Auckland's housing market faces a perfect storm of rising demand and supply shortages. A flood of investment from China into new homes could do the trick

By Bernard Hickey

This week's news from Auckland's housing market must have terrified first home buyers and delighted property owners.

Firstly, Statistics New Zealand reported a record high 48,266 migrants arrived in Auckland in the year to May. That's over 130 new people arriving every day and turning up at a real estate office to either rent or buy a property.

Net migration to Auckland of 26,565 in the year to May was up from just 4,687 in the year to May 2013. The explosion in new arrivals was supposed to tail off this year, but has instead just kept on accelerating higher. A surge in student arrivals from India and China is at least partly responsible and followed a change in policy in October 2013 to allow English language students to work part time. Indian student visas almost tripled to 10,134 in the three years to May, while student arrivals from China rose 47%.

Secondly, the prospects for significant new house building helping to soak up the demand look as remote as ever. Auckland Council has stopped approving new Special Housing Areas in Greenfields areas because it wants the Government to help pay for transport and other infrastructure. The Government is also no nearer to agreeing a Transport Accord with the Council to kick-start new investment in road and rail projects. And the Government's hopes of opening up tracts of its own land for housing developments looks are clouded by disputes over Treaty provisions.

The Productivity Commission produced forecasts showing Auckland's current housing shortage of 25,000 homes will balloon to 60,000 by 2020, even with the most optimistic forecasts. The supply outlook looks bleak given the divisions within the Auckland Council over rates increases, debt levels and new infrastructure spending plans, and the continued opposition by the most politically active ratepayers to more dense housing developments near the city.

Thirdly, banks slashed their mortgage rates to under 5% after the Reserve Bank's rate cut earlier this month and very weak GDP growth figures last week that suggested the Governor Graeme Wheeler could cut interest rates by a full 100 basis points by Christmas. Any property investor borrowing 70% of the purchase price of an average priced house can afford to pay NZ$160,000 more for that house when mortgage rates drop from 6% to 5%.

The final dollop of rocket fuel to be poured into the mix came with the release of a report from real estate listings service Juwai.com this week. It estimated that an expected loosening of restrictions on Chinese investors buying overseas property could see an extra US$10.9 billion or NZ$16 billion pumped into New Zealand property (which means of course Auckland property).

The new scheme known as Qualified Domestic Individual Investor 2, or QDII 2 for short, is expected to be announced later this month and will allow individual investors in six Chinese cities, including Shanghai, to legally invest in overseas real estate. Currently, the rules are that individuals can't exchange more than US$50,000 worth of yuan into foreign currency.

Juwai estimates that in theory US$6.6 trillion (yes trillion with a 't') could be invested in overseas assets under QDII 2, including US$2.2 trillion into real estate. It took a conservative estimate that Chinese investors would want to invest just 5% of their assets in overseas property and only 3.3% of that amount in New Zealand, which led to the US$10.9 billion estimate. A less conservative view that saw 20% invested in overseas property and 5% of that invested in New Zealand would escalate the potential for Chinese investment in Auckland to US$97 billion or NZ$142 billion. That equates to about 35% of the total current value of Auckland's property.

"With QDII2 in mind, within five years we might look back and think of the current levels of Chinese cross-border investment as quaint," Juwai CEO Andrew Taylor was quoted as saying.

The footnote for first home buyers and property investors is that the 22% slump in the New Zealand dollar against the renminbi over the last year has actually made Auckland even more attractive for investors from China.

So how could this apparent looming threat to demand for Auckland property be turned into an opportunity for first home buyers and renters?

A look across the Tasman suggests the flood of money coming from China could be put to good use if it is funnelled into new housing developments, in particular apartments off the plan. Australian developer Lend Lease sold 581 apartments off the plan for its latest Darling Harbour project in five hours on one weekend last month, including more than a third to overseas buyers. It sold A$600 million of property at a rate of A$2 million a minute.

If Auckland and the Government could only convince Aucklanders to allow the building of more overseas-funded apartments near the CBD then it might have a smidgen of a hope of filling that shortage of 60,000 homes. They would cost NZ$30 billion to build so that NZ$16 billion of overseas investment could come in very handy indeed, if it was directed into new homes rather than existing homes. 

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A version of this article has also appeared in the Herald on Sunday. It is here with permission.

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37 Comments

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Chinese "investors" or any foreign "investors" for that manner are not going to pour billions of dollars into NZ out of the goodness of their hearts to provide us with much needed housing. They will be doing it to provide themselves with somewhere to park their money out of China in the hope they can move here some day, how many do you think we really need, I for one do not want to see NZs population in the 10s of millions, and the other reason I can see is to gain more out of the investment in the way of profit or rental returns. Rental returns? With the sort of money predicted to make its way here, that's us, tenants in our own land, that thing John Key said we should not become, I feel I must remind you.
Embrace this money - are you mad?

Its just Berhard again. You wonder what kind of person would sell their own Grandmother for a profit on the organ market? There he is. As long as the dollar ends up in his then thats the only thing that matters.

anarkist mentioned to some people money is a status symbol. I think that's truly sad but it fits Berhard to a tee. I consider far more status worthy are those who don't feel the need to chase money for they already have enough, once you've got enough then chasing money is just insecurity or a cry for attention. Chasing money or needing others to acknowledge leaps out and says "I don't have enough money to move to better things"

The Chinese have money, and are pushing up the prices but it doesn't mean that the values are right, there has to be a reason for true value, lots of liquidity is not a long term reason for the values we are seeing. Auckland is not New York, Do the Chinese really see Auckland as this new international business hub and that they are going to make a fortune out of these investments? Liquidity can't make an economy, if it can then why is world growth stagnating while interest rates plummet to the bottom.

Why don't we just accept our inevitable fate as a subservient state of China? This is looking increasingly like the likely outcome for NZ.

What the Chinese should be doing is ensuring enough people buy assets and migrate here so that they can start to influence the political debate and steer the politics of the country towards China's favor. If you can get a large enough voting bloc then this shouldn't be too hard to achieve in the years to come. It's very intelligent stuff and you have to admire their long-game.

Because if we accept, we lose. Better to actively oppose and possibly still lose - rather than just accept and lose by default.

Better to die on your feet than to live on your knees - Midnight Oil

Oh I so remember saying the same thing with my fellow NZers about the Japanese a generation or two ago - I guess every new generation looks over their shoulder and frets about someone out doing them....the lesson is, don't panic

It is possible to have cordial and profitable buisness deals with a lot of different entities, doesn't mean you invite them to live in your house. Not a matter of panic. Just prudence.

Yep, we'd have said something similar at the time as well but ,with the passing of time, it turned out to be paranoia - as it will again

Totally different ball game, Grant A.

Japan had a shrinking population and few migrants came here. China has 10 times the population, and they are coming here by the 747 load.

Relative to NZ, China is infinite in both population and money.

Standing by and doing nothing is like wait for the Titanic to sink, or letting Hitler unite the German people...

At some point in the next decade or two when the ethnic Chinese population of NZ hits 20% and we have a number of Ethnic Chinese recent migrant Cabinet Ministers, you will be wishing you hadn't just been lying on your deck chair...

ask the fijians about what happen with indian immigrants, they ended up having coup after coup to get there country back.
have a look at what is happening in south africa,
Have a look at what canada just did
we seem to not want to learn from the mistakes of others to to repeat in our own country

I don't think it's wise to assume anything about the future. People have said and assumed the exact same thing as you prior to events that have fundamentally changed their world as they knew it - think normalcy bias.

Lets be clear, China doesn't owe New Zealand anything. I cannot see why they wouldn't want do what they can to maximize their own benefit. In case it's eluded you, this is what tends to happen when people / groups hold positions of power.

China as a rising super-power has far greater potential to influence our affairs than Japan ever did. They have a massive population, huge industrial base and billions of fiat dollars looking to buy hard assets. We are a small player on the world stage and have chosen to start selling our country for comparative pocket change.

Why wouldn't they use this to their advantage, it's a Darwinian world after all.

I'd like to see NZ's population in the 10's of millions. In fact I'd like to see Auckland's population in the 10's of millions! We wouldn't lose so many of our brightest and most talented young people if we had a city big enough to feel like a proper city. I certainly have lots of friends who would love to come back home but Auckland is just too small and boring.
There would still be plenty of the country that would be sparsely populated for people who don't like the 'rat race'.

Remember, even if you win the rat race you are still a rat.
No thanks to the tens of millions

...And there are plenty of countries where people run about on business all week and have no care about anyone else. No need to change NZ to that and frankly I don't see how copying somewhere else wold bring them here, tey woudl stay where it is already that way

I'd like to see NZ stay the same.

If you want to live in Shanghai, move there. Don't force everyone else to endure the ridiculous notion of having everyone living in shoeboxes.

What benefit is there to any current NZer if there are more people?? Absolutely none. More population may lead to more jobs but there are more people fighting for those jobs, and the chances of getting one is the same.

If big populations create better job opportunities check out Lagos.

Its funny when I went to Germany last year I was in complete awe of the sheer number of solar panels. hundreds of thousands of dollars worth everywhere you looked! Even old wooden barns in the countryside were adorned with perhaps 50-70 panels. All of the houses visited had double glazed glass, and modern refurbished bathrooms and kitchens with all the mod cons.

Back to NZ...

I have 2 properties in Tauranga and I'm tossing up whether to buy a crappy little 700K 2 bedroom unit in Auckland. I wouldn't invest a red 10-cent in solar panels, heat pumps, double glazed glass, insulation, etc. Is that because I resent the fact that I wake up to 7 degrees Celsius in a cold un-insulated rental house, and I know my landlord won't do anything to it? No, like my landlord I realize that every dollar I waste on actual investment is a dollar I can chase the Auckland housing market with. For the reasons mentioned in this article.

The contrast between Germany in New Zealand is stark.
ps if I buy that house you can count me out of the economy for the next 20 years because I wont even be able to afford morning coffee.

Also the USA mid-West. Wind turbines everywhere.

yep the thing i was trying to get at is the level of malinvestment which is happening here. We have (had) a historically high valued dollar and what did we do with it?

You have to be taking the proverbial BH. Disappointing - are you sure you are not the PM of Parnell's Manchurian Candidate or are you just trying to inject a bit of life into this site.

Kill the demand and the problem is halfway fixed. Without that being done we will also need this "flood" to invest in new schools, hospitals, roads and probably most of all a much larger police force.

Currently in West Australia where you often see car stickers " F@@@ Off - We're Full". I would suggest that these would be more appropriate for AKL.

How do you kill the demand? Outlawing foreign ownership seems too easy to circumvent through the use of companies. It isn't working for the Aussies.
Capital gains tax? NZers have already effectively voted that out. Although they could probably outlaw foreign ownership as well as applying Capital gains tax to any property owned by a trust or company - the two combined might help a little.
I still think the supply side is much easier to fix - Auckland is far from full.

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11

Then you are a fool.
As long as prices in Auckland are much cheaper than other countries, you cannot fix the supply side.

There was a video on here recently explaining why. It boils doen to people like yourself being butt ignorant about the difference in trading products and services, and trading away your capital.

Selling university educations and milk & logging products is products and services. selling off the forestry land, the dairy land, and the house and their land is selling the capital, and is completely badness. It is entirely possible to stop the circumvention, the first stepo is government and OIO and neighsayers pulling their heads out of their arses and -looking- for a solution rather than just shaking their heads. A simple *blanket* IRD registration, and data search is a good start, none of this "aww but not for home owners BULLSHIT".
Once you start getting that data building up comprehensively you'll be able to identify the anomalies, and then investigate - slap a 100% seizure (like they do for overfishing your quota) and deportation, you'll see those "companies" and evasions vanish real quick. The only reason "it can't be done" is because some people don't want to do it, because either they're getting cash off it, or they're too lazy.

How would you kill demand??

Stop immigration.

Auckland is full. If you can not see that you must be legally blind and in a temporal time warp, where 1 hour in rush hour traffic passes in just a few seconds...

Short of booting all Kiwis out and demolishing their homes and knocking up shoeboxes for the hoardes of migrants, there is no solution to Auckland's housing problem.

Should NZers be punished and have their right to live in their homeland redacted because a few politicians want their Chinese masters to lavish wealth and power upon them?? (Just how is Jenny Shipley on the board of one of China's largest banks??)

The new scheme known as Qualified Domestic Individual Investor 2, or QDII 2 for short, is expected to be announced later this month..."

Well it's the 28th of June now Bernard, how much later in the month can it be? Who said it is expected to be announced later this month? A real estate company with links to NZ? Is there any information from the Chinese govt which details QDII or are we all relying on hearsay?

You are deliberately terrifying many readers with this sort of article. Have you got any facts to support your statements?

Whats the end game Bernard? You haven't thought that through at all.
Tell us what this leads to in 10 years. And in 50 years.
It's only tears for the locals I think.

Exactly right, Bernard's predictions of the future are as reliable as a piece of paper signed by Neville Chamberlain...

Oh and remember 30% (was that up or down Bernard??)

Any mad idea is as good as another now.

There is no end game any more. Key, English, Smith, Brown and Hulse have frittered away the opportunity for action. And now land banking extends well outside the infamous Rural-Urban Boundary. To all intents and purposes high land prices extend to Pokeno and Dargaville.

It's simply too late.

All we can do now is wait for the crash.

In the meantime the legacy of this government will be a stunted economy where capital is diverted into unproductive housing and away from productive activity. High property prices will act as a barrier to innovation and competition, the lifeblood of a dynamic economy that benefits everyone.

I choose to read this post as satire in the tradition of Jonathan Swift's A Modest Proposal (https://en.wikipedia.org/wiki/A_Modest_Proposal).

The locals can't afford million dollar apartments now Bernard. So with your plan there will be lots more million dollar apartments to buy. Which they can't afford to buy. But which can be sold to those chinese business people who you are bringing in to build the apartments.
Your suggestion is reasonably straightforward.
But what mystifies me about your suggestion is simple. Why? For what purpose? And for who ?

.....Bernard's deliberately winding the readers up.

Wikipedia says:

"On 13 April 2006, the Chinese government announced the QDII scheme, allowing Chinese institutions and residents to entrust Chinese commercial banks to invest in financial products overseas."

So the Chinese Govt have been talking various forms of QDII since 2006. Is there solid evidence Bernard that it will change this month?

Please present evidence to support your article?

synchronicity - the thought and the reality - two different things

Is this what you want

Directed investment - NZ$16 billion of overseas investment could come in very handy indeed, if it was directed into new homes rather than existing homes, which in the Melbourne experience means Chinese Developers, building the buildings and selling them directly off the plan to Mainland investors, never reaching the domestic market. But, yes, it does soak up "future" off-shore demand, redirecting it away from existing suburban residential housing

Back to high rise apartment buildings

Who is going to build them?
Who is going to buy them?
Who is going to live in them?

As for the development and the building of high-rise apartments, it appears most of the recent ones are Chinese developers, who bring in their own workforce and import their own materials, with this result

The battle to keep potentially lethal building products out of Australia
Cheap, highly combustible, Chinese-made cladding that doesn't meet Australian standards was installed on a Melbourne high-rise that saw fire fly up its 15 stories last year, and now the Senate has announced an inquiry into substandard building products to respond to the alarm over a growing wave of dodgy imported material making their way into Australian buildings - watch the video
http://www.abc.net.au/news/2015-06-24/the-battle-to-keep-potentially-let...

As I read Bernard's article my mind turned to the major new Docklands development in downtown Melbourne, a precinct of shiny high rise apartment buildings that was to be the rejuvenation of the Melbourne CBD

As an observer and a spectator, what is most noticeable, as you drive though the precinct of an evening, after dark, is the absence of lights on in these apartment buildings, in the main at best 10% have lights on. It doesn't appear many people live in them. They're largely unoccupied. I suspect they are largely owned by off-shore investors who are not in-residence. It's a ghost town.

And lo-and-behold - the sychronicity - an article appears about it in today's Age
Entitled - Down on Docklands - Is it really as bad as people say?
Read it - dispiriting
http://www.theage.com.au/national/down-on-docklands-20150624-ghv3jp

The promotional blurb
Docklands is a major residential area, dominated by high rise apartments
Docklands became a part of the City of Melbourne in July 2007. The suburb's 200 hectares of land is on Victoria Harbour, west of the central city. Its inclusion doubled the size of Melbourne’s central area and returned the waterfront to the city
One of the more affluent areas in the City of Melbourne.
Has a higher than average proportion of renting households.
Dwelling owners and renters in Docklands pay the highest monthly mortgages and weekly rents in the municipality
http://www.melbourne.vic.gov.au/enterprisemelbourne/WhyMelbourne/Pages/D...

Bernard, all this verifiable information is as far away as a pone call.

A comment with content. A recommended read. Thanks Iconoclast.

That two bedroom B&T unit looks better every day. And people are pinning their hopes on Chinese houses that look like chest freezers made by 3D printer....smh.

Why don't we just sell them the whole goddamn country? Forgo all the foreplay, it's inevitable...........

BH: in particular apartments off the plan. Australian developer Lend Lease sold 581 apartments off the plan for its latest Darling Harbour project in five hours on one weekend last month, including more than a third to overseas buyers

That didn't include this development by Mirvac
the Mirvac development in Harold Park was bought entirely by Chinese investors before the local market had a look in

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Better to have a Chinese owned house to live in than no house at all.....

You have got to be kidding, if Chinese excessive money is not allowed to buy, then that person who is now forced to rent from them is able to buy instead.
Oh but that might upset your plans to sell for heaps more than the local market will allow, is that the case?

"Selling our country for pocket change" heard it before no? in 50 years there will be a new waitangi tribunal to decide if the chinese or english version is the right one...