Does a lower Kiwi dollar mean that foreigners will rush to buy up New Zealand’s 'cheap' assets?
 
A recent article in The Herald raised this concern. Its author even proposed that there “may be a case for the Government to take a closer look at [tightening] the settings of the Overseas Investment Act” to prevent this. 
 
But this argument is fallacious in that it confuses price with cheapness. It is like arguing that people will rush to buy a work of art that was thought to be a Monet original because it became cheaper the moment experts determined it was a forgery.
 
If the New Zealand dollar has fallen because global investors have become more nervous about New Zealand's economic prospects, the fall does not make New Zealand assets ‘cheap’. Usually a lower price indicates a loss of confidence in the value of an asset. Whether that is misplaced or not is a judgement call. To make that call, one should examine the causes of the loss of confidence.
 
The recent drop in global dairy prices reduced demand for our currency, weakening its price. While this makes a given New Zealand dollar value for assets in New Zealand look cheaper, when viewed in foreign-currency terms, it also reduces the foreign currency value of a given New Zealand dollar revenue stream generated by those assets.
 
The lower exchange rate could well increase the New Zealand dollar value of New Zealand assets that are export- or import-related. It could well increase the New Zealand dollar value of other assets whose value is not impaired by the factors that reduced the exchange rate. For example, a lower dollar may induce returning New Zealanders or intending immigrants to bid up local currency house prices, reducing the wealth loss for emigrating (and other) New Zealanders. These are normal adjustment processes in a healthy market.
 
The article also feared that New Zealanders would somehow sell assets to foreigners too cheaply because of the lower value for the New Zealand dollar. But any seller with nous will seek the best price from competing sellers, whether the New Zealand dollar is high, low, or unchanged. New Zealanders aren't irrational en masse.
 
In a research paper earlier this year, we demonstrated why New Zealand's Overseas Investment Act is already ridiculously restrictive in respect of broadly-defined sensitive land.  A lower exchange rate is no reason to make it even more ridiculous.