Residential property purchases by overseas buyers were declining before the overseas buyer restrictions were introduced

Residential property purchases by overseas buyers were declining before the overseas buyer restrictions were introduced

Overseas buyers accounted for 4% of residential property purchases in the Auckland region in the September quarter of this year, down from 4.8% in the same quarter of last year, according to Statistics NZ.

However in Auckland's Waitemata board area, transfers to overseas buyers accounted for 9.8% of sales in the September quarter, up from 9.3% in the same quarter of last year.

The Waitemata board includes the CBD where there are many cheaper apartments that are popular with investors, and surrounding suburbs such as Grey Lynn, Westmere, Herne Bay, Ponsonby, Parnell and Newmarket, which contain some of the most expensive residential real estate in the country.

Other areas with high levels of overseas buyer activity were Upper Harbour 8.9%, down from 10.6% on the September quarter of last year, Devonport-Takapuna 5.9%, down from 7%, and Howick 4.8%, down from 5.6%.

There was also significant activity from overseas buyers in the Queenstown-Lakes District where they accounted for 5.2% of residential property purchases in the September quarter, down from 6.6% in the same period of last year.

In other main centres purchases by overseas buyers were relatively modest, accounting for just 3.2% of sales in Hamilton, 0.9% in Tauranga, 2.1% in Wellington City, 2% in Christchurch and 2.1% in Dunedin.

However the figures may only represent a fraction of foreign buyers purchasing residential property in this country because they exclude overseas buyers who purchase properties through corporate entities such as companies and this is the second biggest group of buyers after New Zealand citizens.

Statistics NZ said information on the ownership of corporate entities is not collected on land transfer documents, so is not currently available.

Properties purchased by overseas buyers through trusts may also be excluded, because they are counted as purchases by NZ citizens if at least one of the trustees is a New Zealand citizens, and it is common for trusts to have a local accountant or lawyer as a trustee, while the settlor and/or beneficiary of the trust may be based overseas.

Sales in the September quarter took place before new rules restricting residential property purchases by overseas buyers came into effect on October 22.

The anti-money laundering impact

In a note to their customers, Squirrel Mortgages said new anti-money laundering rules due to come into effect on January 1 next year would probably have a bigger impact on the market than the new rules restricting foreign buyers.

"In the past, a lot of the buying activity in NZ wouldn’t register as a foreign buyer where the owner on the title would be a NZ resident," Squirrel's note said.

"The owner would be a relative, a friend, basically a “property” mule.

"But it has become harder for mules to borrow from mainstream banks as banks strengthen credit processes.

"The big change that will stop foreign capital pouring into residential property is a combination of IRD numbers (put in, in 2016) and phase two of anti-money-laundering rules that have been extended to lawyers and real estate agents.

"This comes into force on 1 January 2019.

"Under anti-money laundering laws, there will be an obligation for agents and lawyers to verify the source of funds for property buyers.

"Simply having money won’t be enough," Squirrel Mortgages said.

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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13
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A bit surprised its not more, mind you I paying for a trust and a NZ lawyer to front it is not hard. Source verification will be interesting. Any feedback on penalty's for getting it wrong?

Indeed most people easily set up NZ companies and can claim additional benefits and lower tax on income. Many foreign purchases are not directly from a foreign buyer but from a NZ company, NZ trust, NZ resident or visa holder etc. 10% being those who do not have the nous to spend 30min signing up or consulting with a lawyer and accountant to do the work for them aka not most property investors. A few developer acquaintances even set up a few companies to shift assets between them and then eventually to different overseas owners. A person buying the property outright was a mugs game and always a less significant part of foreign purchases.

31
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no no JK told us it was only 3% , I would have loved to know the real figure for central auckland at the peak, national worked so hard to keep that from us

Is this the peak under National or the peak under Labour before the GFC, when prices were rising faster?

I understand JK was referring to national sales not just Auckland. It would be good if Greg could provide those figures (they are glaringly absent from his article). I know he loves throwing acorns at the chicken littles but a bit of balanced reporting wouldn't go amiss.

Yes, national picture will be very different from central Auckland (and a select few central suburbs) and Queenstown.

"Nationally, 2.0 percent of home transfers were to people who didn’t hold NZ citizenship or a resident visa in the September 2018 quarter, down from 2.3 percent in the September 2017 quarter and 2.8 percent in the June 2018 quarter. When Auckland is excluded, 1.2 percent of all home transfers in the September 2018 quarter were to this group."

https://www.stats.govt.nz/news/one-in-10-inner-city-auckland-home-transf...

Don't let the truth get in the way of a good story. 10% sounds much more alarming than 2%.

Both are interesting, it shows where the activity is concentrated, which correlates with more expensive areas. Causation could go either way though.

mfd -- If you ever wanted to collapse someone elses' housing market and economy then there is no point buying all the property in Palmy.... It's far better (quicker) to use your debt (credit creation by banks run by China) to inflate the top end of the largest city.... That cash will naturally filter to the regions and have the rest of the Country mired in debt... White flight is akin to a Trojan horse for everywhere on the periphery... The initial pump of credit (foreign cash) facilitating 10 -12 subsequent transactions but also increasing the debt levels of the 80,000 - 100,000 kiwis who try and compete with it each year..... It's genius policy... Then the crash happens and you hoover up the rest when the banks go bust who leant against the bubble.... was it all part of a 7 year post GFC plan by the PRC?

Yeah because Timaru & small towns is where most the NZ population live, yeah right. This was always a housing crisis that cut at the core of the economic and population centres, the large cities including the Southern centres, which blew any chance of housing in these areas where work is available out of reach of most NZ couples. A million dollar mortgage for a 1950s state home was often the best they could access in many areas, aka whole cities with nowhere they could afford to buy. Yet that had a sharp flow on effect on the rest of NZ. As most houses being sold on the market were also being sold in the populations centres, (higher number created a weighted effect), so the effect of the 10% in AKL CBD is far, far more an effect on the overall national average value than all sales in a place like Taupo. Hence most places like Tauranga and Hamilton leaped in value to be well over even the Auckland average value a few years ago as the prices were being pulled up from the flow on effect. That speed in prices was not reflected in wages, it was not reflected in jobs and if was not reflected in increased housing in affordable areas so people really were trapped either leaving NZ or renting into their 30s and 40s. Which will increase the social housing cost on all taxpayers due to lower home ownership rates especially with a lack in sufficient housing for fixed low incomes on pensions and lack in enough medical services to even constitute a basic ethical practice with deaths and crime increases the unfortunate result. Congrats you failed to look at the system as a whole. In future where there is a higher concentration of people and rate it will affect the whole nation a lot more than a town like Middlemarch which if it had a single sale would constitute most if not all the town's sales for years.

10
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Nah, it's only 3%..

While the amount of FBs is higher then we like, we need the data on FB sales to fully get the impact.

E.g. take Hamilton at 3.2% of sales. If this was a constant yearly rate and the FB sales rate was 1.9% then a accumulation of 1.3% will retain annually to FBs which will erode overall supply in market. If the FB sales rate was 5% then we actually gained national supply.

Greg, how hard would it to get the sales data to put this in perspective?

Hi Greg, In this data are all work permit holders and student treated as foreign buyer (As per current defination of foreign buyers)or is it just buyers who are not based in NZ (National manipulated defination of foreign buyer).

21
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Now that the buyers are drying up, what we need to know is how many properties are currently owned by foreigners? The accumulation, even at 4% of buyers, over the years could mean a substantial number of properties could fall into this category. Or are we too afraid to ask?

More too difficult now the horse has bolted, many formed NZ companies can have NZ agents by now and in real estate, legal agents are most of the staff. Plus Visas that were only part may have significantly changed and many may even be out of reach to identify the actual owner, e.g. trusts.

Will like to know What defination of foreign buyer was used for this data of 10%. Will be interesting to know.

"How many ‘foreigners’ are buying New Zealand homes?
It depends how you define ‘foreigner’. In the September 2018 quarter, of all home transfers:

79 percent were to at least one New Zealand citizen
10 percent were to corporate entities only (which could have New Zealand or overseas owners)
8.4 percent were to at least one NZ-resident-visa holder (someone who can live and work in New Zealand for as long as they like)
2.0 percent were to no NZ citizens or resident visa holders."

https://www.stats.govt.nz/news/one-in-10-inner-city-auckland-home-transf...

Foreign buyers are people who are not NZ citizens and who do not have residency visas.

Very low barrier to entry - might as well exclude visitor visa holders while we're at it.

Correct as anyone who is not a citizen is a foreigner but checking as earlier under National anyone based in NZ - Student / Work or any other short term Visa Holders were also NOT treated as foreign buyer.

So National was fibbing with data to suit their vested interest.

12
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We all know its way more than 4%. What needs to be investigated is the number of people hiding behind trusts. Lets face it we are only now beginning to tighten up but its already too late for many people, its going to take another 10 years to feel the effects of the changes. Better late than never but immigration is still too high and no government appears to want to address it directly.

So let us hope that any transfer of ownership even if only in part is caught by the new rules.
That would indeed kill the golden goose.

I thought killing the golden goose was not a smart thing to do

Opening quote: "Overseas buyers accounted for 4% of residential property purchases in the Auckland region"

Main headline: "Overseas buyers account for almost 10% of residential property sales in central Auckland"

Yes a bit click baity aye.

So:
- foreign buyers can't buy houses in NZ anymore
In Auckland:
- FHB can't afford to buy houses
- average Kiwis can't buy houses either with prices about 9 x household income
- investors are also out since there's no capital gain (which is going to be taxed anyway) and the cashflow is dismal or negative (and they can't offset RE losses against other income)

So clearly there will be no more house sales in Auckland for the next few years

..ah no. Plenty more. Biggest real estate agency will soon be a bank.

With a bit of luck, prices will correct to a new equilibrium and the Auckland housing market will function once more. Then the City can look forward to a bright future with a lower cost of living.

Yvil

I think you may have just pinpointed the reasons there will be a crash.

Posted by Yvil - 4 May, 2018 "So be brave and let the great depression happen, it's the purge the whole system needed. It's much better than the long slow downward spiral we're on now, which will still lead to a depression"

Yvil, if you can for once avoid making an argument just for argument's sake, there will always be house sales. In a dire scenario (such as the one you describe above), they'll just get cheaper. Surely you subscribe to that view. It seems quite logical.

Logical indeed but do markets follow logic?

No, markets are driven primarily by feer and greed.

Nic, and you said I have nothing worthwhile to contribute...

Yvil.

You're obviously getting some good education from spending time on interest.co.nz, that was a very thoughtful post and you nearly got it all correct.

Thank you master Nic, if I keep trying, maybe one day, I can reach your level of conceitedness

All false as stated.. in all cases there will be some sales.. just hugely reduced from what they have been in the past. Hence why the market will be slow, slower even than the last 6 months have been, and probably prices declining slightly for several years. But also some chance of a crash, if an event triggers it.

Slow sales, prices flat to declining for several years. Large downside risk.

Pragmatist, you had to spoil the fun… yes I do absolutely agree with your statement: "Slow sales, prices flat to declining for several years"

Looks like there has been a fair bit of pumping by the 'home team' trying to shore up their leveraged comrades.. Just wait for the 'bogus' bidders at the Auctions trying to help their mates get out of the shit in 12 months time.

Panic as 1/2 of Sydney homes fail to sell at auction; https://www.oneroof.co.nz/news/35574/?ref=nzhhome
The "OneRoof" excuses as to why NZ (with even lower clearance rates) is immune, are simply to die for ;-)

NZ Agents must be getting worried.

OneRoof Loves a spin. Suppose that's what you get when its owned/sponsored by a real estate agency.

I reckon you could solve the dry winter electricity problem by strapping/bolting/welding the oneroof editors to the input shaft of a large generator.. why use water to spin them when you have property editors..

RP. Order takers will be getting worried, good agents (albeit I don't think there are many of them) will be able to communicate the reality to their clients and should clean up... TTP may struggle I think... The trouble in NZ is that a lot of the agents are also heavily into the buy to debt bubble so reality is a very difficult thing for them to communicate to their clients. No sign of the B & T results today... I'm suffering withdrawal symptoms!

Stealth invasion of the South Pacific?

So stealth its already happened.

5th column! Infiltrate politics, get the country's household maxed out in debt and then influence every policy you want to control, agriculture, politics, the money supply, the exchange rate. We have been very naïve.

https://en.wikipedia.org/wiki/Fifth_column

"Foreigners" - remember our nationality is cheap and meaningless, so this includes resident visa holders.

The problem is not residents, most resident or visa holder immigrants cannot afford renting a 2 bedroom house even less to buy any property at all. The issue has been both internal and external speculation, the latter supported very often by NZ nationals or residents.

The real stat is that almost a quarter of all people living in greater Auckland are of Asian origin. The rest is bullshit.

And over 50% of people living in Howick were not born in New Zealand.

A country sold out from under young Kiwis for a quick buck.

50% of people living in London now, weren't born in the UK.. But we had to keep flooding the migrants in, 6 or 7 of them shoe-horned into 2 bed apartments just to keep the usury of the banks going. Auckland would be a lovely place to live if we followed the UK model... Oh, we already have!

If it was 150 years ago, this same comment will be something like "...over 80% of people living in Auckland were not born in New Zealand. A country given away from under young natives.."

Those people built the country. The Chinese tend to do best when other people build a society for them. Be it the British (Singapore, Hong Kong) or the Japanese (Taiwan).

Worked out well for Maori, didn't it?

Its slowed down because the Chinese Govt has tightened up even more on capital being taken out of the country. The Chinese Govt has achieved what Australian and NZ Govts have failed to do. So the FBB is a bit like shutting the barn door once the horse has bolted. Although at least it will still be in place should capital controls be relaxed again in the future.

"The State Administration of Foreign Exchange earlier this month published a list of 20 irregularities, which included four related to property deals, in a move designed to send a warning to investors it said were trying to get money out of the country through networks of “underground banks” or illegally pooling individual currency.
…The decision to publish the cases, which involved millions of dollars in fines, is seen as a warning that the government is less willing to tolerate what is considered a grey area in the country’s capital control rules. Liu Xuezhi, an economist at China’s Bank of Communications, said this showed Beijing’s crackdown on offshore commercial deals was being extended to individual investors.
“The government regulation on foreign currency is becoming more thorough. They are extending supervision from corporates to individuals,” he told The Australian Financial Review.
“The tight control on foreign capital will be maintained for the next one or two years. This would bring an impact to the Chinese investors who are planning to buy properties overseas, including Australia.”

Apparently it's not just houses foreign buyers can't have anymore. Dairy farms and residential sections as well. Apparently Dairy farms were quite popular targets for overseas capital. Not sure how 5% yield will look to local buyers.

When a country lets foreign capital flood its economy you get at first an economy boost, which the National loved as well as many people at that time, now that we see the consequences we appreciate the degree of power that have lost in favor of those "friendly" investor countries, being this sovereignty. I really hope we've learnt a lesson.

11
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Finally people are realising we are being colinised. Chinese have taken over central and north Auckland and very little assimilation just whole blocks of shops with no English whatsoever. Asians buying influence in parliament and all Kiwis are worried about is what Jamie Ross said about Bridges. These stats done even include companies and trusts. There will be speaclist chinese law firms setting up the purchase vehicles gteed. This is also just residential.... commercial projects and purchases by Chinese are in the billions.

The people who enabled this should be charged with treason and punished accordingly.

Let me remind all once again to keep in mind that NZ has run current account deficits now for over 47 consecutive years.

To fund these shortfalls we have only 3 options:
Print money as does Zimbabwe and Venezuela - they failed to call it QE
Borrow offshore - and we have plenty of that already !
Sell assets to foreigners

Selling houses to foreigners is how we finance our long running excesses of investments over savings and a natural consequence of these spendthrift habits.

Actually there is a 4th option which many other Western countries have implemented to collect revenue from off shore home owners in the larger cities where housing os too expensive. And that is to tax empty homes, which I'm sure will need to be the next phase if property prices don't become more affordable.
Sure they'll be lots of wealthy holiday home owners who will object to having their empty homes taxed but I have one thing to say to that; Tough! If you're wealthy to leave your home empty for longer than six months of the year in a city such as Auckland (without doing significant renovations and showing evidence). Then you're wealthy enough to pay tax on it.

Just because the National Government gave immigrants citizenship for votes DOESNT mean they aren’t still foreign buyers!!!

Hear hear. We were a British colony. Are we going to become a real nation, or a chinese special administrative region?

Just because the National Government gave immigrants citizenship for votes DOESNT mean they aren’t still foreign buyers!!!

Absolutely disgusting. I can not believe that in my lifetime we are seeing this happen in NZ. I have spent a lot of time flying in Asia and still do so occasionally and I would encourage kiwis to see what life is like in this part of the world. They are very racist towards foreigners and do not allow them to have anything in their countries. Why on earth is NZ rolling out the red carpet for these people in comparison and at huge cost to it’s born and bred young Kiwis? The animosity towards Asians in NZ is at fever pitch there is no denying that. Enough is enough this has to stop.