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
10 Comments
Roger Kerr, I hope you are reading this, because I want what I am about to say to sink in for you.
The apparent difference between objections to Chinese v Swedish buying up our land is opportunity to comment. If you lot who publish these articles that we are able to comment on put up as many with mention of Swedish and German and American and English and Indian and whoever else you want to mention, buying up NZ, then we will voice our objection to it.
It is only that the hapless Chinese seem to figure in EVERY article about foreigners buying up land that they get as much mention as they do. That and the fact that no-one can buy any land in China.
I sometimes think the media do this on purpose so that the whole racist/xenophobic argument can be had, all over again, and so those with a vested interest in foreigners buying up the country, can justify their stance by accusing everyone of it
Totally agree, it's also hard to have respect when ridiculous comments like this one are made
"We cannot have it both ways, desiring foreign capital for some assets, however shutting the door on others."
Of course we can have it both ways just as China picks and chooses the investment it wants! The foreign investors in our government bonds and our stock market would not care a jot if we imposed some restrictions on foreign land sales. Many other countries including China have done this, fortunately for them they did not allow accusations of xenophobia to get in the way of very sensible policy.
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;
Roger, it is not obvious to me that there really has been any net benefit to NZ from these sales to foreigners; while the case for a massive loss of wealth is easily made, as follows:
Each of these purchases has to have bought NZD to make the purchases; thus in every case influencing the currency above what it otherwise would be. That overvalued currency causes less exports and import subsitution; and more imports in a vicious reinforcing cycle needing supposedly more foreign funds to carry the process on.
The canard that mortgage rates are positively affected seems nonsense. If there is too little demand for money in NZ, then that is what the OCR is for. If there is too much money, and inflation is rife, then again the OCR can be adapted. Apart from the wealth destruction effects of this foreign exchange effect, we are paying interest rates to foreigners that could easily be paid here. Again, if there is not enough supply of money from savers, then the OCR can be adjusted up to attract more. (I actually do agree with you that articifially low rates for too lnog are unhelpful in many ways). If there still remains not enough, yes, some can be printed, especially to meet essential government expenditure.
Certainly Bollard, in his last days in the chair, and I believe Wheeler, have both stated how damaging capital flows in are to New Zealand.
Some, to fund genuinely innovative things, is very positive. Enough to balance any of our purchases of foreign assets would also be okay- a current account in balance would be fine.
Don't expect us to thank the foreigners for the current process; even if we only have our own authorities to blame.
Don't expect us to thank the foreigners for the current process; even if we only have our own authorities to blame.
Their [foreign lenders] intentions are well defined as are those of their NZ cheerleaders.
According to the current terms of global trade under dollar hegemony, the penalty for a non-dollar economy that uses dollar foreign capital is a low domestic standard of living to support a high return denominated in dollars on foreign capital. Since dollar profits for foreign capital cannot be used in the local non-dollar economy, such profits must leave the domestic economy in one form or another, either through direct repatriation, or in economies with currency control, through central bank foreign exchange reserves. Thus there are no recycling economic benefits to the non-dollar domestic economy from dollar profits earned by foreign investment. Such is the pugnacious nature of foreign direct investment (FDI). Read more
Hence the #'s borrowed are glaringly unpayable: view table11
That is why we have to be careful about getting into the nest with China, it is the USA that controls the flow of oil that suppies 50% of our energy needs. Mess with the money and watch that dry up real quick.
Although we have our wealth redistributed to the empire I suspect we are still a net beneficiary of the process.
this backs up another comment on this website today that I have made that it is mostly (male, late middle age, wealth off, multiple property owning and balding) neo-liberals who cry "xenophobia" at any mention of restricting non-resident foreign property buying. These are the guys who are usually inherently benefitting from the existing policy. They then try to claim"racism", "over simplistic", "unintended consequences" etc.
YEs, we need more data. 4% of sales are to foreign owners. Is that NZ wide? If it is, it is quite likely that in Auckland it may be 10-15%. If it is that is significant enough to have a real demand side impact.
great about the bond market but most New Zealanders who see a foreign speaker out bidding them at an auction blame the bidders for high house prices and see foreign speakers as foreigners (residency or not). Having a house, garden is having a place to live (a nest) and this is the security people need first and foremost. As for land supply as the solution,, this is a solution made for the people who are the problem the lobbiests behind the realestate/construction industry.
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