Restrictions on overseas investors buying existing New Zealand houses could be a good idea, BNZ chief economist Tony Alexander says.
In his "weekly overview" Alexander cites the rules in Australia, which say that if you are Australian or have residency you can buy what you want. However, if you are an outright foreigner then you may not buy an existing house. But you can get a new house built.
"In this way the residential purchase rules applying to foreigners act to boost the supply of housing across the Tasman. In the context of a housing shortage in New Zealand that would seem like a good idea," Alexander says.
At the moment there are no restrictions on overseas investors buying ordinary New Zealand homes. Anecdotal evidence has it the quickly warming house market is being at least partially fuelled by overseas buyers, with resultant suggestions that there should be limits placed on foreign buyers.
The BNZ in conjunction with the Real Estate Instate of New Zealand does a monthly survey on the housing market. This month's will include more specific information on just where recent buyers of properties come from.
Alexander last week cited an email from an Auckland developer talking about getting out-bid by foreign buyers for sections. This week he talks about another email he has received from someone in Wellington, who says it is "not just Auckland where Chinese clients are buying property".
"We are spec building in Johnsonville, Wellington, and traditionally spec building means you complete a house, then sell it," the email reads. "Now we are lucky to get foundations completed before we have a buyer on it. Of the seven we completed last year we sold all but one to a Chinese family, which was sold to an Indian family.
"As one client of a 190m2 home built on two levels on a 250m2 site said: 'I am 35, until I was 30 I never lived lower than the 24th floor and I had to change countries to achieve that. I have a freehold home here in NZ financed in China, my parents live upstairs and I can walk out onto my own grass at ground level and have two cars in my own garage. You can even get abalone inside harbour! – yes I am happy.' The 10 sites we have under construction at present are all sold – only two have been sold to non-Chinese, but still Asian buyers. The nine sites we have in planning; we are already receiving enquiries from … (insert any nationality beginning with Ch)," the email said.
Alexander says the challenge to kiwis is to move beyond "myopic Yellow Peril thinking" and to figuring out how we can best make money out of the boom in Asian economies and the centre of global economic activity shifting from the North American-European axis "to our doorstep of Asia for the rest of the history of this planet".
"...But also, it is entirely possible given the worsening home affordability problem in Auckland in particular that legislative changes may be needed – not just in New Zealand but in other countries as well," Alexander says.
He also comments on some of the suggestions being made specifically on home affordability.
"One commentator noted that the government would not want to go into next year’s election with high angst regarding home unaffordability. Actually, there are a lot more people who want house prices to rise than there are wanting them to fall. Or to put it another way, governments probably don’t want to go into an election having taken measures which make people feel poorer," he says.
Proposals to reduce prices by freeing up land and cutting building costs are unlikely to have the results many people seek, Alexander says.
"Firstly, few people are interested in further urban sprawl in Auckland given the poor public transport system. Second, there is no shortage of land in most regions of the country outside Auckland. Even in Christchurch there is a lot of land available to build on – yet prices still rise. Third, not everyone in fact believes there is a shortage of land in Auckland. In the opinion of NZ Mortgages and Securities principal James Kellow in a Sunday Star-Times article this week there is not a shortage of land but a shortage of developers and financiers.
"Fourth, building material costs reflect the style and size of the houses we like to build, and the ever tightening standards which get applied for construction – insulation, water-tightness, inspection frequencies, earthquake standards etc. There is no magic wand which one can wave to make prices of 4 by 2 or gib go lower. In fact construction costs will only rise in the next few years due to labour shortages across the construction field."
Alexander says there is also the issue of whether the rising house market we are now seeing is a "bubble". He doesn't think so, at least yet.
"In a true bubble, debt growth in the household sector would be a lot more than the 0.4% a month we are currently seeing. Second, in a bubble one would expect to see the entire spectrum of the housing market rising but that is not (yet) the case. Partly this is because for the upper end to move you need a lot more business profitability for the SME sector which is something we do not yet have in the economy."
Alexander says what is going on is a simply a reinforcement of a realisation that set in about 15 months ago that there is a fundamental shortage – especially with some five year’s worth of young buyers now entering the market to make the purchase they should have made in 2008, 2009, 2010, 2011, or 2012" but did not because people told them house prices were going to fall sharply – simply because various measures showed them to be over-valued".
On the potential of imposing maximum loan to value ratios - limiting the amount banks can loan on specific properties, Alexander says if you put a minimum deposit limit of 30% on the value of a property, many young buyers would be excluded.
"Those still committed will take on higher costing second mortgages or unsecured loans. Investors will shift from buying $900,000 properties to chasing $600,000 ones and again first home buyers will face higher competition in their price bracket.
"Plus, not everyone buys with a mortgage and the anecdotes suggest many overseas buyers pay cash. Therefore minimum deposit rules would favour foreign buyers unless foreign purchase rules are introduced," Alexander says.
50 Comments
To be honest, I think this shows a lack of vision. Why stop at houses? If a foreigner wants to purchase shares in NZ, then they should start a new business before they are allowed to own shares in it. We could certainly do with some more new businesses. Particularly ones that would be good enough that a foreigner would want to buy them.
And Gareth Morgan is going to want to put a limit on foreign ownership of existing cats obviously. We don't want them being subject to supply and demand and suddenly running amok because of the relative strength of the NZ dollar.
Clearly we don't want Johnny Foreigner buying second hand boats either. That's not doing any good to boat builders. New or nothing I'm afraid. If you want second hand rubbish you can go get your yachts in Cannes like everyone else.
Same with cars. Hands of our Japanese imports. Go get your own. If you want to own a car in NZ it has to be an NZ New one.
And quite frankly I'm a bit concerned about the inorganic rubbish collection. We had one in our street last week, and I am deeply worried that some of the pre-collection recycling was being carried out by people who are not permanent residents. If these foreigners want the electronics out of TVs, then they are just going to have to buy a new one. It's an absolute disgrace that we allow foreigners to get the cash for recycling old electronics.
The difference is that housing is a NEED, not simply a commodity.
If people didn't need shelter it'd be the best thing ever if the NZ property market grew and grew and grew. It's not good though, because ACTUAL New Zealanders who go to work every day, earning New Zealand dollars need to be able to afford to live here.
If something is a NEED, then it is dangerous to reduce it's availability by regulation. A five minute brainstorm would get you 10 different ways that a foreigner could still own a house and leave it vacant.
I recently drove past a done-up weatherboard house on a full section in Manurewa that was for sale for $275k, and was within easy reach of the Manurewa train station. The same house in an inner suburb would be $500k more, and you would need to sit in car traffic to commute from it. If a first home buyer wants to compete with foreigners trying to get their home-alone kids into the "grammar zone", then they'll need to find an extra $750k somewhere. But if they want actual shelter to fulfil their need for housing (and would like to use public transport instead of a car), the answer is right there waiting for them.
Incidentally, while you're sitting in that traffic you might notice the advertisements for Tauranga that are running at the moment. If you care to meet your need for shelter there, you can do so for several hundred thousand dollars less than Auckland. And so on down the provincial ladder until you get to Invercargil where Tim will probably pay you to move in.
Have you checked out the $275k neighbourhood, would YOU want to live there. I thought not.
First homers are NOT trying to get into GZ they are trying to get into a home in a reasonable neighbourhood, not a war zone. Somewhere like Northcote, Pakuranga where in the 70's and 80's there were a lot of group housing building going on. Take a drive through those suburbs, while you are there, check off the number of houses with the grass growing up to the windows, the curtains drawn, unoccupied. These are the houses we are referring to in this argument against non-resident foreign buyers, oh and landlords while we are at it, oh and farm owners while we are still at it.
We seem to hell bent in selling off our stuff, well I say stuff it,time for it to stop
I'm unaware of any wars being fought in Manurewa. Although apparently there are some immigrants from the South Pacific, some of whom may not have permanent residence, so perhaps you would prefer they rent?
Funnily enough, back in those 70s and 80s you would have said the same about suburbs like Ponsonby, where no respectable white first home buyer would dream of buying. Then all of a sudden the tide changed and Ponsonby "gentrified", so the house prices went up.
BTW - did I miss the memo about not mentioning South African and British immigrants or American off-shore buyers?
rhys.lewis What part of non-resident foreigners do you not understand, we are not talking immigrants we are not talking any specific nationality, other than to say, I would accept an exception in the case of Austalians to acknowledge the different relationship we have with them, but only if they have the same in return
I object in the extreme to foreign landlords pocketing WINZ housing topups, I object in the extreme to foreigners profiting from farmland, especially given it's one of the few means we have of making a crust (I accept the drought could put paid to that for a while) and I object to cashed up foreigners forcing kiwis to pay a kings ransom for a home, even if they get the chance. Got it?
There are many parts of "non-resident foreigners" that I do not understand. For example when I (true story) lived in London and bought a property in Auckland through an NZ registered company, was I a non-resident foreigner? The company was registered in NZ, so was subject to NZ tax law etc. If you wouldn't have liked that arrangement, could I have made it OK by making sure that there was an NZ resident as a employee or director of the company? If that is OK, then can that person be an employee or director of a whole lot of companies so that me and all my mates can own houses in NZ? I didn't have any WINZ tenants in my property during the time that I owned the company that owned it, but at one point I did have some Australian doctors. Is it OK to profit off them because they were Australians who were temporarily in NZ?
I take it from your comments that you would have been very upset if I had bought a farm rather than a residential property. So good thing I didn't.
As it happens, I sold that property on returning to NZ and purchased another house with income I earned in the UK. Do you object to me forcing other kiwis to pay a kings' ransom (actualy Liz is a queen, but I'll go with you on this one) for houses, or do you object to the kiwi who sold it to me getting a kings ransom for the place that he did up?
Oh btw. did I say I was a kiwi? Well the funny thing is I was born in Japan. Fortunately that wasn't on the list of asian countries below, so I suppose I'm OK. But does being an Asian immigrant affect any of the above? Is so, can I balance that out by the fact that both my parents are white?
So to cut a long story short. No, I haven't got it.
rhys.lewis None of it would be a particular problem if it all wasn't cutting out born NZers being able to own homes and farms in their OWN country, so until such times as there is an actual level playing field, I will stay with my wish for NON-RESIDENT foreigners not being able to own property here.
I do not know what you were in terms on NZ back when you lived in England, I guess if you were not an NZer, one way or another, and you were living in London then no, you would not have been able to buy. Semantics don't really interest me, getting kiwis back on the homeowning ladder does
I was using an example of a circumstance that I found myself in to illustrate that this idea would be impossible to implement. Any property that is held in a family trust or company structure would introduce far more complexity than a reasonable law could accomodate. If Telecom owned a residential house (eg. their staff baches) would foreigners be allowed to buy shares in that company? If a house is owned by a family trust, how many of the members of the family need to be residents? What about if I die and pass my house on to a child who is not a resident? Yada yada yada.
The answer to beating all these foreigners is not to raise the drawbridge, it's to raise our achievement. And there isn't a person on these islands who's recent past doesn't include immigration for a better life. It is incredible how soon that journey is forgotten.
Sorry for the imprecision. Tell me which step in these processes you want to stop, and how you will do that.
Scenario 1:
1. Fred the kiwi creates a company, uses the company to buy a house, and he lives in it.
2. Fred starts a business working from home selling plastic toys he imports from China
(The toys are sourced from a corrupt PRC government offiical, who is rich and worried about the crackdown on people like him).
3. Fred's supplier in China buys his company, and Fred leaves his house after selling the business
4. Grass grows to the windows
Scenario 2:
1. Maureen the landlord has built up a business that owns 10 rental properties over her 40 years as a primary school teacher
2. On retirement she sells the business to the corrupt official above
3. The corrupt official employs Maureen's daugher as a property manager to run the rental properties and does not set foot in NZ at any point
Scenario 3:
1. The corrupt official sends his neice to university in Auckland. She is here long enough to gain residency, so when she does he gives her $500k as a gift, and she uses it to buy a house
2. She graduates and finds a job in Sydney
3. She never returns to New Zealand
4. Grass grows to the windows, but the CGO advises his neice to retain the property assuming she may gift it back to him if he needed it
raegun says "Take a drive through Northcote or Pakuranga and check off the number of houses with the grass growing up to the windows, the curtains drawn, unoccupied (unkempt? unmaintained?) ... These are the houses we are referring to ... against non-resident foreign buyers"
Can you explain what you are getting at please? .. the last few words contradict what I thought you were getting at
Yes I totally agree with you....Infact I think we should go further and disallow Foreign money into our country too !!! Think of all the profit foreign banks are making lending their fresh minted dollars to our banks !!!
If Kiwis want money they should create some of their own and not allow foreigners to lend it to us !!!
This is a great idea. Obviously the Aussies are more switched on than we are. This way we'd put foreign capital from foreign investors to good use, to build things that Kiwis actually need. The current status quo (which sucks) is that many houses bought by foreign investors are remaining vacant - just reducing the available pool of remaining houses and therefore pushing up prices for everyone else.
Myopic Yellow Peril - WTF......more like Myopic White Brown Peril!!!!!
Short-sighted and ensuring slavery upon the middle and lower class citizenry of NZ.
The wealthy immigrants can live in the new homes while those struggling on to the property ladder can have the old which will become slums. I have to ask Tony Alexander - Have you ever travelled through countries like China? I'm not talking about ensconcing yourself in nice hotels and enjoying the priviledge of middle to luxury travel. How did these Countries get their wealthy and poor? The countries end up poverty stricken for one reason and that is direct neglect on behalf of the ruling elite to ensure the citizens have their basic needs met.
CITIZENSHIP must account for something. If not the country can and will be sold to the highest bidder. What is the nett long term outcome of neglecting a citizens most basic rights?
If people want the land and the lifestyle that NZ offers then quite simply you have to become a citizen. It is obviously our environment that makes people desirous of living here so we had better protect that environment and ensure that it is available to future generations. Do NZ'ers want a population of millions? Do they want big cities with pollution? Do they want slum areas and real poverty?
Go further than this.
Tell the recent residents that they have to prove they can meet the rules for citizenship before they can buy more than one property.
I believe those rules demand a certain minimum number of days inside NZ in a specified number of years. That would also curb the commuting to jobs elsewhere.
John Key is right, we need to get over it becuase it wont work . Tony Alexander is fundamentally correct , but how can we defend ourselves against the PC brigade who will call it racial discrimination against Asians?
Or worse , South Africans who will see it as Apartheid because we will be effectively creating Chinatown-type settlement patterns in the bigger centres.
Asians ( China , HK , Sng , India, Sri Lanka , Pakistan, Indonesia and Malays ) are now the biggest source of migrants to NZ by a huge margin, so big a margin that the trend is now irreversable .
Guys, I think some of you are misunderstanding this. The proposal only relates to foreign based investors (Asian, Australian or otherwise). Its not saying immigrants can only buy new houses.
Its inherently sensible. It means new housing investment is supported, which benefits NZ, but restricts foreign investment speculation on existing housing, thus limiting 'bubble potential'.
I would support this, I have to say.
There are certain privileges of permanent residence/citizenship, and the ability to own a house (or more than one, if you wish to), I believe, should be one of those.
In these globalised/deregulated times, with global transient populations, it seems almost a dirty idea to be thinking about restrictions/regulations. But why not on key resources like housing? As Esprit mentions above, housing is a need, not a commodity, although it has been treated like a commodity.
In this country, we've taken the neo-liberal, open-market mantra to heart over the last 30 years. How about balancing it with a litte "pragmatic nationalism"? This has nothing to do with keeping members of particular ethnic groups out, or xenophobia, or racism, or any other concepts that liberal Westerners tend to feel so guilty about when accused of. It's simply about managing the housing resource, which is limited like all other resources, for the benefit of residents and citizens. Is that so much of a problem, ethically speaking? I would say no.
The problem is that non-resident housing investment has become almost synonymous with Chinese (PRC) investor, simply by having those terms collocated in so many media articles, and because, currently, PRC Chinese are probably the highest-profile group because of numbers and cultural differences. That, I have to say, is an sad trend. By no means all PRC Chinese are rich, and not all own their own house. It also tends to lump all PRC Chinese in the same unfortunate cognitively-lazy category -- "future-stealing, price-raising, scarcity-creating, 吸金, not-one-of-us housing investor".
But in reality, why blame non-resident investors? They, like everyone else, are looking for a stable place to invest their savings, where it will not be eaten away by inflation or collapse. The real estate market and government legislation, as they're currently structured, sends signals to them that NZ housing is a good place to invest -- to store money, in the same way that energy is stored in a battery. Thus, as sensible investors, they respond to those signals in a rational way. The thing to do is to change those signals, and money will then be invested elsewhere. The argument that "non-resident investors will just find another way to circumvent the system" is a feeble excuse for not doing anything.
There, I've said my bit...
JetLiner
Well said Jetliner. It's time that NZ'ers stopped being so naiive and starting taking measures to protect themselves from the downsides of globalization, while still benefiting from the upsides. This will stop NZ houses from becoming the objects of speculation from wealthy non-resident foreigners (whether they be Chinese, European or wherever they are from it doesn't matter). That speculation is currently hurting ordinary New Zealanders.
From a political point of view, surely this is a no-brainer, as the only people that would object are non-residents and therefore, non-voters. They would have to be careful to shut the gate on any loopholes such as a non-resident creating a business in NZ and buying houses through that. I think in Australia only residents can establish a business and only residents can get .com.au web domains as well.
The Chinese and the Aussies both restrict land ownership by foreigners, so why shouldn't we?
Do it now!
Us Kiwis won't adopt such a change especially with JK running the show. Hands off is his style and NZ is getting addicted to it.
The best solution is a simple stamp duty on non-resident purchasers. The money collected in one year by a stamp duty would probably have paid for the census which I read cost $70mil. Or it could pay for many other useful things that our taxes currently pay for.
Foriegn ownership would be less prevalent and property prices would reflect less recklessness by foreign bidders spending foreign printed money.
A simple stamp duty. Not new rules, restrictions, red tape and regulation proposed by Tony A.
Right...we await Tweak and Fiddle's decision on this...don't hold your breath....it will be months...likely two years before they wake up...and then....if they do.....they will form a 'working group' to study the Aussie policy , formulate options and consult with each other...and fill their pockets with taxpayer dosh in the process.
Meanwhile what will the real estate mafia be doing!
http://www.macrobusiness.com.au/2011/06/how-germany-achieved-stable-aff…
Germany has done pretty well. Any politician is interested to follow up?
I've read this article, and others like it, that blame house price inflation on foreigners (epecially Chinese). Not one article that I've read has any statistics what-so-ever, to back up the claim that foreigners are buying Auckland houses.
Where are the statistics, the facts, the hard figures?
If we start closing our borders to 'foreigners' that country will respond in turn. What if China decides they don't want our milk? We should ensure that we have hard facts before we start damaging our international relations.
Someone said the Chinese might stop buying our milk if we charge them a little extra to buy our land. hahaha
You think stamp duty won't deter the Chinese millionaires? It will deter a few...but those it doesn't will help pay yours and my and your kid's pensions kiwipete.
We can and should 'clip the ticket'. It's smart. Aussies do it to every citizen who buys a house, stamp duty is payable on every transaction, not just on foreigners.
NZ is thick as batpooh.
banning foreigners from buying existing residential property is not xenophobia Bob, its just sensible policy and most of the world does it.
Using your logic, we shouldn't have a minimum wage and should allow unlimited immigration, allowing NZ companies to hire staff for ridiculous wages, because it is is xenophobic to have protections on wages and limit unbridled immigration from the 2nd / 3rd world to work for low wages.
Bob - I;m certainly not xenophobic, I have many good friends of numerous nationalities who live in NZ who are also concerned with house prices here. I also know many people who live in other countries. I love the diversity.
I travel around third world countries and believe me the poverty is horrendous, I would hate to think that that type of poverty could ever happen here. Not only is there the hand to mouth existance for the adults, there are the orphanages full of children, clean water and sanitation are non-existent and all the photos in the world depicting poverty can never ever show the smell.
NZ has to be able to provide first for it's own people, regardless of the colour of their skin, sexuality, ethnic origins etc. Land is what a country is made up of, that and the people are the assets. Assets need to be respected.
This easily slides into claims of xenophobia, but really there are at least 4 issues re housing
1/ Lack of new house builds
2/ Banks and the way they create credit
3/ The ability of non-nz residents to buy land here
4/ Housing is seen as the best investment by a lot of people
There are probably more issues, but I would attend to those 4 first
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