The foreign buyer 'problem' has some ready and non-drastic solutions

The foreign buyer 'problem' has some ready and non-drastic solutions

By David Hargreaves

The Government's learning the hard way how counter-productive it can be to treat a perceived problem by refusing to publicly accept its existence.

When I began living in Auckland for the first time in several years in 2013 I was genuinely taken aback by the very dark brooding resentment, just under the surface, regarding the purchasing of Auckland houses by 'foreign' buyers.

New Zealanders who haven't spent much or any time in Auckland during the past few years really won't have a clue just how strongly this issue is being felt by Aucklanders.

The Government, of course, has known, but has chosen to publicly ignore it. Rising house prices suit a National Government fine. Rising prices also suit Aucklanders who own homes fine as well.

The problem comes when you get screaming headlines about Kiwis being 'locked-out' of home ownership. 

Within a month of moving to Auckland in 2013, I was strongly suggesting that Australian-style controls of offshore buying were needed. The BNZ's chief economist Tony Alexander has been very consistent in his view in the past, at least two years, that whatever the level of foreign buying at a given point, we can only expect it to increase. But what was also clear in 2013 was that better information was needed on what was driving the Auckland market.

Heading-off hysteria

If two years ago the Government had moved to start collecting quality information on who is buying houses, the near-hysteria of the past few days may have been headed-off. Instead, the Government handled the issue abysmally by refusing to publicly acknowledge it - until the level of public opinion meant it could no longer be ignored.

The measures announced in the recent Budget were in my view slightly bizarre, since they were targeted at a problem the Government had not acknowledged and hadn't bothered to properly independently verify. So, in other words: "Here are our measures to tackle a problem that doesn't exist."

It is clear reading between the lines of the recent dump of officials' pre-Budget advice, that these measures were put together in a hell of a hurry. That's a Government giving a knee-jerk response to perceived public opinion, not a Government implementing carefully considered policy.

But it is worth looking at what we've got.

Offshore buyers will have to give IRD numbers and details of a New Zealand bank account. As well, the Government is supposedly looking at introduction of a withholding tax on sales of property by offshore people.

The right direction

These are moves in the right direction, though at risk of sounding like a scratchy YouTube recording, I will say it would still have been better to collect information first. And it is still by no means clear to me just what sort of information will be provided by these new measures. A home ownership registry that records the domicile of owners as well as the type of owner (whether owner-occupied or as an investor) would still be the way to go.

But now, of course, thanks to the Government's previous inaction, the court of public opinion has moved on. The voice in the street now has it that this country should be banning any people who are not New Zealand citizens from owning property. That means that anybody emigrating here would have to wait five years to buy their own home, because that's how long they would have to wait to become NZ citizens. This could put quite a lot of people off coming here. At a time when we have a net migration inflow of more than 50,000 per year (remember that's a historic high by a long way) it possibly seems like a good idea. It might not seem quite so bright once (as night follows day) bigger numbers of New Zealanders start packing up their tents and heading offshore again. We do need some sort of domestic economy. And a falling population would not be the way to stimulate that.

A cursory glance at the property ownership policies of other countries throws up some interesting things. China doesn't bar foreigners from owning houses, though you can only buy one, and you have got to have lived there for a year. And no, I haven't tried to buy property in China so I would be guessing it would not be straight forward, but theoretically you can.

Ownership bar

In searching for a place that does definitively bar foreign ownership, I then looked up Thailand - as I understood there was a bar in that country. Well, apparently as a foreigner you can't own land (though there are ways and means of going into minority partnerships, or you can get long term leases), but you can own things like apartments (providing 51% of the apartment block is owned by Thai people).

Britain doesn't bar even offshore based foreigners, nor does the US, nor does so far as I can see, most of Europe.

So, if we as a country went down the 'NZ citizens-only' route we would certainly be marking ourselves out from an international perspective.

I think we need to be a little bit careful about not over-stating our own level of importance in the global scheme of things. The most memorable description of this country that I can recall came in the 1980s from an American official, James Kelly, who described NZ as "a piss-ant little country south of nowheresville", which by any measurable criteria is actually about right. The 'flood' of migrants we are seeing here is a flood only by New Zealand standards. The rising numbers of tourist visitors here are most welcome, but as a much as anything reflect the fact that well, more people travel these days.

Mobile money

We are not special. What is happening in New Zealand is happening all over the world. People are mobile and so is their money.

At the moment any perceived attraction for this country as a housing investment destination would stem from a perception that we are a soft touch. No stamp duties. No other taxes. No restrictions on number of properties owned.

But the world is now a village. And the reality is that unless we match the kinds of measures other countries have in place regarding the ownership of property then we will stand out as being a relatively more attractive place to invest. What are you going to do, invest in the country that taxes capital gains, or the one that doesn't? So, our little 'piss-ant' of a country gets into the consciousness of some investors because it offers tax advantages, but, believe me, for probably no other reason.

So, I suspect it would not take very many measures at all to dampen offshore buyer interest here. A New Zealand citizens-only house buying policy could be seen as the nuclear option. We probably just need a few hand grenades.

I am now increasingly of a view that an Australian-style bar on offshore ownership would be too tough for us to do because of various free trade agreements we have. As I read it, our FTA with China would preclude us doing anything that disadvantages China relative to other countries.

At the moment Kiwis can buy investment properties in Australia without having to live there. If we barred offshore house buying here then presumably we would also be forced to bar offshore-based Australians buying here - otherwise Australia would be getting an advantage over China. And if we then barred Australians buying here, well, we couldn't expect to be surprised if they then barred us. I wonder how many Kiwis would be affected by that. Based on the number of people I know who have Australian properties, I would have said it would affect many thousands.

Giving it up?

I would say that if Kiwis who have investment houses in Australia are prepared to give up that privilege than, okay, we could look at foreign ownership limits.

But otherwise, ultimately, tax is the way to go. Introduce stamp duty for non-resident buyers. Go ahead with the plans for introduction of withholding tax for offshore buyers next year.

Also, why not stipulate that any offshore-based buyer HAS to rent out the property? This would be a good counter-punch to the widespread stories of empty houses in Auckland.

These measures would help level the global playing field.

I hope the Government has learned its lesson and will in the next 12 months move in the right direction. I think it will and it will be then a case of 'panic over'.

Just remember. What goes around comes around. There will come a time (again) when owners of New Zealand houses will be extremely grateful for the chance to sell their properties to offshore buyers.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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34 Comments

20
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If after 40 years of having normally sized testicles, a man's nuts suddenly start increasing in size by 10% per month, this is not a cause for celebration. This man has NOT suddenly become a sex god. He does not need to ponder. However, he must go and see a doctor/oncologist urgently!

The rampant increase in housing costs in our biggest city is equally troubling. We are witnessing Weimar Republic style inflation in house prices in Auckand. Prices apparently are increasing by $3000 per week! Invariably, uncontrolled, exponential increase (except just after conception) is an augur for death and destruction (bad!). Think nuclear bomb, think cancer, think plague of locusts, think red tide, think Great Depression, think an ungoverned accelerating motor. Ungoverned increase will result in an explosion. Every time!

I see a Category 5 hurricane making landfall in NZ and our government is doing NOTHING. This has got nothing to do with race and everything to do with our survival as a nation. It is not trivial, it is Apocalyptic.

Don't worry about stamp duty, just ban non-resident purchases of existing housing. If a foreign investor is willing to pay $500k+ above CV, another $200k+ in stamp duty might not be a deterrent. Stipulating offshore buyers must rent out the property is quite complicated to enforce.

I think in 12 months it will be a case of red alert panic stations as the Government is caught between $3000 per week price rises and banning non-resident purchases which will leave the Auckland market with a $300k+ cliff between current prices and what locals (on aggregate) can afford.

The damage has been done and there is no soft landing to be had from here politically or economically.

I would not mind at all if the hard landing you suggest brought down the pathetic excuse for a government we endure.
The problem is that it will likely also take down our banking system and national economy.

the 24 months till the next election are going to be very entertaining

I haven't seen many proposals just around citizens - usually it's citizens and permanent residents, which is of course a lot more sensible. I think you missed some countries with your search - take a look at Fiji's rules. And of course there is Australia as you mention - personally I want their rules with the loopholes removed. If off-shore $ want to build us new houses - great! But I fail to see the value in allowing off-shore $ to speculate in existing residential real estate.

Even the new build stuff needs some checks and balances, like you can come and build houses to sell, though frankly, I would rather that remain as jobs and projects for NZers simply as part of a local economy, globalization, for my money, is the biggest crock of you know what we've been sold in a while, especially as it goes at the moment, big swallowing small whole, you can stick that where the sun don't shine.
Next, I am damned if I want a single solitary one of the foreign new house builders remaining as landlords. Landlording has got to become a far, far less attractive proposition and steps must be taken to return NZ to being a majority home owner/occupier nation, the last thing we need there is people from other lands picking up welfare from our state in the form of accommodation top ups etc.
If the govt wants to gain a bit of kudos (stress, bit) then they will remove residential property from the investor category for immigration, that has to be borderline criminal.

Why doesn't New Zealand have any restrictions on property buying by foreigners? Why are there no Laws or Rules to govern the trade? Because giving all due credit to our nation, we know they won't work! We already have 'Rules" surrounding domestic traders in the property market, and those rules; laws are broken each and every day by a New Zealander who blatantly claims that "the purpose of this transaction was not to make a profit, but to create an income stream - so I don't have to pay income tax on the 'fortuitous' gain". We don't even stick to our own rules; the ones that apply to us! Why would we think offshore buyers would behave any differently? They won't and we know it.....

You can roll over and play dead if you want, just don't expect the rest of us to

'Rising prices also suit Aucklanders who own homes fine as well'. Not if you have kids it don't! We do wnat them to leave home one day....

a few got shocks today when they got there new rate rises, remember as your houses goes up in value so do the costs associated with running and maintaining it.
thats fine as long as wages keep suit not so good when they dont leaves less disposable income

15
up

The Auckland house price thing is the biggest social disaster this country has faced in many decades.
I think this disaster has been neglected for so long there has to be a hard landing on Auckland house prices. Sooner is better. And some will get hurt.
Lets not mention China or India, but say 'overseas' demand.This problem does not come about because of factors in New Zealand.
Increasing supply is not the answer for housing. The potential demand from 'overseas' will swamp any supply we make because we are tiny and it is a big world. I would propose that New Zealand property can only be sold to New Zealand citizens. That does not include 'residents' ownership.
Yes. there would be unintended consequences. Managing demand for citizenship will be challenging. Yes there would be a big drop in immigration. Not such a problem in my view because we have a significant problem with infrastructure already. Mainly in Auckland and those that live there cannot pay now for what they need and are indeed decades away from catching up.

There doesn't have to be a hard landing. [Xenophobic / racial rant removed. There is no need to stoop low. Final warning. Ed ]

The part about the government being bought and paid for wasn't xenophobic or racist. Why was that removed?

16
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I find it bizarre that John Key once spoke of 'not allowing us to become tenants in own our country', and yet the government's policy has always seemed to be geared to achieving this as the ultimate outcome.

What hope do average New Zealanders have of ownership with these clowns at the helm?

10
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John key has said a lot of things then done the complete opposite or worse nothing at all his is a politician after all so to believe him would be naive.
i think that will be his downfall as people slowly start to realise his true nature

Man, there's some "I told you so's" coming

Crickey, and i thought Muldoon was bad!

I'm renting form the owner that lives in Shanghai. He has 5 properties in Auckland.

Chinese buyers made up a large component of the company's business, Alexander said.

"There's nothing unusual, unique or scary about that...good on them."

Barefaced self interest from Barefoot and Thompson.

Poster children for the great sellout.

One quite simple way of allowing Australian ownership of NZ property is to allow only those who may live in NZ "as of right" to purchase. This would allow the present position to continue, (except their criminals :o) )
Regarding citizens v permanent residents, it would be very easy to restrict ownership of second and subsequent ( rentals?) to citizens which would have the added advantage as an incentive to move toward citizenship. That would also stop moneyed immigrants investing in rental property for several years and cause them to divert such funds into productive areas of our economy.

It's not that the government were publicly ignoring it, David.
And its farms and forestry land as well as Auckland houses, it's that Key&co were actively denying it and accusing anyone who brought it up as racists and xenophobes.

Closing down an issue with a claim of racism or sexism or any other ism is pure cowardice.

Key and co have perhaps earned the white feather of cowardice...

On a black background so there is no mistaking

On a black background so there is no mistaking

The Auckland house buying story is in The Australian

http://www.theaustralian.com.au/news/world/chinese-buy-40pc-of-homes-in-...

Mr Hargreaves, we don't have to fear nor be beholden to anyone.

Our population won't fall if migration went negative as we still have strong internal natural population growth. Our population has not fallen in the past despite large population outflows to Australia.

Second a FTA with China does not give them preferential status over Australia as we already have a different relationship with them on almost all facets whether migration, social welfare, healthcare etc.

The best solution is a ban on non NZ/Aus citizens buying rental properties in Auckland. Permanent residents should only be allowed to buy their own home but not before being resident for 12 months.

Strict rules need to also be enforced on the source of funds and income to purchase properties.

Huge fines for breaching the rules need to be imposed.

Note this should be an Auckland only rule to get the city back in line with reality. There is an infinite amount of international cash available. There is a limited supply of Auckland housing. If the housing market simply becomes an asset class for international investors, then the wellbeing of our economy will be at the control and the whim of international markets...

They wont do it because it is past the point of no return. Now that there is a much better understanding of the scale of the foreign speculator activity in the market, can you imagine what would happen if the Chinese money was removed overnight? 30% of purchases if not more evaporate. Shortage turns into massive surplus.

Fear and panic would abound, nobody would buy and the market would implode to intrinsic value or lower. Nope, they have painted themselves into a corner and they will blow it bigger to save face.

I'd also be willing to bet the slimy creeps have a special suprise instore for us with the TPPA and foreign ownership rights.

"The Government's learning the hard way how counter-productive it can be to treat a perceived problem by refusing to publicly accept its existence."

Hasn't that basically been the National gummints credo since it came into power? Ignore the real problems, invent fakes ones to distract from the aforementioned fact?

now now enough of that, about this flag though...

If buying by overseas interests is negligible, as some say and if it disappears when the government brings in restrictions, will we really miss it ?

"The best solution is a ban on non NZ/Aus citizens buying rental properties in Auckland. Permanent residents should only be allowed to buy their own home but not before being resident for 12 months."

Another dopey suggestion. If permanent residents have to rent for 12 months before buying what do you think rents will do?

Rise of course, right across the board.

Next idea please.

There is a reason that house values are going up by several thousands a week and that is demand. Supply cannot be increased within a short time, but demand can be curbed quickly. Is there a political will to do that. Rising values help the Council in putting up rates, which is borne by existing home owners, not necessarily by only those who have bought recently or speculators. There is some injustice in that.
And the perception of a hot market draws more into the Auckland area, thus self-fulfilling the prophecy of a hot investment opportunity.
RBNZ doesn't seem to have any weapons to fight this, Central Banks are so overrated and obsolete.
A referendum in the Auckland area would be a good starting point to get the public opinion on what level of non-resident house ownership should be allowed.
Wish the Auckland Councillors would get in on the act and spend some of that rate money on getting such public opinion to pressure the Central Government to act.

If one of the major attractions of investing in NZ is the safety and stability, then the general public have some tools against that. A campaign of threats, kidnappings, arsons and firebombings would do it. Does the government really want NZ to go there? Because we will if it's ignored and denied long enough.

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