Should we implement restrictions on overseas buying of NZ property?

by Alistair Helm in


There is certainly a lot of discussion on this topic across all media and it has certainly triggered extensive discussions online.

As ever I am keen to engage in the debate as it is important to the real estate industry, the property market and the economy at large.

There are as ever facts that need to be made clear and stated before debating the various sides of the argument.

New Zealand has a very relaxed, and I would like to say open attitude to property purchase. We would certainly be one of the few countries in the world not to impose a stamp duty in the form of a tax on property purchase, make no capital gains taxation on property sales, have no restriction on foreign ownership outside of the rules of the Overseas Investment Office. At the same time as this open regime to property asset purchase and disposal we offer interest deduction for property purchased for commercial purposes.

As ever we pride ourselves as a nation for having such an open and simple approach to doing business which includes trading, owning and funding property – low in bureaucracy and a positive, encouraging attitude to investment and savings in the form of property as an asset class. This very level playing field is in contrast to our neighbours across the region which impose restrictions and levy taxes on purchase and sale.

With this as a backdrop you have to ask yourself; is it any wonder that people want to invest in property in NZ?

On the one hand we should embrace this demand to buy NZ property. Property cannot be removed, disassembled and shipped overseas. People buying property in NZ are part of a positive decision to embrace NZ with the ensuing economic benefit as new residents or investors. Likely bringing fresh capital into the country rather than relying on domestic banks to fund their purchase based on overseas borrowing.

Our open attitude to property is a mirror of our wider economic presentation to the world – a trusted people with a world view, eager to contribute and trade with overseas partners, welcoming and inclusive, a diverse and highly developed nation.

This is the bright positive side to this growing demand from overseas and I for one embrace it; as to oppose it, would only put in place barriers that could discourage the very people we need to grow and develop our economy. However there are risks and I am not naïve to these.

The biggest risk and one we cannot ignore is scale. We are a minnow in the  world fish pond. A population of 4.4 million with around 1.8 million houses privately owned. We add or have been adding an insufficient c. 18,000 new homes per year. Compare that to China – China builds that number of homes every day. Yes, every day around 19,000 homes are built in China – 365 days a year adding around 7 million homes a year. China has recently imposed restrictions on purchasing second homes as they feared speculative investment would create a property bubble – something their economy could clearly do without, for the old adage of the US sneezing and the rest of the world catching a cold has been fair and squarely been transferred to China.

Now we are not likely to see hundreds of thousands of Chinese buying property this year (I choose to reference China, but there are many other large countries that could be interested in NZ property). The reality is that for NZ property to be of interest, buyers have to see value and benefit. There are many other investment options for property purchase around the world, let alone other financial assets. There are many much cheaper places to buy – look at the prices in US for example and other parts of Europe. Buy a property in Spain at the moment and you get legal residency thrown in!

As with any investment decision there are many factors to consider not least of which is supply and demand. At the moment the supply side in this country is very much constrained and this can, and does become a disincentive, as buyers get frustrated with lack of choice and fear of overpaying. Markets have a very effective habit of self corrected – more so for markets that are open and unencumbered with legal conditions and fiscals penalties.

I final note to bear in mind, is that this question of foreign buyers is not new. Here in NZ we have had foreign buyers for many decades, we saw the same questions raised a decade or more ago when overseas student number growth was exponential, we saw it in the 60’s and 70’s and we saw the post 9/11 exodus from the US and UK. We are a country built on immigration and we will continue to be if we are to remain an open and growing economy.

I believe we should not impose restrictions on foreign ownership. I believe there are long term benefits of foreign investment to our country in the form of property and the people that come along with property. I dispute the view that overseas buyer will leave property vacant - why would they, they are smart enough to see multiple benefits of ownership of a NZ asset including living here and enjoying our countries multitude of opportunities.

Are there really more overseas buyers snapping up NZ properties

by Alistair Helm in

Agent with phone iStock_000006146809Small.jpg.png

Today has seen a lot of discussion on this topic following the publication of the monthly Tony Alexander / BNZ Residential Market Survey.

The survey states that "The evidence (from the survey) does not support the anecdotes that Chinese buyers are snapping up properties".

The data says that 9% of all sales were to people offshore, with 40% of these buyers indicating that they intended to shift to NZ, by implication indicating that 60% of the buyers were buying and would not be moving to NZ to live in the property. In Auckland the figures were higher at 11% of sales to foreigners and 42% planning to move to NZ.

I have a problem with this data and the survey on a number of counts.

Firstly the methodology. The results come from an email survey of real estate agents. The survey is sent out by REINZ to its database of agents. There are c. 10,000 agents and for this month 355 agents responded - that means 96.5% of all agents did not respond. The response rate was well down on the January survey when over 500 responded.

If the data is to be believed 9% of all sales in NZ being made to foreigners that would mean that in a year over 6,500 properties would be sold to foreigners - that would be over $3 billion of sales largely supported by foreign funds - I don't think so. I think if we started to see 1 in 10 of all properties owned by foreigners we would really notice this.

The problem is that the survey has a natural bias. Real estate agents are very focused people, they are self employed and if they don't work they don't earn. If they are successful it is because they focus on their market, their customer base and are really not too worried about the big picture and the world of surveys and data analysis. To validate this just look at the volatility of the other survey questions. I fear that those that respond are either agents with time on their hands or branch managers who poll the views of the sales team and not in first hand contact with buyers.

The other issue I have from the survey is the view that 60% of these overseas buyers are not planning to move to NZ. The survey asked the agents to answer Yes / No / Don't know to the question: Did the overseas buyer intent to move to NZ? The judgement was made that the 'don't know's' were classified as NO and that is why we get the 60% - the more likely fact is the agent did not ask the buyer at the time and therefore the 'don't know's' cannot be inferred as No.

So I think the fact is, little can be drawn from this survey either way. It is however likely that we are seeing more foreign buyers, and we will see more in the future - why? Well NZ is attractive to overseas property investment - no GST, no stamp duty, accessible immigration, trustworthy society, good education, strong legal titles, great environment,  safe and friendly - who would not want to invest here?

I was interviewed on TV One Breakfast on this subject, the video is accessible clicking below: