Small business boom

By Kaveri Mittra

Saturday 1st February 2003

THE PHONES ARE running hot in the office of Gerald Delany, a senior business consultant with migrant business centre KnowNZ. Delany's job is to give advice and write business plans for potential migrants - mostly from China and Korea - who want to enter New Zealand under the long-term business visa (LTBV) category. "It's not so much the investment amount but the investor's detailed business plan, knowledge of the New Zealand market and clear financial projections for three years that carry tremendous weight for LTBV approval," Delany says. "This time last year, I was writing these plans alone. Now I have three assistants."

Delany isn't the only one cashing in on the LTBV boom. As immigration under the general skills points system becomes increasingly difficult (the pass mark rose from 25 points to 30 last November), there has been a spurt of LTBV applications - and a rash of consultants to help migrants through the hurdles.

"Between July 2001 and June 2002, we had 4388 LTBV applicants against 983 in 2000/2001 and 152 in 1999/2000 [the first full year of the programme]," says Catherine Parton of the New Zealand Immigration Services' business migration branch. In anticipation of even more applicants this year, the branch has taken on 13 new staff over the past 12 months.

LTBV is not a form of permanent residency. Instead, like a work visa, it allows entrepreneurs into New Zealand to run a business for three years. If, at the end of that time, their business is going well and "is benefiting New Zealand in some way", says David McGregor, a partner at law firm Bell Gully, they can apply for permanent residency under the entrepreneur category.

LTBV applications are also keeping Dilki Rajapakse, an immigration lawyer at Vallant Hookers and Partners, very busy. A Sri Lankan, Rajapakse sees mainly clients from South Korea and China.

"One Korean client wants to start an English language school for Korean students, and a Chinese applicant has a whole range of health products to sell in New Zealand," she says. Another plans to set up a centre for spiritual healing, fortune telling and metaphysical training.

These examples notwithstanding, it seems the main criteria for LTBV applications - setting up a business - has created a whole new property phenomenon. Over the past 12 months, the small business sector has become red-hot. Industry sources say businesses like dairies, superettes, liquor stores, service stations, lunch bars and cafés are being sold at 15 to 20 times their weekly sales turnover, as compared with the usual 10-times rate.

"Often these are the sort of enterprises the migrants invest in, and the recent influx of business migrants is boosting prices", says Hari Gangisetty, a senior business broker at Affiliated Business Consultants. Demand for good cafés, lunch bars, laundries and dairies exceeds supply at present.

Take a Chinese-owned café, valued at $89,000 by business broking company Clythe MacLeod, that went for $135,000 in a private sale a few months ago to a South Korean business migrant. Or a European-owned dairy in south Auckland that sold to an Indian buyer at 18 times its weekly turnover of $15,000. There are others. A Super Liquor store in south Auckland sold for $240,000 - $70,000 higher than the likely market rate. Rumour has it that its non-European local owner backed out of an original sale when a new, higher bid from an Indian migrant came in. And a dairy in a central Auckland suburb, put on the market 18 months ago by its Fijian Indian owner, went at 20 times its weekly sales. The buyer: a South Korean.

At present, many such deals are arranged privately between buyer and seller, but it's a market Glorianne Campbell, marketing manager of Clythe MacLeod, wants to tap. "There is a big market there since lot of Asian and Indian businesses are now changing hands." Both Affiliated Business and Clythe MacLeod have taken on more Korean- and Chinese-speaking brokers to try to get a share of the business.

So why New Zealand? New Zealand has a more liberal LTBV regime than, say, Australia. "In New Zealand, one can start at $80,000 to $100,000 with a small retail business, be that a dairy, lunch bar or takeaway," says immigration consultant Harjeet Golian, "whereas in Australia there is a floor amount of $A250,000 that an LTBV holder needs to show as his investment capability."

Fine, but there are two big questions. First, what will happen when the aspiring migrants' business visas run out? The three-year visas (with a possible extension for another three) were only introduced in 1999, so it's too early to know how likely the immigration service will be to grant permanent residency status.

Second, how do we get more of this immigration capital into more innovative businesses than dairies and laundromats?

"These immigrant entrepreneurs should be acting as catalysts for the internationalisation of New Zealand's businesses", says Bill Milnes, chairman of the New Zealand Association for Migration and Investment. New Zealanders are good at developing unique products for niche markets around the globe, so why not use the LTBV migrants' money and networks to market these products overseas, he asks.

Why not indeed?

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