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Roger J Kerr wonders why Chinese buying houses causes a political reaction, unlike Swedes buying dairy land
By Roger J Kerr
What is it about Labour Party politicians in New Zealand that makes them think the colour of a foreigner’s dollar is different to our own and therefore the public has to be protected against the evil?
A number of years ago the then Finance Minister, Michael Cullen intervened at the eleventh hour and changed regulations overnight that stopped foreign companies buying into Auckland International Airport.
New Zealand’s reputation as an investment destination was damaged as a result.
Today’s Labour leader obviously sees votes in playing the race card about foreigners buying our houses and thus pushing up the prices.
The fact that foreigners make up less than 4% of house sales each year doesn’t allow the economic facts to get in the way of the emotional and political scaremongering.
Super low mortgage interest rates, good job security, supply constraints and aggressive bank lending are behind the increases in residential property prices over the last 12 months, all reasons well ahead of demand from foreigners.
Abnormally low interest rates cause more market distortions than high interest rates.
However, interest rates are now changing and there will come a point where the housing market supply/demand imbalance rectifies itself. This is how markets work, however politicians of the left persuasion never trust the “fairness” of markets.
A major contributing reason for our low long-term interest rates over recent years was strong foreign demand for our Government Bonds.
Foreign investors, mainly Asian central banks and sovereign wealth funds, were attracted to NZ bonds and the NZD currency as an asset class to diversify away from the risks in Europe and the US over the post-GFC period.
Foreign investors own 70% of the NZ Government Bonds on issue and between 20% and 30% of our sharemarket; however you do not hear of Opposition politicians complaining about these inflows influencing interest rates, exchange rate values and listed share prices in New Zealand.
We cannot have it both ways, desiring foreign capital for some assets, however shutting the door on others.
Most house buyers, house owners and mortgage borrowers welcomed the foreign capital inflows over recent years that drove the NZ dollar higher and kept their floating rate mortgage interest rates at record low levels.
Investors who took the opportunity to invest in the recent Synlait Milk share float welcomed the participation of major Chinese, Japanese and Dutch corporate investors alongside them.
A Swedish pension fund recently purchased large tracks of dairy land near Taupo; however this change to foreign ownership of New Zealand land barely raised a ripple in the daily media.
Xenophobia and double standards are never too far below the surface in New Zealand and our living standards and reputation are worse off for it.
Local attitudes towards property investment as the only way to make some serious coin in New Zealand may however be starting to change.
A review of last Friday’s NBR rich list exposition tells you that most of the older in age super rich made their money in property, however most of the younger new entrants to the rich list are in technology and ideas and less in trading physical assets.
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Roger J Kerr is a partner at PwC. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com