemployment Rate 1
9 right scale 3.5 left scale Adv. 5 qtrs 2
4 right scale * 3
8 3
4
3 2.5 5
7
6
2
6 7
90-day bill rate 2
1.5 8
5 left scale
1 9
1
4 10
0.5 *Seaonally adjusted, note the right scale is inverted
* Source: SNZ & RBNZ 11
3 0 0 12
Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Mar-89 Mar-92 Mar-95 Mar-98 Mar-01 Mar-04 Mar-07
Housing still in the Reserve
Bank’s firing line
REINZ NZ EXISTING HOUSE SALES REINZ EXISTING HOUSE SALES &
& MORTGAGE INTEREST RATES RESIDENTIAL BUILDING CONSENTS
11000 House 13 2 month average, seasonally adjusted number
Mortgage
Rates * Sales 12000 3300
10000 12
Adv. 3 mths 2 mth. ave.
seas. adj. 11000 3000
right scale
11 Consents
9000 left scale
10000 House Sales right scale
Adv. 3 mths 2700
10
8000 9000 left scale
9 2400
8000
7000
8 2100
7000
6000 1800
7 6000
5000 6 1500
5000
* Average of floating and fixed rates, estimated prior to 1996
4000 5 4000 1200
Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05
Alterations & additions, & non-
residential building
VALUE OF RESIDENTIAL BUILDING CONSENTS VALUE OF BUILDING CONSENTS
Annual average % changes Annual average % change
40 Proportional scales 40 60 60
New Non-Residential
Alternations, Dw ellings Residential
30 30
additions & 40 40
outbuildings
20 20
20 20
10 10
0 0
0 0
-20 -20
-10 -10
-20 -20 -40 -40
Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04
Valuations stretched in most
(all?) property markets
REAL MEDIAN DAIRY FARM PRICE ($m) & REAL MEDIAN DAIRY FARM PRICE ($m) &
REAL DAIRY PAYOUT ($/kg of milksolids) REAL DAIRY PAYOUT ($ per hectare production)
3 Source: QV, REINZ, Dexcel, Fonterra and ASB 10 3 Source: QV, REINZ, Dexcel, Fonterra and ASB 6000
REINZ Median Price 9 REINZ Median Price 5500
2.5 2.5
Seas adj. 3 mth ave Seas adj. 3 mth ave 5000
left scale 8 left scale
QV Median QV Median 4500
2 2
Price Rebased 7 Price Rebased 4000
left scale left scale
1.5 6 1.5 3500
5 3000
1 1
2500
4 Dairy
2000
0.5 0.5 Payout/Hectare
Dairy Payout 3
right scale 1500
right scale
0 2 0 1000
Mar-80 Mar-84 Mar-88 Mar-92 Mar-96 Mar-00 Mar-04 Mar-80 Mar-84 Mar-88 Mar-92 Mar-96 Mar-00 Mar-04
NZD and the game the forex
traders are playing
NZ/US GDP INDEX & USD/NZD USD/NZD & NZ HOUSE PRICES
0.80 40 25
0.75 1.02
30 House prices * 20
%Q/Q-4
0.70 right scale
USD/NZD 1 20 15
0.65 left scale
0.60 10 10
0.98
0.55 0 5
0.96
0.50 NZ/US GDP -10 USD/NZD 0
0.45 right scale %M /M -12
0.94 left scale
0.40 -20 -5
0.35 0.92 -30 -10
Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06
GRAPH
GRAPH
GRAPH
GRAPH
GRAPH
GRAPH
GRAPH
MAJOR TAX CHANGES
STARTING 1 APRIL 2006
The Taxation (Depreciation,
Payment Dates Alignment, FBT and
Miscellaneous Provisions) Bill
became law on 22 March 2006.
Some of the changes are reasonably
significant. These changes include:
Depreciation
changes
There has been significant changes to depreciation
rates:
from 1 April 2005, tax depreciation rate on most
plant and equipment have increased
effective 19 May 2005 depreciation rates on
most buildings have been reduced
from 1 April 2005, tax depreciation rate on motor
vehicles have increased
effective from 19 May 2005 low asset threshold
has increased from $200 to $500
FBT changes & Motor
Vehicles
The new legislation introduces significant changes to the
Fringe Benefit Tax regime. The key changes include:
Effective 1 April 2006, the FBT valuation rate applying to
the cost of a vehicle will be reduced from 24% to 20%
Effective 1 April 2006, a new valuation method of 36^ of
the tax written down value of a vehicle will be available for
vehicles acquired on or after 1 April 2006
Effective 1 April 2006, vehicles under a 9-5 lease/flip-
fop lease/business use lease will become liable for FBT. This
applies to existing as well as new arrangements
From 1 April leased vehicles will be deemed to be owned
by the lessee for FBT purposes
Other FBT changes
A new FBT exemption has been created for “business
tools” such as mobile phones and laptops, as long as the
following criteria are met:
items provided mainly for business use
items are must be used in the performance of their
work
cost to the employer is not more than $5,000
Other Changes
Tax Exemption for New migrants and returning New
Zealanders
A four year exemption from NZ income tax will apply to new
migrants and certain returning New Zealanders who become
tax residents on or after 1 April 2006. The tax resident test is
modified for this purpose – i.e. the physical presence test is
abandoned and the permanent place of abode test is used. The
exemption from tax will apply to most form of overseas
income.
This may be in conflict with Investor Category requirements
set out earlier requiring migrants under this category to make
NZ their home at the end of the 5 year term.
However, it is a step in the right direction and will hopefully
negate the requirement for complex and protracted structuring
requirements for senior business personnel on secondment to
NZ.
Other Changes
Changes for Trustees of Foreign Trusts
NZ resident trustees are required to disclose certain
information to the IRD and to keep certain records in NZ in
relation to offshore trusts they act for.
Companies Migrating Offshore
With effect from 21 March 2005, rules have been
established for companies who transfer their place of
incorporation from New Zealand to an offshore jurisdiction.
The migrating company will be treated as if it had been
liquidated and all assets realised and distributed to
shareholders.
Conclusion/Summary/
Recommendations
The Good, The Bad and The Rugby:
1. New Investor Category will not cut the
mustard. It demonstrates an overly
influential role by Treasury officials totally
out of touch with business immigration
internationally.
Conclusion/Summary/
Recommendations
2. A quick comparison with Australia
illustrates this:
Australian Investor Policy (state
sponsored)
a) Same age cut-off (55)
b) No English language skills required in
Australia
c) Approx. ⅓ capital to invest ($750,000 vs.
$2,000,000)
d) Term = 4 years vs. 5 NZ
Conclusion/Summary/
Recommendations
e) Interest payable quarterly and
commercial rate approx 5% vs. NZ rate
of inflation payable after 5 year term
f) In 2 years can apply for indefinite PR vs.
5 years NZ
g) In 3 more years can apply for Australian
citizenship vs. 5 more years in NZ
h) Economic opportunity greater in
Australia
Conclusion/Summary/
Recommendations
End Result:
i. Less money needed
ii. Less time involved
iii. Better return in Australia
Therefore, it is currently cheaper and
quicker to go to Australia, get PR and/or
citizenship and then fly to NZ and get PR at
the airport !!
This is not acceptable and is very difficult
for those at the coalface to digest.
Conclusion/Summary/
Recommendations
A different analysis of our current Investor Category
for which I cannot claim copyright reads as follows:
Look at the figures – it’s _ _ _ _ _ _ unacceptable.
A year of tax funded Government spending on a
government office and all they have to show for it is 2
x Investor funds paid (total NZ$4M). And this money
is not even the governments – it’s a loan that we have
to repay in 5 years. For an Investor NZ $2M @ 7%
p.a. forgone for 5 years = NZ$700,000 less 39%
taxable = $NZ$427,000 (disregarding NRWT option of
zero tax that is) net cost of having “bought” residence
for family. For that, 2 kids get a University Education
that would have cost say NZ$30,000 p.a. x 2 kids x 5
years = $300,000 so net cost therefore down to
NZ$127,000 (for which you get free healthcare for
whole family for 5 years = father/mother and 2 kids ÷
by $127,000 = $6,350 per annum).
Conclusion/Summary/
Recommendations
Factor in potential exchange rate fluctuations and the
Investor may even finish up getting paid by the
government !
Compare this to the heyday of the earlier policy when in
excess of NZ$1B was introduced in one year vs. the
present performance of NZ$4M to be repaid with
interest.
It represents the result of Treasury officials with little
life experience bouncing off politicians who have never
had a real job being frightened by a certain other
politician who does not even take himself seriously – it’s
an outrage !!
For the record these words are not mine but both
scenarios above show spin doctors at play.
Nevertheless, important issues are raised.
How did we get here?
Well those of us a little older will remember earlier
policy in the 1990’s:
A. $500,000 in active investment outside Auckland or
Wellington; or
B. $625,000 in active investment in Auckland or
Wellington; or
C. $750,000 in passive investment.
Then in 1996 this was adjusted to $750,000 -
$3,000,000 (points indexed). In 1999 this changed to
NZ$1M to NZ$6M (points indexed) through to 2005.
Now no more points, age limit and investment funds
are fixed at NZ$2M.
Pre Existing Investor Category
Points - Test Pass Mark 12
Age Points Business Points Investment funds Points
(NZ$)
Experience
25-29 10 2 years 1 $1,000,000 1
30-34 9 4 years 2 $1,500,000 2
35-39 8 6 years 3 $2,000.00 3
40-44 6 8 years 4 $2,500,000 4
45-49 4 10 years 5 $3,000,000 5
50-54 2 $3,500.00 6
55-64 0 $4,000,000 7
65-74 -2 $4,500.00 8
75-84 -4 $5,000,000 9
$5,500,000 10
$6,000.00 11
How did we get here?
During these years the level of English language
required was fiddled around with, culminating in a
mandatory level of English language for the Principal
Applicant suddenly introduced under cover of darkness
on the 20th of November 2002 (which it is noted the
then Minister of Immigration now regrets). This
change in 2002 decimated numbers of applications
from China, Taiwan and Korea which were our biggest
markets – this is in fact a serious understatement.
The 2005 changes introduced an age limit of 55, a 5
year complying period (formerly 2 years), unrealistic
commercial terms and pretty much took away an
immigrants ability to be the master of his or her own
financial destiny – to date there is little human capital
“yield”. The changes are widely considered to be
unrealistic, inherently delusional, self-defeating and
have been and will continue to be poorly subscribed to.
The Good Oil
1. As noted above great to see many LTBV holders
realising their dreams and obtaining PR under the
Entrepreneur Category and no doubt after a fair bit
of sweat equity. To see 815 families (YTD)
rewarded with PR after running their own
businesses in NZ for 24 months is good news. What
is not so good is that the new numbers coming
through under this category will ultimately be
significantly less given the poor number of new
LTBV applications directly attributable to the
English language changes of 2002. The approvals
under this category in a sense prevent business
immigration becoming a thing of the past but for the
time being only.
The Good Oil
2. Work to Residence
In the greater scheme of the annual
immigration intake 146 PR approvals is
very modest. However, it should be noted
that the Talent – Accredited Employer
policy is quite new and that employees
working to residence must have been in
employment for 24 months, so hopefully
this will become a burgeoning part of
business immigration.
I understand the minimum salary of
NZ$45,000 gross p.a. may be under review
by INZ/DOL.
Recommendations
1. Wake up
i. Scrap Winston’s existing Investor Category – start again
– it ain’t working so get rid of it. Make it user-friendly
and attractive. Consider further harmonising of OIC /
IRD and immigration rules.
ii. If any form of deal has been struck between Labour and
NZ First in relation to NZ Government Business
Immigration Policy dishonour it and get on with it.
2. Reduce English language fluency levels – either regard
immigration as an intergenerational issue or introduce “user-
pays” charges.
3. Solve Auckland’s roading problems by creating policy that is
commercially realistic but at same time encourages high net
worth individuals to make NZ home. Get the detail right.
Make it a win-win reciprocal arrangement whereby investing
migrants get tangible value for their investment and feel they
are genuinely contributing to our economy.
4. Look at Canadian model(s). Consider private – public
partnerships. If suitable adopt policy and go for it !!
Recommendations
5. Make business immigration a priority again.
6. Consider changing LTBV policy so that
requirement for elaborate business plan is
replaced with simple positive obligation to
employ say 5 kiwi’s for 2 years.
7. Promote Work to Residence policy (again!)
amongst corporate/employer NZ. Consider
increasing application fees for NZ
companies so that DOL Purchase
Agreement (for services) and Minister’s
Service Level Agreement works profitably.
As required increase staffing levels.
Recommendations
8. Consider introducing new policy to fast-
track direct investment and to allow and
facilitate priority processing for those
willing to commit substantial capital to NZ
and create significant economic benefits for
NZ regardless of age or English language
ability of applicant.
9. Create another new policy to encourage
regional investment and for making
investor funds available to local economic
development initiatives again with a win-
win outcome.
Recommendations
10. Understanding the importance of business immigration to
our small economy:
i. Elevate it beyond current DOL workforce adjunct;
ii. Market and promote it so that it is not perceived to be
about “buying PR” by New Zealander’s but rather
what its objectives stand for namely, contributing to
our economic growth through increasing our level of
human capital, encouraging enterprise and innovation
and fostering external links. To get “buy-in” from
stakeholders this would require a compelling strategic
vision which to date has not been sighted.
iii. Whilst recognising need for policy to remain robust,
fluid and transparent consider introducing some
underlying guidelines as to what investment is
encouraged (even if there is some form of points
indexing for different types and levels of investment
as required from time to time) e.g. deep green
ecofeminist wind generation may be flavour of the
month so develop system to recognise this akin to
way Immediate Skills Shortage List updated.
Recommendations
iv. Ensure active investment is
appropriately rewarded.
v. Ensure BMB is managed by
personnel with business
experience/acumen and an empathy
for those with the drive to make
things happen.
vi. Cross-fertilise services more
vigorously with other appropriate
Government agencies including
MFAT/Trade NZ as well as private
sector.
The Rugby
Next year NZ is hoping to bring home
the Rugby World Cup. We then host
the World Cup in 2011. We will be a
busy little nation. Let’s hope that we
have our act together so that we
manage to attract our fair share of
talent, human capital, enterprise and
innovation during our short tenure on
the World stage.
Thank you
