Property prices: Canada acts, NZ waits
Vancouver- style tax is one way to crimp demand from foreign buyers
ere’s an idea for the New Zealand Government: slap a foreign property buyers’ tax on all transactions they make in Auckland, to take the top off the housing market.
That’s exactly what has happened in Canada, where a 15 per cent transfer tax has been applied to all residential property sales to foreign nationals in Vancouver. Google “Vancouver” and most high- rating news stories are now focused on the impact of this tax in cooling the redhot real estate market.
There’s plenty more besides, including outrage from some foreign investors over the provincial Government’s determination to look after its own.
Like Auckland, Vancouver has been a magnet for offshore investors.
And like Auckland, offshore demand combined with speculative pressure has resulted in home affordability now being impossible for ordinary Vancouverites.
Predictably, there have been squeals from foreign buyers and realtors since the tax went into effect.
But what is important is that the British Columbia provincial Government — with backing from Ottawa — has had the courage to put their own citizenry first.
This new tax is squarely aimed at Metro Vancouver — not the rest of Canada.
The provincial Government has reached the realisation that a supplydriven approach is not going to solve their housing affordability issues in a speedy fashion.
So, instituting a “pause” in the market is the best option.
In New Zealand, the Government has ducked and weaved over the extent of the Auckland housing market problems. Reserve Bank governor Graeme Wheeler — via his lieutenants — has made it clear that the bank is carrying too much of the burden when it comes to bringing in new measures to dampen rampant speculation.
From next month, the trading banks will be required to ensure that residential property investors have to pony up more equity under new loanto- value rules.
The central bank had also suggested the Government should play a bigger role itself in getting the market under control. So why doesn’t it? The Government has looked at many options for Auckland.
But its moves to brake the market have been tentative.
From October 1 last year, foreign buyers were required to stump up with IRD numbers and NZ bank accounts. This has not resulted in a major slackening of demand. There are plenty of opportunities for “workarounds”, as many in the real estate business know.
John Key has acknowledged that a stamp duty could be applied to property sales in New Zealand.
This, after all, is a measure that is available to our Government within the Trans- Pacific Partnership ( TPP) to dampen foreign demand for housing.
The very fact that it has been included in the TPP agreement is a pointer to the policy choices that our Government believes would be acceptable if the need arose to curb offshore buying pressure.
But Key has not evinced any appetite to bring in a stamp duty as a mechanism to curb investment.
He is, however, interested in its potential to drive increased revenue.
And there is upside from doing this, as the BC Provincial Finance Minister Mike de Jong said when he unveiled the tax as part of legislation aimed at addressing low vacancy rates and high real estate prices in Vancouver.
“For example, the additional tax on the purchase of a home selling for $ 2 million to a foreign national will amount to an additional $ 300,000,” de Jong told members of the legislature.
All BC residents currently pay a 1 per cent tax on the first C$ 200,000 of their purchase, 2 per cent on the remaining value up to C$ 2 million and 3 per cent on any portion above that.
The Real Estate Board of Greater Vancouver said its benchmark price for detached properties in Vancouver had passed C$ 1.5 million ($ 1.58m).
A financial report showed the province collected about C$ 1.5b from the property transfer tax in the last fiscal year, up almost C$ 450m from the previous year.
The beauty of this approach is that similar new tax revenues could be reinvested in funding new affordable housing for those people who are currently locked out in Auckland.
There has been debate behind the scenes on whether the Government should take a more activist approach to this issue. This ( so far) does not appear to be in its DNA.
The Government must face down foreign opposition to applying similar measures here.
In Hong Kong — just across the border from the Chinese mainland — its Government does not hesitate to ramp up the level of stamp duties to dampen demand when it deems it necessary.
And Beijing does not go into a tailspin when this happens.
The Chinese Government is fully aware of the potential for civil unrest if either its nationals — or for that matter, the citizens of Hong Kong — are locked out of housing in the cities where they work. It is a problem they also grapple with.
The point is that applying the brakes is not going to result in a collapse.
But it will give time for a catchup.