In the small and fragile world we call home, there are those who fear that foreign investment into the Cook Islands may push property prices up. Is this true? The answer to this question does not have a straightforward answer.

The reason for this is the way the property market is structured into two segments—one based on residential property needs and the other based on commercial requirements. This is only possible by
families making a purposeful decision to allow leases to include or exclude both residential and commercial uses.

Government regulation then protects local interest by ensuring foreign ownership is restricted to certain activities and contributes to the local economy generally.
Residential properties are generally more affordable, largely under $1 million, as they are primarily for local use and typically do not involve commercial activities like resorts or other tourist attractions. In contrast, commercial activities often place land and property together as business assets and frequently exceed $1 million. So how does this create two segments?

Segmentation of the Property Market
Firstly, land for residential occupation, distinct from commercial use, is mainly restricted to Cook Islanders.
This limitation helps maintain affordability for local families and preserves land ownership within the
community. As a result, foreign investors have little to no influence on residential property prices.

Secondly, a foreign investor can only lease or invest in commercial property for business purposes, typically requiring a minimum capital investment of $1 million in Rarotonga or $500,000 in Aitutaki, as outlined in the Cook Islands Investment Code for establishing new businesses. However, foreign
investors can also explore alternative pathways, such as forming joint ventures with Cook Islanders, investing in niche markets, or acquiring existing businesses that have been genuinely offered to local buyers but remain unsold.

There are many advantages to this arrangement, as it encourages economic development, creates job opportunities, and enhances infrastructure. However, regulated foreign investment often leads to higher valuations in the commercial property market, as businesses bring in revenue and increase demand for prime locations.

The Cost of Foreign Investment

Increased demand for commercial property can lead to inflated land values, which may benefit landowners but also make it more challenging for local businesses to compete.

While foreign investment brings economic benefits such as job creation and infrastructure development, it also raises concerns about affordability, cultural preservation, and equitable access to resources. These concerns highlight the need for careful regulation and community involvement.

Moreover, as commercial property prices rise, rental costs may increase, potentially impacting small businesses and local entrepreneurs. Residential property surrounding commercial hubs and activities may also increase in demand, pushing up residential prices in these places.

Striking a Balance
The key to managing foreign investment lies in finding a balance that benefits both local communities,
protects cultural heritage, and fosters sustainable economic growth. Ensuring that residential property
remains within reach of Cook Islanders while allowing commercial investment to stimulate business
development is essential for sustainable progress.

In conclusion, while foreign ownership influences commercial property values, it has minimal effect on
residential property prices due to legal restrictions. By maintaining clear regulations, fostering
responsible investment, and encouraging open dialogue between policymakers, investors, and the
community, the Cook Islands can ensure sustainable economic growth that respects local interests and
preserves cultural heritage.

Jeff Tikitau Elite Management offers personalised support and valuable insights to guide you through the property market.