New Zealand bans sale of property to foreign buyers

In a bid to fix a growing affordability issue, the New Zealand government has passed the Overseas Investment Amendment Bill.

The bill will stop the majority of non-resident foreign buyers from purchasing existing property in New Zealand. It passed on Wednesday night by 63 votes to 57.

The plan was announced in October to end the purchase of existing houses by classifying them as “sensitive” under the Overseas Investment Act, and introduce a residency test.

“This is a significant milestone and demonstrates this government’s commitment to making the dream of home ownership a reality for more New Zealanders,” Associate Finance Minister David Parker said.

“We should not be tenants in our own land.”

According to Parker, in the last economic quarter 10 per cent of homes in the Queenstown Lakes District (where PayPal co-founder Peter Thiel owns a multi-million dollar home) and 20 per cent of homes in Auckland central were purchased by foreign buyers.

In 2017 a report from The Economist found New Zealand had the most unaffordable house prices in the world, with prices in Auckland climbing 75 per cent in the last four years.

According to spokesperson Dave Platter, though, the measures are going to do more harm than good.

“The ban has served to pull forward a significant amount of Chinese investor interest. After two quarters of declines, we saw fourth-quarter 2017 buyer inquiries surge by 12.2 per cent compared to the prior quarter. In the first quarter of this year, they surged again, by 15.6 per cent compared to the fourth quarter. In the second quarter, that demand dropped off, and we saw a 31.4 per cent decline in inquiries compared to Q1.

“Buyers from China are much more likely to buy off the plan than locals. Off-the-plan sales to Chinese buyers is a key first step for many developers who might otherwise never get the loans they need from the banks so they can start construction. By discouraging foreign buying, the government could turn off the flow of money that helps fund new construction in New Zealand,” said Mr Platter.

While house price growth in New Zealand, particularly in the larger cities, has tapered off in recent months due to lending restrictions, foreign investment has long been a topic of concern as average prices skyrocketed.

Prices in Auckland have almost doubled in the past decade alone, and nationwide there’s been a price increase of more than 60 per cent.

The government has said the ban would not apply to Australians and has been negotiating with Singapore, whose free trade agreement with New Zealand allows foreign ownership, on whether to grant an exemption.

The government is hoping the measure will change the fact that only a quarter of adults in New Zealand own their own home, compared with half of residents in 1991.

“Already the majority of mainland Chinese buyers are actually technically permanent residents or citizens of New Zealand. Chinese buyers who have shifted their base to locally in New Zealand account for two to three times more buying activity than offshore Chinese buyers. That’s from the StatsNZ data. They don’t count as ‘foreign’ at all,” said Mr Platter.

“Is the ban wise or useful? We think it’s neither. Foreign buyers are important, useful and even vital in New Zealand, but they are not a problem. I think that’s what the data clearly shows. Foreign buying is just three per cent of the market and tends to be focused on new development, making clear again that foreign investment leads to the creation of new dwellings. That’s vital in a market with a housing shortage, like Auckland.”

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Hannah Blackiston

Hannah Blackiston was an in-house journalist with Elite Agent. She worked with the company from January 2018 to January 2019.