Calls to repeal extra FIRB scrutiny of foreign investors in ag assets

Extra FIRB scrutiny of ag's foreign investors stirs agribusiness concern

Agribusiness
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Canberra's efforts to stop foreign investors swooping on cheap buying opportunities during the coronavirus emergency is troubling some in the farm sector

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The federal government's efforts to stop foreign investors swooping on cheap business opportunities during the coronavirus emergency has had some frustrating consequences for the farm sector.

Canberra has required the Foreign Investment Review Board to examine all property and business purchase plans by overseas buyers to ensure any "distressed assets" are not being sold off too hastily and too cheaply to opportunistic buyers taking advantage of the recession pressures on business caused by the pandemic.

Property marketers, in particular, are uneasy about the extra time FIRB needs to assess all farmland purchases and the knock-on impact caused to all investor activity in the farm sector.

Until March 29 FIRB only assessed property sales worth more than $15 million to offshore interests or ventures involving foreign partners.

A $60m ceiling price also applied to agricultural companies, after which offshore buyers needed FIRB approval to sell.

Although agriculture has been lauded as a safe haven for investors offering long term competitive returns, many agribusiness specialists fear a general slowdown in farm selling activity if overseas buyers are required to wait up to six months for FIRB approval.

Even worse, they worry potential overseas buyers may stay out of the market for some time rather than risk time consuming extra investigations into their spending plans.

It's quite apparent agribusiness is not presenting distressed assets for sale as a result of COVID-19 - Mark Barber, Elders

"There's been a lot of talk about encouraging domestic superannuation funds to invest in agriculture and the benefits their capital brings to developing the industry," said Elders' northern zone rural real estate manager, Mark Barber.

"But domestic super funds require liquidity in the investment market and they're hesitating because of some of the characteristics of this asset class, in particular liquidity.

"Regardless of how good the long term investment may be, they look also at how easily they can get into the market, or get out if they need to find a buyer quickly."

Risk to investment activity

He said that activity was at risk because of the new FIRB rules, which in turn may cost Australia valuable foreign investing experience which big scale spenders from the domestic super industry or private wealth market would offer agribusiness.

While agriculture had so far avoided most of the economic setbacks battering many industries as the pandemic led to travel bans and lockdowns, Mr Barber felt the investment mood was "feeling constrained" by the extra scrutiny of foreign investment.

"Yet it's quite apparent agribusiness is not presenting distressed assets for sale as a result of COVID-19," he said.

"We've generally had a great start to this season and the fundamentals of agriculture remain strong - food and fibre are necessities.

"Agriculture has great potential to add immediate growth to Australia's recovery, while other sectors of the economy will take longer."

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Indeed, agricultural land had never been more attractive to domestic and foreign investors looking for the chance to re-weight their portfolios to real assets that had long cycles, secure capital and a competitive yield.

"I think Australia's economic recovery strategy should now include repealing recent foreign investment regulations relating to agriculture so our sector can keep growing and generate export revenue," said Mr Barber, whose territory spreads from northern NSW to the Top End.

Among properties Elders was now seeking expressions of interest for, and which would be expected to attract strong offshore interest, was the 12,000-hectare Brookdale irrigation and grazing aggregation near St George in south western Queensland - "a great long term investment prospect".

Ag is different

"The FIRB threshold changes were right in principle, but agriculture is different," he said.

However, foreign investment specialist with legal giant, King and Wood Mallesons, Malcolm Brennan, said while FIRB's messages about delayed assessment times had spooked the market, he doubted if lag times were much longer than normal.

Applications can be fast-tracked in a triage-type situation if delays to a sale threaten to put a business or jobs at risk - Malcolm Brennan, King and Wood Mallesons

Given most active foreign investors already owned Australian property and thus were already near to, or over, the $15m asset threshold, he also doubted if many new investors were being forced to wait for approvals.

While there was a six month deadline for the Treasurer to sign off on agricultural asset purchases by offshore buyers, he expected FIRB to process most in about three months, taking only about four to six weeks longer than before COVID-19 hit.

"Applications can be fast-tracked in a triage-type situation if delays to a sale threaten to put a business or jobs at risk," Mr Brennan said.

"Some foreign buyers also have pre-approval exemption certificates already in place.

"Although FIRB is certainly busy with a lot more matters to consider now the zero threshold exists, we haven't seen evidence of a rush of fire sale transactions at big discounts to normal asset values."

He agreed, however, some offshore-based investors with small "beachhead offices" in Australia may be scared off for the time being by the extra FIRB scrutiny.

Anecdotally you hear of some situation where they may have just opted to shut up shop here during the current climate because it's not really worth the hassle of running an active office - Malcolm Brennan

"Their investment interest in Australia may only be a drop in the bucket compared to their global activities," he said.

"Anecdotally you hear of some situation where they may have just opted to shut up shop here during the current climate because it's not really worth the hassle of running an active office."

Increased scrutiny had also potentially reduced appetite from foreign entities looking to lease assets.

"I can certainly sympathise with local landlords who are missing out on longer term leasing commitments," he said

"Unfortunately, foreign investment and agriculture are heartstring issues of public importance in Australia, but FIRB also needs to tread carefully and recognise the wider market sensitivities involved."

FIRB's assessment of all foreign investment purchases runs until January when previous thresholds apply in association with new national security considerations.

Agricultural businesses and land are not expected to attract much national security scrutiny.

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