By Alex Tarrant
The Labour-led government says it has found a way to block non-resident foreigners from buying existing houses which will not clash with the vast majority of New Zealand’s free trade agreements (FTAs).
Residential housing will be classed as “sensitive” under the Overseas Investment Act. “This means non-residents or non-citizens cannot purchase existing residential dwellings. Australians will be exempt as New Zealanders are in Australia,” Prime Minister Jacinda Ardern said. The one FTA the move will clash with is Singapore's, which Ardern said was up for renegotiation soon.
Speaking to media after the announcement, Ardern clarified that non-citizens who were resident in New Zealand would be allowed to purchase existing houses. Ardern said if someone classified as a permanent resident or held a resident-class visa, then they would be allowed to purchase an existing dwelling: “If you have the right to live here long term, then you should have the right to buy here.”
Non-resident foreigners would also still be allowed to buy vacant residential land if they were to build a dwelling then on-sell it, Ardern said. Labour welcomed this type of investment if foreigners increased the housing stock, she said. Labour would also look more in detail at the issue of land-banking further down the track.
Asked to confirm whether a non-resident foreigner would be able to buy residential land without an existing house on and put a house on it, she said: “Our position has always been that, if you are adding to supply, for on-sale of that new dwelling, then you will be able to build, if it is provided to be sold on.”
There would still be a test around that land being classified as residential land, in order for that dwelling to be built on it, Ardern said. “But also, then the test becomes whether or not a home will be built to be on-sold.”
Legislation to amend the Overseas Investment Act to reclassify residential housing as sensitive is expected to be introduced before Christmas. Ardern said it should be passed in early 2018. The important thing timing wise was that the legislation came into force before TPP came into force, she said.
Apartments and policing
Asked whether non-resident foreigners would be able to buy off-plan, Ardern said that was a detail the government was working through. “It’s been raised with us that, particularly when it comes to apartment dwellings, that this is potentially an issue.
“We’re working through some of the detail on it. But our intent is to stop existing homes from being purchased, and for new dwellings – it must be adding to additional supply. We want to increase the supply of housing available in New Zealand, whilst of course reducing down the demand for existing dwellings.”
She also said that the amendment would not be retrospective.
Asked how the policy would be policed, Ardern noted that every transfer of title required a conveyancer or lawyer. These people would be familiar with the fact that this law would exist. “There will be a role for them to play at the point of sale and the point of transfer of title.”
David Parker added that someone who purchased a property in breach of the law would be entering into an illegal transaction, and exposed to remedies under the Overseas Investment Act.
Prices & sales effects
The two were also asked about the numbers – whether they had an estimate on how many sales might be affected. Ardern noted Labour’s frustration with Land Information NZ’s figures on purchases made by non-tax resident foreigners which indicated they accounted for 3% of sales – they didn’t cover any sales made to companies or trusts.
Parker added that the property market was hot and foreign money flows were seeking out property investment, there would have been a larger number of sales to non-resident foreigners than seen today. “Those things can happen again in the future, and so we need to be able to protect New Zealand for now and the future.
“If this is not done before TPP concludes, if it does, then we effectively lose the right to impose that control forever. Not just under TPP, but under earlier trade agreements because TPP effects would flow through to those earlier agreements under most-favoured nation clauses,” he said.
Meanwhile, asked whether she expected any impact on house prices, Ardern said the focus for Labour was to make sure the flow of foreign capital into the existing housing stock was halted. “We would expect that to have some effect,” she said.
While there was speculation that the Auckland property market had plateaued already, “there’s no doubt that there’s been an issue around demand and our lack of supply, and this is one of the many ways that we can address that…it’s one of many – it’s not the only tool.”
Labour were hoping the policy would take some of the heat out of the housing market, “particularly in Auckland.”
Parker said the answer would depend on the price cycle. “When things were really running hot, when the price bubble was being inflated and there were large flows of capital into New Zealand, it would have had a larger price effect making this change then than it will now. But it’s very important that we reserve these rights for New Zealand through time, into the future.”
Read the press release from Labour below:
Foreign speculators will no longer be able to buy houses in New Zealand from early next year, says Prime Minister Jacinda Ardern.
“We are determined to make it easier for Kiwis to buy their first home so we are stopping foreign speculators buying houses and driving up prices. Kiwis should not be outbid like this.
“That is why we are introducing an amendment to the Overseas Investment Act to classify residential housing as “sensitive”. This means non-residents or non-citizens cannot purchase existing residential dwellings. Australians will be exempt as New Zealanders are in Australia.
“We expect legislation to be introduced before Christmas and take effect immediately once passed early in 2018. This will fulfil one of our key 100 Day Plan pledges.
“The previous National government chose to put foreign speculators ahead of Kiwi families, but we have chosen to protect Kiwi families and New Zealand’s best interests.
“That government claimed this could not done without breaching other free trade agreements and that a stamp duty would be the only effective tool.
“The advice we have had from officials is that we can give effect to the ban by a simple amendment to the Overseas Investment Act without breaching any agreement except the Singapore Closer Economic Partnership. The options with Singapore will be worked through.
“The proposed change means we can move our focus away from land issues at the negotiating table at APEC when negotiations on the TPP reach their final stages, and focus on Investor State Dispute Settlement clauses.
“We are concerned by ISDS clauses in the proposed agreement. These confer greater rights on multi-national companies investing in New Zealand than a New Zealand company has.
“We remain determined to do our utmost to amend the ISDS provisions of TPP. In addition, Cabinet has today instructed trade negotiation officials to oppose ISDS in any future free trade agreements.
“The change we have announced today are supported by all parties to the government.
“New Zealanders should be assured that the government I lead will have their best interests at heart when negotiating any free trade agreements.”
National finance spokesman Steven Joyce issued the following response:
The Labour Government’s jury-rigged “ban” on selling houses to foreign buyers in a very strange announcement that raises many more questions than it answers, National Party Finance spokesperson Steven Joyce says.
“The first and strangest thing about Labour’s announcement is that it isn’t an actual ban. Putting houses through a sensitive land purchase criteria is definitely bureaucratic but does not constitute a ban on such sales,” Mr Joyce says.
“There are also all sorts of definitional questions. Is an apartment on the fourth floor of a building ‘sensitive land’? Is a two hectare property with two houses on it that’s being sold for development able to be sold to an international investor?
“This proposal would also be a massive compliance cost for house buyers of all types. For example, will somebody with a foreign sounding name have to prove their citizenship to the real estate agent?
“The whole announcement was very strange,” Mr Joyce says. “There has been no paperwork released and the Prime Minister indicated many of the detailed decisions remain to be made.
“This smacks very much as a ‘bright idea’ with absolutely no detail or evidence base behind it. The Prime Minister even spoke as if the Auckland property market was still rapidly appreciating whereas in actual fact it’s been flat to falling for the last year.
“Finally, if the idea gets over all the hurdles, would it actually work in terms of satisfying the concerns of our trading partners? It appears on the face of it that it would treat investors from other countries less favourably than New Zealand investors.
“This is a policy that’s designed to solve a political problem. Evidence in both Australia and here in New Zealand is that overseas buyers don’t have a significant impact on the housing market.”