The vexed issue of overseas based people investing in New Zealand houses could be set to become an issue for next year's election.
Over the weekend Greens co-leader Russel Norman re-iterated previously expressed interest in his party implementing some sort of measures that tackle an issue that is a growing subject of debate - particularly in Auckland.
Norman told TVNZ's Q&A programme yesterday, in agreeing with the Labour Party policy for introduction of a capital gains tax on housing - excluding family homes - that New Zealand's current issues with housing availability and affordability involved looking at both demand side and the supply side.
"So, we’ve got demand side issues around investment properties and the tax incentive. So capital gains tax, excluding the family home, is part of changing the tax signal, as well as also looking at the losses and how those losses are accounted for around investment property," he said.
"You’ve also got to take into account the overseas demand. There’s different reports about the size of it, but the Hong Kong government, for example, has introduced measures to try and constrain the overseas demand. So that’s important as well.
Norman conceded such a policy "might be restricting".
"What Hong Kong did is they put a 15% surcharge, effectively, on non-residents buying property to try to basically turn down the tap a little bit to take some of the heat out of it."
On the same programme Labour's finance spokesman David Parker said restriction on foreign ownership of houses was not Labour policy.
However, he went on to say: "We consider all good ideas. We have actually said we should restrict overseas ownership of farmland, because we don’t want to drive the price high there.
"One of the problems in NZ is we’ve actually got very poor data as to how much foreign ownership there is of residential land, because it’s not gathered by anyone. That’s where you need to start, is gathering that data and see how big a problem it is. You’ve not going to cure these problems with house prices until you deal with the underlying drivers of rampant house price inflation. Poor tax signal, rising inequality where some people can afford 10 houses and other people can afford none."
There's still a big gulf between the anecdotal suggestions of what is happening in the housing market - particularly regarding offshore-based Chinese buyers - and what available evidence suggests is happening.
Historically there has been little tracking of what portion of buyers of houses might be based overseas.
Solid information
The BNZ in tandem with the Real Estate Institute has this year been seeking to get some more solid information, in the face of a welter of anecdotal stories documenting large numbers of offshore-based, particularly Chinese, snapping up large numbers of houses - particularly in Auckland.
However, the BNZ-REINZ survey for March, which included questions on domicile of buyers, showed relatively small numbers of overseas buyers that didn't intend to live in New Zealand. These results were backed up by the May BNZ- REINZ survey.
But the BNZ's chief executive Tony Alexander has made the point that whatever the current situation regarding offshore-based buyers, we can only expect more of them in future given the way trade relationships are developing, particularly with Asia and investment flows.
I have previously stated my support for taking some action on overseas investment in NZ housing.
The National Government is now ramping up its activity to try to resolve the shortage of housing in Auckland. It announced an accord with the Auckland Council over a week ago that is aimed at providing 39,000 new houses over the next three years. And following last week's Budget it introduced legislation that will assist in the fast-tracking of new housing development in Auckland and indeed in other local authorities that may decide to enter into similar accords with the Government. Demonstrating how difficult it might be to keep the Auckland accord on track, the council is already taking issue with the legislation and hinting it might not sign the accord unless the legislation is amended.
Sending signals
Finance Minister Bill English, also on TVNZ's Q&A programme over the weekend, said the new measures by the Government sent "a clear signal that the supply of housing into the market, particularly those high-growth markets, is going to grow. If you’ve got more houses being built, there’s less pressure on the price. At the moment, Auckland in particular is building, historically, quite low levels of new housing, almost nothing that’s available to middle-income families. And over the next two or three years, we’re going to be working intensively with the council and others who want to to change that".
He conceded that the Government was "trying to turn around a big ship here".
"I think the one thing that may have an impact, and we’ve yet to see, is the pretty clear signal. So developers out there who are sitting on their land assisted by planning rules that almost guarantee they’re going to get large appreciation in the value of that land if they just sit and wait. They’re getting a clear signal from the legislation passed, the legislation put into the house on Friday, that the council and the government are willing to act to significantly expand the supply of houses. So in Auckland, for instance, in the last three years, there’s 12,000 or 15,000 units built. In the next three years, we’re looking at 39,000."
English went on to say that what was "stacked against first-home buyers" was planning laws that "explicitly designed to drive up housing values".
"They’re explicitly designed to ensure that house prices go up so that they can afford the intensification and the very high-value, high-cost urban design that goes with that. So what’s in here is legislation that allows us to give the councils the tools that they need and makes it clear that if that doesn’t have some- if that doesn’t work well, then the government has the ability as a reserve power to issue consents itself. Now, this is the most significant step that a government’s taken around working with councils in a long time."
Quell investment demand
Which is all interesting, but as far as this observer is concerned the Government is attempting to get the market to solve the housing supply problem - it's intended that most of the 39,000 new houses in Auckland will be developed by the private sector - without doing anything of note to quell investment demand.
Why not, for example be looking right now at some controls over people who do not and don't intend to live in New Zealand from buying existing housing stock and driving up prices?
Surely now that the Government has signalled it wants the private sector to lead a big surge in housing development, particularly in Auckland, the time would be ripe for introduction of Australian-style legislation that says offshore based buyers can't buy existing houses, but can have new ones built?
What better way to help promote interest in new housing developments than to tell cashed-up foreign buyers they need to build a new house?
I hope the issue of foreign-based housing investment does become a major election issue in New Zealand. It should be. Because unless we have a Government prepared to do something about the issue then our house prices will become increasingly driven by the whims of overseas investors. And that can only result in more and more aspiring Kiwi home owners being left out in the cold.
31 Comments
Call my cynical but I have an inherent suspicion of survey data collected by parties which have a vested interest in the outcomes thereof.
Take the REINZ for example - given that their members interest lies solely with maintaining a buoyant market into which their members can sell as many units as possible are they really the right group to be collating data on this question? Overseas buyers represent a handy stimulus to the market, and the last thing the REINZ would wish to see is the part of the market shut down by legislation, so they have a substantial vested interest in minimising the potential size of any 'problem'.
It doesn't take much thought to see which side of the fence BNZ's interest lie either.
The whole question of overseas ownership of all NZ assets is a key one (and will become substantially more important in the future). The fact that we have no unimpeachable source of data relating to the subject, be it housing or farmland or anything else, is a huge failing.
If the Greens can answer Q4 below , they get my vote?
Here are my questions for those learned economists who run the Green party.
1)On CGT , we know that if you want less of anything , then TAX it , do the Greens really want fewer houses ?
2) Norman proposes removing all the incentives for the provision of rental housing by the private sector . Who on earth is going to house those who cannot and will never have enough to buy their own house ? HOUSING NEW ZEALAND?
HNZ is overwhelmed right now and cannot cope with demand and thats the very reason the private sector was encouraged by previuos Governments to enter this market
Will the Governmen become a massive construction Compnay ? Do we want to run a bigger budget deficit to build houses for people ? .
3) All Taxes are paid by the end user, the poor bugger at the end of the rope , be it Income Tax , Tax in interest , RWT , DWT, GST or Capital Gains Tax . Do the Greens want this burden of CGT as an additional expense for new homebuyers ?
4) Labour / Greens propose building brand new 3 bed houses for Aucklanders for $300,000, which is the the current price of a swampy section . Two of my three children need houses and would qualify as they are low incomes , so where do we register their names for this handout?
1) CGT will only be on investment rental properties are which are almost never new builds, are we happy to have less investors chasing the existing housing stock and instead have more owner occupiers? Yes absolutely
2) Because we are talking about existing housing stock every property that is not sold to a property investor is by definition sold to an owner occupier instead. So there will be no additional "unhoused" people
3) Nonsense, price is determined by supply and demand not by investor expectations of capital gains
4) If the government purchased rural farm land around Auckland for say $100,000 an acre and built in bulk they could absolutely build homes for $300,000
Julz , you are being naive , CGT never ever brought property prices down , ever .
This has not happened in the UK , Ireland , Australia , Canada , South Africa , Singapore, or any other jurisdiction where the tax applies .
You need to get a better understanding of this tax , because it also does not, and has never stopped investors buying property in any free - market country. Wily investors actually buy up more properties initially .
Here are some points to consider :
- Its a tax and by its very nature a tax will push house prices higher.
- CGT already exists in NZ for property investors who buy and sell houses , shares , etc.
- CGT opens huge loopholes , because if there are taxes on gains , then the taxpayer must be allowed to write off Captital Losses against other income too. Its a minefield for the Tax authority .
- Tax planners make a fortune from CGT planning , more than the IRD will collect initialy
- The tax is only paid on sale , so Sellers can simply hold onto the properties and use them as collateral to buy even more property , and thereby avoid the tax, as nothing is sold
- Sellers could ask a very high price to compnesate for the tax, and then wait for the market price to get to the desired level .
- Many owners simply hold onto the housing stock or use other tax loopholes created by CGT to avoid it.
- Any CGT will have to be phased in ,usually over two to three years , which allows the taxpayer time to sort out their affairs which they will do through trusts , and Company structures .
- "Change of use " issues create problems , especially in trusts , if one moves a family member into the property , and that person is a Trust beneficiary , then it can be sold free of CGT as a primary residence .
- If you want more of something , incentivise it , if you want less then slap a tax on it Taxes are used to restrict something , if you want less of it , you tax it, think of cigaretttes , alcohol , carbon tax, import duty , excise taxes
- CGT is a highly complex tax regime , and intially costs more to administer than it collects.
It's really not that complicated, we don't want more of our housing stock in the hands of investors we want less so why would we want to incentivise that behavior, we want to deter it.
It really doesn't matter if in the short term prices don't come down. In the long run it shifts the incentives and economics towards owner occupiers over investors which is what we want. The additional tax revenue that does eventually come in is a bonus and can be put towards affordable housing projects among other things.
Julz , I dont understand your logic .
I also think you are missing the point that there is an absolute housing shortage in Auckland which is a supply side problem , you are diagnosing and giving a prescrition for a demand problem . Investors are merely the vultures feeding off this mess
We know Housing New Zealand ( HNZ) cannot house everyone who wants to rent a house , and HNZ has been unable to do this since 1979
Why then do you want fewer property investors who provide rental stock , which Govt cannot supply ?
Residential property Investors are those people stupid enough to risk their money to buy a house (a massive investment) and hand it over to a stranger in the hope he will pay the rent and not wreck the place , and to house people who cannot afford to buy a house ?
BTW I think rental houses are a terrbile investment,and I dont own any residential property other than my home.
Everyone is in agreement that the supply side needs addressing, that does not mean we can't also tackle unwanted demand which is the focus of this paper.
You don't seem to get my point, if investors are forced out of the market they must instead be purchased by owner occupiers. As soon as a renter becomes a home owner that's one less person competing for rentals. The idea that there suddenly won't be enough rental properties around if policies are introduced that deter investors is often raised but it's utter rubbish.
It is strange why we feel it is better to look at getting rid of the pimple on our face when we are actually suffering from skin cancer....
Foreigners (or non residents) even by most estimates form a tiny fraction of house buyers or owners, will getting rid of them really help to reduce house price pressure?
The National Goverment and Auckland Council is playing Kabuki as far as housing price pressure is concern. Each is trying to outdo the other in positioning blame in event house prices refuses to come down and the bubble eventually collapses.
The figures (39000) banttered about is unbelieveable even to the brain dead. Politicians are just trying to do a song and dance to shake off their incompetence. Restricting Non Residents from owning houses is nothing but another charade by the Greens to be seen as coming to the rescue of the hapless Auckland population.
We all know why house price bubbles are created, but we refuses to do the necessary to temper the demand for houses and do the necessary to increase houses supply.
Even a person born in China cannot OWN a piece of land. They only have a limited right to use it for 70 years! IT is not China but the current Chinese government's problem.
Chinese goverment != China. Clear!?
I just find it amusing that somebody ought to bring out about China blah blah whenever there is some article on AKL property market, even though the biggest source foreign purchasers are from Britain.
My comment was "let market do its job" and you replied with "Like in China?". Your reply simply reflects the fact you think my surname is Wang and from China.
I can tell you that I am from China, my last name is not Wang and I am holding a NZ passport.
You need to change your 'lens', take a fresh look at the world today, and develop a new strategy to engage with people.
A quote from <Lock, stock and two smoking barrel> that I really like and is a very suitable reply here -- “How can you loss you since you are not a string of car keys?”
Since your have brought up whole milk powder trade, NZ has more than just dairy sector and red meat sector is speeding up in some kinda reforming. Have you seen Q1 2013 sheep meat export figures?
we have problem with sheep meat
http://www.stuff.co.nz/business/farming/sheep/8691750/Nothing-sinister-in-China-meat-block-Key
I can tell you that I am from China, my last name is not Wang and I am holding a NZ passport.
Did you mean to say .. "I am not from China.."
If you meant it as written (meaning you are from China) - I assume you have become a NZ citizen (if holding an NZ passport). Was it easy to qualify for citizenship?
Nope. I was born and from China.
IT was not easy to qualify for a NZ citizenship, and becoming a NZ citizen is a one-way trip since I need to give up my CHN passport.
The very reason for becoming NZ citizen is my deep love for this country and my hopelessness feeling towards the current CHN govt.
Restrictions on the sale of property to foreigners .....haw haw and a big HAW !
You mean to say ol' boy, that 'yours truly' can not resell his many "low ball" purchases of prime Awklund real estaaate to my good friends from over the briny ..... say what chaps, that is just not cricket !!
Anyway, only a "storm in a teacup" little people, because at the end of the day....Moi's "real" investments are not in Awklund residential property, but in those four Aussie banks !!
If we restrict our good ol' overseas buyers, it will mean more local buyers ... who, most are so poor, they just have to take out a mortgage, with guess who ! ...my BIG 4 !!
More cashflow and mortgage interest repayments for MOI !!! ....that is all that really matters..haw haw haw ..have a spiffing day, mortgage serfs ....haw haw haw
Waiter !!! ..... a mai tai please and can you adjust the tilt on the outdoor chaise lounge ...and perhaps turn down the sun, it's getting rather hot.....
Dr Norman is wrong on so many levels with this , its unbelievable that such xenophobic ideas come from a liberal on the left of the spectrum .
Firstly , I have yet to see any emperical evidence that NON RESIDENT foreigners are pushing Auckland property prices up .Maybe the real numbers are avaible form the Land Registry ?
It seems those folk chasing up prices at auctions are ligitimate NZ Residents on one or more of the NZ Immigration Services many Visa catagories. We have no grounds to deny them a roof over their heads , especailly when we have openly invited them to apply to live here . If Dr Norman wants to tax or stop legitimate foreign residents from acquiring a home , then this smacks of Xenophobia, and is wholly inappropriate . He would do better to slow down the rate if immigration until Aucklands land supply issues are resloved
Secondly , Capital Gain tax would scare away investors who provide the rental stock the Government cannot provide, because it does not have the funds to do so . Also, CGT is an insidious tax that is a disincentive to savings and investment , and we are already the worst savers and invesotrs in OECD, and way behind Australia . Its also an envy tax
I am not sure Norman actually know what he wants
So is China, Singapore etc being Xenophobic when they prevent New Zealanders from buying their property??
As I've said before when investors in existing housing stock are "scared away" the houses are still there to house owner occupiers so you would no longer need as much rental stock.
All tax can be said to be an "envy tax" those that can afford it pay that's the reality we live in.
Boatman - what he might want, is for NZer's to be able to own NZ homes.
I'd have no trouble with that.
But immigrants and/or overseas buyers, are only a part of the problem. Every middle-class own-a-chain-of-domino-levered renters type person, is responsible too. Denial, arrogance and insecurity are quite often fellow-travellers - so these folk don't think they're part of the problem. If we legislated one-home-apiece, the same number of folk would sleep in the same number of houses they did, but the prices would crash.
I mean crash.
Okay , so you propose a One- Man -One-House policy...No investors allowed
The next steps in social engineering are :
Only one share on the NZX
Only 1 child per family
Only one Company on the Companies Office
Only 1 job , no part time work or sideline enterprise
Only 1 savings account
Only 1 TV
Only 1 car
or ultimately Social engineering like South Africa , if your'e black you have to live in the SOUTH WESTERN TOWNSHIP otherwise know as SO- WE -TO
Most people would considered those of us who are wealthy to be the "privileged"
If it eases your conscience though you can consider the beneficiaries renting a damp unhealthy home in a high crime area surrounded by decile 10 schools as being the ones that are privileged. I'm sure they will trade places if you ask them nicely...
People who own their own home are more engaged and more invested in their community. Home ownership should be encouraged over investor ownership and there are many who would love to own their own home and would if they were sensibly priced. Of course supply needs to be addressed but excessive demand from local and foreign investors is making the problem worse and should also be addressed.
We should be able to have that debate without being accused of being a socialist or a racist. Such arguments require no thought and offer nothing helpful to the debate.
The BNZ survey was flawed - a small selection of real estate agents surveyed. Most of the top salespeople at Barfoots are Asian - do you think they would answer that survey while at the same time putting their vested interests to one side? Just watch this video on Barfoots website and analyse the makeup of the crowd shots -
http://www.barfoot.co.nz/Residential/Selling-With-Us/Stories/The-Seller…
House buying in Auckland is currently being dominated by Asian purchasers - mainly Chinese and the salespeople would have no idea if they are resident, long term etc as no data is collected on this. Just go along to the Barfoots north shore auctions at The Bruce Mason centre any Thursday and you will see 80% of the crowd are Asian and 80% of the homes are being sold at the auctions to Asians.
Whether or not they are residents is irrelevant - they are pouring into our country and outbidding all other buyers.
Now as an investor a capital gains tax would not bother me in the slightest. If the family home were exempt I would sell and purchase a more expensive family home. I would not sell my investment properties so would not be hit by capital gains tax. Has a capital gains tax seen other countries property values appreciate at a lower level than NZ? NO!
There is no show of a capital gains tax in NZ unless a Labour/Greens outfit gets in and that is unlikely next year so forget about a CGT for at least 4 years by which time house prices will have increased another 10% per annum. There will be no major change in levels of homes being constructed in Auckland over the next three years and interest rates will stay where they are or go lower.
Even if a CGT came in it would only be based on capital gain from x point onwards so a long term investor would still be well ahead.
For all those moaning first home buyers you can still buy a good 3 bedroom home in Massey, Henderson, South Auckland for less than $400,000 - just start somewhere!
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