By David Hargreaves
The numbers of overseas-based buyers of New Zealand homes will only grow and a national discussion is needed around what to do about it, BNZ chief economist Tony Alexander says.
“It’s most definitely a discussion that we should be having,” he told interest.co.nz.
In response to widespread anecdotal suggestions of a large increase in offshore, particularly Chinese buyers, of New Zealand houses Alexander recently sought specific figures through the March BNZ-REINZ Residential Market Survey.
The key result was that 9% of buyers came from offshore nationally, with 11% of Auckland house buyers coming from offshore. Of the nationwide sales, people from the UK were most represented, with 18%, followed by China with 15% and Australia with 14%. In Auckland the Chinese were the biggest individual group, with 19%. However, many of those buying houses said they did intend to live in New Zealand.
The main point of contention with people appears to be what are perceived as growing numbers of offshore-based buyers snapping up NZ homes but then not living either in the homes or in the country.
Crunching the survey figures further, Alexander found that 4.6% of all properties sold in Auckland at the moment are going to people based overseas and not intending to live here.
“Nationwide, it works out at around 4% and if you are looking at China in particular, and it seems to be a particular area of interest for many people, about 0.8% of properties in Auckland are being sold to people in China who are going to stay across there."
Alexander admits the figures show smaller percentages than he might have expected.
"Well I guess yes, based on the anecdotes people had been throwing at me for the past six to nine months, in particular of Asian buyers at the auctions etc. And I had a few people afterwards emailing me, saying the numbers just don’t gel with with what they are seeing out there there.”
But Alexander says one of the reasons for the apparent disparity is that a lot of people are talking about the prime school zones. The North Shore is discussed as well - but there are a lot of migrants there. And in any case there are increasing numbers of Asian immigrants, with Chinese now the second largest addition by nationality to our net migration.
'On the low side'
Had had thought the numbers were maybe “a little on the low side” but then found a similar survey by the National Association of Realtors in the US, which came up with a figure of 4.5% of sales in the US to offshore people not intending to reside there.
“I got about 4% nationwide for New Zealand... I’m in the ballpark, that’s what I think.”
But regardless of the current figures, Alexander says greater levels of offshore buying in the future are a certainty.
He points to our rapidly increasing trade relationship with China, increased spending coming from Chinese tourists and large numbers of Chinese students coming to study here.
“What I’m wanting to point out to people is that with goods and services export flows always come investment flows, and one aspect of that investment is purchases of residential property.”
He said the Government's "Opening Doors to China" strategy document issued last year had a figure of 57 million Chinese earning over US$10,000 a year, but that this number would quadruple in the next 10 years.
We ain't seen nothing yet
“Well, whatever we are seeing now in terms of Asians buying generally of properties in New Zealand, the numbers, will grow strongly in the next few years. And I think the growth is probably accelerating at the moment as we’ve had new restrictions placed on foreign property purchases in Hong Kong and Singapore and an increase now in inquiry in New Zealand, so we need a debate on this.”
New Zealand has few controls on offshore buyers simply buying homes. But in Australia, offshore buyers can only purchase new houses, which is something Alexander sees as a good idea.
“I think that’s probably the point that we should be moving to if we are looking at legislation. So, this is for buyers from everywhere basically.
“I think that would be useful in New Zealand in the context of there is a shortage of property in Auckland in particular. So, if you’ve got people wanting to get a holding in New Zealand, if they are contributing to the supply of houses, I’d consider that quite a positive thing quite frankly. It’s not anti-foreigner. It’s simply a reflection of the supply situation in New Zealand and the way the world is going. In many countries you don’t have free rein to buy what ever you want if you are coming from overseas. It’s a natural thing.”
However, while Alexander says a national debate about the question of offshore ownership of NZ property is worth having - such buying is not the cause of the current squeeze on the Auckland housing market that is driving prices up. Prime Minister John Key said this week that if Auckland house prices kept going up the Reserve Bank might have to drive interest rates up - for all New Zealanders.
Phenomenally large shortage
“Well, the [Auckland housing] shortage is phenomenally large and it’s getting larger as each month goes by.”
Alexander has been warning of this for five years and says the country has “lost five years” of working on the issue because many people were convinced there would be substantial house price falls.
“What you have now is strong awareness of the shortage but, in a way, it is too late. We have the official estimates of Auckland’s shortage as 20,000-30,000 houses, we need to be building 13,000 per annum, it’s not going to happen end of story.”
Alexander says building consents issued for Auckland have been below the long term average of 7000 to 7500 a year since 2007 and by the time Auckland even gets back to that average figure “we are going to run out of builders”.
“They are going to be down in Christchurch, they’ve already gone to Australia, they’ve left the sector, we haven’t done the apprenticeships, so the supply simply is not going to come forward. The prices go up and like I say maybe there’s three years worth of that.
“...Now investors are catching up on buying as well. There’s a lot of momentum left yet.”
Three years to run
Alexander said recently that he thought the current housing upturn would last for about three years, which he says is his "best guess” based on history.
“History shows that when a cycle in anything gets going you never know exactly when it is going to peak or at what level the prices are going to peak. A lot of it is really driven by the extent of the shortage of property that I see in Auckland in particular, my belief that we are going to struggle to actually correct that shortage, so we are going to get some quite strong uplift in prices. But also a feeling of when is the Reserve Bank really going to get interest rates cranking, how long will it take them to get to painful levels at which the market starts turning the other way and I’ve got the best guess on that at the moment of about three years for the peak in the interest rate cycle."
All this leads to an economy that is starting to grow, fuelled by rising construction activity, particularly relating to the Christchurch rebuild.
Alexander says in the year ahead there will be very strong stimulus from the domestic economy, but the export sector is a different story.
Slammed
“They are slammed by the drought and we’ve already got tourism numbers overall going backwards. And the high currency, it’s going to go higher because the rule there is the Kiwi dollar goes up, when the housing market goes up – so there’s three years for you, and the Kiwi dollar goes up when interest rates start going up. They haven’t even started going up yet. So, I’m sorry to give a message to the exporters of ‘you ain’t seen anything yet’ as far as the currency goes.”
Alexander says it all points to “a very imbalanced period of growth in the economy”.
“…Domestic driven upturn in the economy, current account deficit blows out, eventually the overseas investors say that seems a bit extreme, but while the interest rates are high and rising they are not too worried about it, and this is all to play out over, I’m guessing, the next three years. Ask me again in a year’s time I may have a different profile because, look the level of unknowns especially overseas, is still relatively high.”
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