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Overseas firm forced to sell historic hotel

The regulator of overseas investments is baring its teeth in a crackdown on foreign property investors. David Williams reports on the latest twist.

A historic hotel is being sold after its foreign owners failed to undertake a promised redevelopment.

The sale, ordered by the Overseas Investment Office, continues a crackdown on offshore investors by the invigorated Government regulator, which has boosted monitoring and enforcement in the last three years.

Kingstown Blue Spring Resort Ltd – owned by Chinese investors Feng Zhiguo, Jin Hui, and Wang Yaming – bought the Okoroire Hot Springs Hotel, set on 27 hectares of land near Tirau, Waikato, in 2014.

The $3.3 million sale was dependent on a redevelopment, including eight new hot pools and 22 new guest rooms – which, the company argued, would have attracted more guests and created jobs. (The hotel, one of New Zealand’s oldest, opened its doors in 1889. It can sleep 60 guests and has a nine-hole golf course.)

Kingstown Blue missed its August 2018 deadline to undertake the development. The company asked for a change to consent conditions but the Overseas Investment Office (OIO) had little confidence it would complete the development. It decided the company had breached its original consent conditions and today it will publicly announce the order to sell the hotel.

Series of successes

Today’s announcement caps a busy few months for the regulator, after three recent High Court judgments.

In March, the owner of agricultural giant PGG Wrightson, Singaporean company Agria, and its chairman Alan Lai, were fined $220,000 for breaching good character requirements.

Last month, the court ordered $2.95 million to be paid to the Crown after the foreign owners of two rural properties at Warkworth, north of Auckland, bought land without consent. The owners – Chinese businessmen Zhongliang Hong and Xueli Ke, and companies IRL Investment Ltd and Grand Energetic Company Ltd – were forced to sell up and hand over the gain on investment, as well as paying penalties and costs.

Days later, BCH Investments, which lists its shareholders as Aucklanders Huang Xianghua and Bu Qian Yu, were slapped with $588,000 in penalties and costs for buying land without the regulator’s approval. BCH’s 117-section development at Albany, Auckland, will be completed but the properties have to be sold within two years.

This flurry of enforcement is a very different picture to four years ago.

Office becomes easy target

In 2015, a year after the Okoroire Hot Springs Hotel was bought, the Government blocked the sale of Lochinver Station, near Taupō, to prominent Chinese-owned company Shanghai Pengxin, adding to a prolonged national conversation about foreign land ownership.

The Chinese firm had, a few years earlier, provoked a nationwide debate over its purchase of 16 failed North Island dairy farms, known as the Crafar farms. Ministers approved the Crafar farms sale in 2012, following an Overseas Investment Office endorsement. At the time, New Zealand First leader Winston Peters – now deputy prime minister – said the sale was tantamount to “economic treason”.

Then Prime Minister John Key put on a brave face, despite earlier saying he worried Kiwis would become tenants in their own land. He said less than one percent of farmland was foreign-owned and that overseas investment rules, strengthened the previous year, were “working well”.

At best, that was optimistic gloss. By 2015, a four-year budget freeze was biting and there was a long wait for decisions. The Office became an easy target for opposition politicians.

Labour’s Stuart Nash accused the OIO of being toothless. It had approved almost 300 consents since 2008 without turning down a single application, he said, dubbing it an “overworked, rubber-stamping bureaucracy”.

“At the moment you could drive a truck through the legal loopholes,” Nash said.

The following year, the Key-led Government announced a hike in OIO fees to pay for more staff, in the hope of speeding up decisions and boost monitoring and enforcement. That’s the genesis of the flurry of activity seen this year.

Enforcement spike

Figures provided to Newsroom by OIO’s parent body, Land Information New Zealand, show the spike in enforcement action.

In the 2014 and 2015 financial years the OIO took a total of seven actions. That tripled to 21 enforcement actions in 2016. Over the last two financial years there have been a total of 76. (We asked how many actions were taken in the 2013 financial year, but were told those data weren’t captured by LINZ.)

Actions can include court proceedings, legal settlements, ordering a property be sold, warnings, and issuing compliance letters. Two years ago, the OIO formally warned Queenstown lawyer Russell Mawhinney for giving incorrect advice to foreign investors. A 2016 Japanese meat company mega-merger prompted a warning for Itoham Foods, which owns ANZCO Foods.

In 2015, the OIO had just 21 full-time equivalent staff. Group manager Vanessa Horne, who has been in the job 11 months, thinks back then there was only one staffer responsible for monitoring. Two others were “thinking” about enforcement, she says – “but not really taking a lot of enforceable actions”. “They certainly weren’t resourced for that.”

Today, the Office employs 48 people, including 19 in enforcement, monitoring, and intelligence.

Horne: “The extra resourcing has meant that we are able to really be very proactive on those investments now.”

Having more staff means more site inspections. Two years ago it only did two. That rose to nine last year – including visits to farms, abbattoirs, a luxury lodge, and several forests. This month alone the office plans four inspections.

“New Zealand needs good overseas investment – we’re capital poor in many, many areas,” Horne says. “But New Zealand as a whole needs to make sure that we get the benefits out of that overseas investment.”

“If people don’t follow through with those benefits to New Zealand ... we will take action.” – Vanessa Horne

The OIO’s crackdown comes amidst two waves of Government reforms.

The first tightened rules for residential property sales to foreign buyers. The next round includes moves to simplify some rules, while arming the Government with a veto in cases of national interest.

Horne says her office has more enforcement to come. She expects another case to land in court in the next few months, and, separately, a hearing’s scheduled to start in March.

Court cases can suck in four-to-six staff for long periods, but they can also help the OIO do its job. With such high-profile enforcement results, Horne says investors are coming forward earlier to discuss problems they’re having fulfilling their promises. (At the front end, the OIO is hitting up investors early, to weed out substandard applications .)

Discussions are over, however, with Kingstown Blue Spring Resort Ltd and its soon-to-be-sold Okoroire Hot Springs Hotel.

“It’s a really good example of the enforcement activities where people aren’t complying with the conditions,” Horne says. “That goes directly to the benefits to New Zealand that we’re required to look at under our regime – and if people don’t follow through with those benefits to New Zealand that we will take action.”