Wednesday 23 May 2018

New Zealand bans foreign home buyers as prices surge

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

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 first-time 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.

'Political Problem'

"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.

TPP Work-Around

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 work-around.

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.

Australian home ownership

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)

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