Employing Australian-style rules to block offshore buyers from snapping up New Zealand homes will now "not be enough" to prevent a "deterioration" in Auckland’s housing situation, according to BNZ chief economist Tony Alexander.
This represents something of a change – or at least development - of view for Alexander, who has previously been a strong proponent of New Zealand adopting similar rules to Australia. The Aussie rules don’t allow overseas-based people to buy existing homes, but they can buy new ones.
The Labour Party is proposing something similar for New Zealand, but the Government is rejecting the idea outright. And with feverish anecdotal tales telling of widespread investment, particularly in Auckland, by overseas based buyers the whole issue of foreign ownership seems likely to be strongly featured in this year’s election campaign.
But in his latest Weekly Overview, Alexander pointed out that significant numbers of new houses – in Australia – and also in London, were being bought by overseas buyers and were then, certainly in the case of London, often left empty.
He said there was now therefore a "clear risk" that simply adopting Australian-style measures – blocking the buying of existing homes - would not be enough to "mute" the worsening accommodation problem in Auckland.
He does not, however, go so far as to say what he would now suggest should be done about the perceived problem.
"What matters for us is that the wave of investor preference for residential property over other assets seems not to be abating and with household incomes rising in China we can expect continued growth in offshore buying of NZ property.
"This will push prices up…"
Alexander said that in London one-third to three-quarters of sales of newly built higher-priced dwellings "look like they go to foreigners".
"Many if not most of these dwellings sit empty for much of their time – sometimes years – because the offshore buyers are investors simply looking for a piece of action in a real estate market which held up well during and immediately after the GFC, has powered ahead recently, and in which dwelling supply is constrained. Some want simply to get some of their funds out of their home countries," he said.
In New Zealand and especially Auckland we would have "nowhere near such a high proportion of sales to foreigners", but in Australia the data show 11% of new builds are sold offshore.
Alexander conceded he had previously advocated that this country “mitigate the effect of this unrestricted foreign buying of our houses and apartments on prices and societal cohesion by adopting Australia’s legislation”.
But there were concerns that the Australian system was not working or not being enforced and that "not only will prices continue to be pushed higher in main cities but that locals will find accommodation harder and harder to find simply because builders are very busy putting up complexes for foreigners (Chinese largely) which will never, or only rarely, be occupied".
"Given these concerns, which have prompted a new government investigation into the matter, and given the London situation of building new houses for non-Brits, the clear risk is that simply adopting Australia’s legislation would not be enough to mute the worsening accommodation problem in Auckland.
"That is, just because consent numbers are rising does not mean that effective, utilised, housing stock, is growing at the same pace.
"If houses are built or bought and sit empty then no-one bar the builders and previous owners moving out of the area win.
"Heading into the election National have no policy of restricting foreign home purchases. Labour and NZ First (and I think the Greens) advocate adopting Australia’s policy.
"But what I wish to point out in this week’s commentary is that what Labour propose will still not be enough to prevent a deterioration in Auckland’s housing situation given rising foreign incomes and desire to purchase here combined with the increased marketing of NZ properties to Chinese buyers in particular by NZ real estate agents."
On TV3's The Nation programme over the weekend Finance Minister Bill English again strongly rejected the idea of curbs on offshore-based house buyers, saying "we certainly wouldn't go there", while admitting that he had been briefed on the possibility by Treasury last July.
"... I mean, it’s feasible to do it right, in the sense that it’s technically possible. The question is whether in the long run, it’s desirable that we ban anyone from outside New Zealand from being able to buy things in New Zealand. We don’t believe that it is desirable."
Asked whether the Government should look at a type of register that records facts about foreign buyers, non-resident buyers in the residential market, English said: "We’ll we’re not looking at it because we don’t intend to ban foreign buyers and we don’t intend to ban foreign buyers because we don’t think they’re a significant influence on the market..." though there were always anecdotes, he said.
On the question of whether a register would settle the issue once and for all: "Yes, no, well you know, it will show that there are two or three houses in every hundred being bought by Chinese residents, so what do you do about that? And our answer would be ‘that’s not a big problem’," English said.
55 Comments
At last a realisation that just doing what others have done is not enough
We would need among other things
Liquidation of previous buys unless the owner get NZ citizenship in a specified time.
Seizing of an asset if a local 'dummy'has been used.
Penalties in the tax structure for lack of occupancy - maybe a ''deemed return minimum''?
Tony Alexander is right , stopping non-resident foreigners wont help one iota .
When are those idiots running Auckland going to wake up to the reality we face ?
We can have it both ways , either we allow Auckland to expand , or cut back the migration of foreigners to NZ .
We have massive net incoming immigration , and restricting the land supply to current Auckland boundries is utterly stupid , the restiction of supply can only force prices upwards .
Our policy of encouraging wealthy migrants is also a factor , as they arrive with money , and dont like to rent
Our obtuse Government perhaps does hot realise that wealthy foreigners are very quick in getting out when it all turns to custard. That alone should be a reason for discouraging them in the first place.
If we do have to have them we need sticky investment in profit orientated businesses and not just buying up existing capital stock. Right now the RBNZ has no control over the currency. Watch them fret when cash starts flooding out and the local banks get a lot of under water mortgages to deal with.
Factboy - Does the Government actually have to specifically measure the data?
On an annual basis we know exactly how many houses are sold.
The RBNZ knows the total mortgages info.
The IRD knows how many people pay taxes on income derived from speculative and investment properties.
The IRD should also know the number of people who reside overseas, who have earnings in NZ from property but pay income tax in another tax jurisdiction.
Statistics NZ reports on the empty house rate......
The Councils must have records of people they invoice rates to who reside overseas.
This is not a full list of information sources that is already available for analysis.
The IRD has a key role here and they will know exactly how many people/entities are on their books that have made claims and paid taxes in regards to property and then those who pay their taxes in another Country etc.
Maybe our PM already knows much of this data and therefore can reasonably predict the number of off-shore investors/speculators who are in the NZ housing market in any one given year.
Having another bureaucracy collect the data is just another cost to the taxpayers of NZ.
To start with a land tax or simply increasing auckland rates from around 2k for an ave 500k house to something more realistic like 4k (effectively a land tax) would make people think twice about leaving a house sitting empty.
I get amazed everytime I see something on auckland rates rising, they are cheaper than most other cities in NZ. If they doubled rates from 2k to 4k, thats only $38 extra a week. Considering renters in auckland get slapped regularly with $50 per week rent increases, I am amazed that a such a big deal is made over increasing rates in auckland. Auckland has some of the worse traffic congestion in the world, and terrible housing affordability, double rates and sort out the traffic and pay for new infrastrature to fund new suburbs so developers can come along and not have to pay rediculous deveoplment contributions so that affordable housing makes sense.
Doubling rates is very unfair on the retired who have owned their own home for most of their adult life and are now on a reduced income
But Auckland rates are only 2K on a 500K house? wow! I pay that $2100 on a 400sqm property with CV 250K in Porirua. Perhaps there is room for rates to move in jafa land
Exactly. Same in lower hutt, 2k rates for 300k property, smaller towns, still around 2k rates.... Aucklanders are happy for their properties to be worth 3 times the rest of new zealands because 'its where people want to live', well they should accept this pop demands better infrastrucure (roads) and requires significantly higher rates than the rest of the country.
The only people in auckland it would really hurt are owners of huge amounts of land (as rates related to land value up there I think), so lets hurt them, make them build multi-dwellings and accomodate people instead of sitting on a huge paddoct in the middle on parnell
That same property would probably be worth $500k in Auckland. So it probably receives the same value of services from the council.. Why should they pay more for the same services?
In fact due to economies of scale they should be paying less. Perhaps you should stop voting for spendthrift councils in wellywood?
There would need to be a range of measures undertaken in order to create a sudden dramatic increase in the affordability of houses in NZ.
If it were to be dramatic though, the banks would be exposed.
If this were to occur, and if people are right about all the foireign owners coming here with wads of cheap foreign cash over the last few years and paying top dollar, at least these properties would not be on the books of the NZ banks. Looking at the bright side: these ones would not add to the banks problems.
Totally agree. English (and the rest) argue that we don't need to collect data because they won't change anything anyway - and they won't change because their view is there is not a problem. It's a bit like not collecting figures on crime and saying there are no murders happenning because there is no data to support that view.
I can't beieve that quite a lot of people will just accept what is being said without question.
This is what happens when foreign buyers are targeted:
Stamp duty of 15% used in Hong Kong.
Actually what has happened in HK is.. nothing. Just less sales and real estate agents getting upset.
1% down. Long way to get the 20% mentioned in the first story I linked to. And new flats being offered at lower prices than existing flats. Not something that is possible in NZ yet with new apartments and houses still significantly more expensive (except in some areas of auckland) than second hand dwellings.
What would be more interesting is looking to see if HK's increased curbs on foreign buyers have been feeding the NZ market as wealthy chinese seek new places to store their wealth.
So, my house I rent in Glenfield went up for sale on Thursday, I have been inundated with Chines easte agents, one turned up with a mini van full of Chinese investors. We had 60 people look at our house over the weekend. Two were New Zealand investors, the rest Chinese. Its been crazy. I would also like to find out how many Real Estate Agents are Chinese or Chinese descent and I think you find that gives a better picture of how is buying what in Auckland. I think a Tui billboard is in order.
I don't quite follow. Are you selling it yourself - and hence the contact from all these different RE agents? And the RE agent that turned up with a van load of prospective buyers - was that to an open home you ran? Are these agents subsequently wanting you to sign an agency agreement - and hence, they get paid a commission? If not, perhaps they are working on a sort of finders fee, paid for by the prospective purchaser.
"New data published in the American Enterprise Institute–Heritage Foundation China Global Investment Tracker show that China continues to invest heavily around the world. Outward investment excluding bonds stood at $85 billion in 2013 and is likely to reach $100 billion annually by 2015. Energy, metals, and real estate are the prime targets."
http://www.aei.org/outlook/foreign-and-defense-policy/regional/asia/chi…
You can just see the coming head lines:
" Government bans Chinese investment in local property market"
3 months later
" Chinese government slaps on 25% tarriff on imported milk products from NZ to dampen demand. Further moves likely"
For every action there is a reaction.
"SHANGHAI—China announced new limits on the ability of foreigners to buy residential or commercial property on the mainland, in its latest effort to curb the inflows of speculative money into its economy and ease inflationary pressure."
http://online.wsj.com/news/articles/SB100014240527487045845045756159425…
I'm not a dairy farmer, so it doesn't worry me if China doesn't want our milk.
Why should we be at their beck and call?
25 years ago we were bending over backwards to deal with Japan, now look at the situation. As China's one child policy flows through the 20 and 30 something's in the next few decades the demand from China will rapidly decline much like Japan.
If anecdotal evidence is anything to go by, the Japanese housewives were a big part of the carry trade "business".
I don't buy all this reference to the general population of China becoming wealthier - I suspect much of the flood of money going offshore from China arises from ill got means (graft and corruption).
and the beat goes on la di da di da
I guess you can blame whoever signed up to FTA with China. I don't know the terms of the FTA agreement but I am sure it will be used to argue if NZ govt put up any restrictions on foreign ownership - If that is the case, then Labour signed up to FTA has a lot to answer for not thinking in NZers interest. And for National; do bite the hand that feeds??
In the news right now is the terms of FTA for China and Australia; one of the condition demanded from China is the ability to acquire private business in Australia up to $1 billion without the need to govt approval.
The simple solution is to require foreign investors to pay a stamp duty of say 5% on purchase and a capital gains tax of 50% on sale. That would discourage them, but still allow foreigners to buy say a holiday home in Queenstown.
In saying that, there should also be a total ban on foreign investors buying any residential property in Auckland or Christchurch. There is no point allowing them to buy a brand new house in Epsom for example which simply replaced an existing home, thus creating no further supply.
Better yet to really "fix" the (dis)incentive, a 50% stamp duty on purchase and a 5% CGT on sale :-). Encourages those who have not yet bought to stay well away - and those who have bought intending to leave them empty to sell up quick on a devaluing asset before the CGT goes up as well!
Chris_J: There is no point allowing them to buy a new house in Epsom which is simply a rebuild of an existing home, thus not creating any further supply
Correct
If anything, it has to be new development on the outskirts of the metropolis, forcing new infrastructure, thus forcing them to contribute to the cost of supplying the new infrastructure, followed by then paying for the ongoing maintenance by way of rates
The current system of allowing them to acquire existing inner suburban property simply exacerbates the demands on existing infrastucture without any contribution to the cost of establishing it
A buddy of mine and I went to an open home in the weekend. My first in a long long time. It was scary and intimidating. The Chinese had no care for us, or the property or my friend holding onto an infant. No point in bidding at the auction for a regular kiwi income earner. The bid question now is, what don't the Chinese want in a property? If I new that I might be able to find a home.
Go for properties that have a 4 in their street number. Very unlucky as the word for four sounds the same as the word for death. Especially 14 "will certainly die" and 24 "will easily die"
So (I live at a 14) - ya means I'm gonna Die???
Who do I sue (before I die, of course).
Seriously, though, shurely the fix is in.
Add a 14 prefix to every street number. Could be done by lunchtime, with a new Regulation under the appropriate Act.
Less seriously, this calls for another Kent Brockman quote, eh?
Kent Brockman: Springfield has been overrun by a strange and almost certainly evil sect, calling themselves The Movementarians. In exchange for your home and all your belongings, the Leader of this way out... and wrong religion, the Leader claims he'll take believeres to the planet, Blisstonia. Excuse my editorial laugh.
[laughs]
Kent Brockman: But...
[pauses]
Kent Brockman: Ladies and gentlemen, I just learned of a new change in management. Welcome, Movementarians. I love you, perfect Leader... and new CEO of KBBL Broadcasting.
I can second this. The house that's being sold was orginally bought by a labourer and a teacher and needs a lot of work done on it to bring it up to scratch. A chinese guy at the first open home offerd 1 million for it. How do we compete with that? And more importantly, how does our generation get a stake in NZ society? How do you build a new business with no assets to secure against it? How do you build comunities when no one owns the homes they live in? And do you expect my generation to pay your pension when I'm damn sure I wont get one? Sorry. Rant over.
What I find interesting is Bill English was briefed by Treasury in July 2013 regarding the banning of non residents from residential property. That was revealed on "The Nation" this weekend just gone. National knows it's a massive problem, they're such liars. They know foreigners are degrading our buying power. This is a total disaster for savers, and for people with money in the bank. It's a total boon for property owning baby boomer National supporters.
NZ is becoming an increasingly good place to live comparing with other parts of the world. Therefore, the value of NZ is increasing.
If the above provides answers for high house price, then the only policy that will see a declining house price would be making NZ an unattractive place to live.
No that’s not the reason house prices in Auckland are going up.
Monetary easing and QE are debasing fiat currency. The real interest rates (interest-inflation) in large parts of the world are actually negative. People are panicking to get their money into assets in order to preserve the value of their wealth. This combined with the fact that overseas lending rates are close to zero means it’s a total no brainer to borrow to invest in tier 1 Auckland property. There are no barriers to foreign investment! The money the foreigner borrows will be worth less when he pays it back while the asset will be worth more. Other countries have woken up and are trying to do someting but the NZ governemnt is asleep at the wheel and as usual the ambulance will be waiting at the bottom of the cliff.
The NZ government and reserve bank appear to be encouraging foreigners to invest and at the same time discouraging Kiwis from borrowing to invest, presumably they don’t want NZers to borrow because they’re worried about our debt:GDP ratio.
Worthwhile comment that has relevance here
Quote from the Treasury paper mentioned in Mondays Top 10 comments ref jh
#11.
Migration and Macroeconomic Performance in New Zealand: Theory and Evidence
Published 8 April 2014
http://www.treasury.govt.nz/publications/research-policy/wp/2014/14-10
Appears to completely contradict the NZIER.
'Meeting the infrastructure needs of immigrants in an economy with a quite modest rate of national saving may also have diverted resources from productive tradable activities, with negative macroeconomic impacts.'
Interesting, too, to note that the fabled Land Tax could be introduced next rating year if the ACC discovered it's vertebrae, changed all rating including UAGC's etc. to a land-value basis, and collected the same amount, just distributed differently.
Suddenly, all a them empty sections would become a massive liability. And if ACC dropped DC's, and just rated across the whole base for growth (the way it was done for a century beforehand without anyone much noticing or objecting), the fabled 39k or 100K or the houses-target-du-jour, could possibly be achieved.
Core assumptions:
- ACC is Not an invertebrate.....
- ACC is prepared to think like an economic actor
I'm not betting the farm, though.,...
Don't over estimate the off shore buyers...
Many are attracted, fitted in/up by countrymen sales agents, using the message.. look prices up, do not miss out. Get money from uncle etc, etc...
Once price action/rises cool/stop fewer will be phoning into the rooms..
So which came first. The off shore buyer, or the rising pruce market..
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