New Zealand bans for­eign home buy­ers as prices surge

Irish Independent - Business Week - - COMMERCIAL PROPERTY - Matthew Brock­ett

NEW Zealand will ban for­eign­ers from buy­ing ex­ist­ing homes, join­ing a grow­ing list of na­tions try­ing to make prop­erty more af­ford­able for their cit­i­zens.

“For­eign spec­u­la­tors will no longer be able to buy houses in New Zealand from early next year,” prime min­is­ter Jacinda Ardern said at a press con­fer­ence in Welling­ton last Tues­day.

“We are de­ter­mined to make it eas­ier for Ki­wis to buy their first home, so we are stop­ping for­eign spec­u­la­tors buy­ing houses and driv­ing up prices. Ki­wis should not be out­bid like this.”

House prices have surged in re­cent years, driv­ing the av­er­age value in the na­tion’s big­gest city, Auck­land, to more than NZ$1m ($685,000) and putting prop­erty out of reach for many younger Ki­wis. While New Zealand joins other coun­tries in re­strict­ing or heav­ily tax­ing sales of ex­ist­ing homes to for­eign­ers, such mea­sures have done lit­tle to curb prices in places like Hong Kong and neigh­bour­ing Aus­tralia.

“For­eign buy­ers of ex­ist­ing homes have be­come the tar­get of gov­ern­ments glob­ally, with in­creased tax­a­tion and buy­ing re­stric­tions,” said So­phie Chick, head of res­i­den­tial re­search at Sav­ills Aus­tralia.

“This, though, hasn’t re­ally put the brakes on for­eign in­vestors, who of­ten pre­fer to buy off-the-plan any­way.”

Chi­nese money has pushed up home prices around the world, stok­ing con­cern among lo­cals in cities from Van­cou­ver to Syd­ney. Auck­land is the fourth-least-af­ford­able prop­erty mar­ket in the world, ac­cord­ing to De­mographia.

Ahead of the Septem­ber 23 elec­tion, Ardern’s Labour Party cam­paigned on mak­ing home own­er­ship — which has dropped to its low­est level since 1951 — more at­tain­able for first­time buy­ers.

How­ever, there is lim­ited data on how many non-res­i­dent for­eign­ers ac­tu­ally buy res­i­den­tial houses in New Zealand, with the pre­vi­ous gov­ern­ment claim­ing they ac­counted for as lit­tle as 2pc of over­all pur­chases.

“This is a pol­icy that’s de­signed to solve a po­lit­i­cal prob­lem,” op­po­si­tion fi­nance spokesman Steven Joyce said.

“Ev­i­dence in both Aus­tralia and here in New Zealand is that over­seas buy­ers don’t have a sig­nif­i­cant im­pact on the hous­ing mar­ket.”

Ardern said she nev­er­the­less hopes the ban will “take some of the heat” out of a mar­ket that’s climbed 56pc in the past decade amid record im­mi­gra­tion and a hous­ing short­age. While there has been some cool­ing in re­cent months, the av­er­age New Zealand house still costs NZ$646,000.

Ardern’s Labour-led gov­ern­ment will in­tro­duce an amend­ment to the Over­seas In­vest­ment Act to clas­sify res­i­den­tial hous­ing as “sen­si­tive”, mean­ing that non-res­i­dents or non-cit­i­zens can’t pur­chase ex­ist­ing res­i­den­tial dwellings. Aus­tralians won’t be af­fected be­cause New Zealan­ders are ex­empt from Aus­tralia’s pol­icy.

The law change also re­moves a hur­dle to New Zealand sign­ing up to the re­vised Trans-Pa­cific Part­ner­ship, a trade agree­ment be­tween 11 coun­tries that may re­duce tar­iffs and boost the coun­try’s ex­ports. Mem­ber states will seek an agree­ment on the TPP at an APEC meet­ing in Viet­nam next week.

In its cur­rent form, the TPP would main­tain for­eign­ers’ ac­cess to New Zealand prop­erty. The new gov­ern­ment, sworn in only last week, faced hav­ing to re­open ne­go­ti­a­tions, which risked scup­per­ing the deal at this late stage.

The do­mes­tic law change on for­eign­ers buy­ing homes pro­vides Ardern with a work­around.

She wants to in­tro­duce the leg­is­la­tion be­fore Christ­mas and pass it early next year, be­fore the TPP is rat­i­fied. She said it then won’t breach any trade agree­ments ex­cept the Sin­ga­pore Closer Eco­nomic Part­ner­ship, which would be worked through with Sin­ga­pore.

“The pro­posed change means we can move our fo­cus away from land is­sues at the ne­go­ti­at­ing ta­ble at APEC,” Ardern said. New Zealand still has con­cerns about In­vestor-State Dis­pute Set­tle­ment clauses in the TPP, she said. New Zealand’s near­est neigh­bour, Aus­tralia, mean­while has seen the level of home own­er­ship among its younger gen­er­a­tions fall to the low­est level on record as an ex­plo­sive prop­erty boom squeezes out all but the wealth­i­est.

Su­per­charged by record low in­ter­est rates, a lack of sup­ply and a tax sys­tem that favours prop­erty in­vestors, home prices have surged more than 140pc in the past 15 years, pro­pel­ling Syd­ney past Lon­don and New York to rank as the world’s sec­ond-most ex­pen­sive hous­ing mar­ket. Mel­bourne, ranked the world’s most-live­able city for the past seven years by the ‘Econ­o­mist In­tel­li­gence Unit’, is now the planet’s sixth-most ex­pen­sive place to buy a house.

In re­sponse, home own­er­ship among the young has plunged: only 45pc of 25-to-34 year-olds own their own home, down 16 per­cent­age points from the 1980s, with al­most half the de­cline com­ing in the past decade.

Un­like New Zealand how­ever where cit­i­zens look­ing to buy a home have been fac­ing in­tense com­pe­ti­tion from wealthy for­eign in­vestors, in Aus­tralia, the chal­lenge has been com­ing from within.

Flash­point

One of the big­gest flash­points are tax in­cen­tives that have turned hous­ing into a spec­u­la­tive fi­nan­cial as­set. First-home buy­ers com­plain they can’t com­pete against home-grown in­vestors, who through a perk known as neg­a­tive gear­ing can claim the costs of own­ing a prop­erty-for-rent - in­clud­ing mort­gage in­ter­est - as a tax de­duc­tion against other in­come. The al­lure of prop­erty in­vest­ment was tur­bocharged in 1999, when cap­i­tal-gains tax was halved. With hous­ing prices seen as a one-way bet, in­vestors un­sur­pris­ingly piled in.

To­day, more than two mil­lion, or one-in-12, Aus­tralians own an in­vest­ment prop­erty, with al­most 30pc of those own­ing two prop­er­ties or more.

(Bloomberg)

House prices have surged in Auck­land in re­cent years, driv­ing the av­er­age value to more than NZ$1m ($685,000)

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