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Property Ban on Foreigners

Politics is at its heart all about sending signals. Let me send one. The two largest parties in the current Government both campaigned on cutting migration. In one case, ‘slashing immigration numbers by 80%’ and in the other, by cutting it by ‘20 000 – 30 000’ per year. The ...

Iain

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Property Ban on Foreigners

Politics is at its heart all about sending signals. Let me send one. The two largest parties in the current Government both campaigned on cutting migration. In one case, ‘slashing immigration numbers by 80%’ and in the other, by cutting it by ‘20 000 – 30 000’ per year. The ...

Iain

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Property Ban on Foreigners

Posted by Iain on Oct. 27, 2017, 2:31 p.m. in Politics

Politics is at its heart all about sending signals.

Let me send one.

The two largest parties in the current Government both campaigned on cutting migration. In one case, ‘slashing immigration numbers by 80%’ and in the other, by cutting it by ‘20 000 – 30 000’ per year. 

The Party that campaigned on slashing numbers by 80% knew its ridiculous demand would never survive coalition negotiations with only 7% of the vote and knew those that vote for them were too stupid to realise it.

The other, the Labour Party, made clear before the election, and since, that their policy has won the day and that net migration would be cut by 20,000 – 30,000 a year.

Both parties played on an ignorance of what the statistical definition of an immigrant is.  It is not someone with permanent residence. An ‘immigrant’ is someone who suggests on an arrival card at the airport that they “intend” staying for 12 months or more even if they are a 14 year old Singaporean going to school here for 12 months, a young German on a two year Holiday Working Visa, or any other Temporary Visa holder who has no pathway to Residency and a permanent stay.  Most of us would tend to define an immigrant as someone who comes here to settle permanently, right?  That’s not the definition of a migrant.  This definition confusion was exploited to the max in the election campaign.

The Prime Minister made clear a few days’ ago, even before she was sworn in, that her Immigration policy is the one the new Government will follow and that of the Deputy Prime Minister, who promised to slash immigration by 80%, has died a natural death (as it does every 3 years).  The new Government said and continues to say it is going to stop some international students enjoying a pathway to residence. That is going to be the largest contributor to the 20,000-30,000 'cut'.

Furthermore (and please social and mainstream media take note) the Prime Minister confirmed that they are not cutting the number of Resident Visas under their Immigration Programme.  We can expect the same number of Resident Visas to be granted to skilled migrants, parents and investors over the next 12 months as we have over the last 12 months, the 12 months before that, 5 years ago and 10 years ago.

Let me say it one more time -  New Zealand is not cutting the number of Resident Visas being issued under the new Government!

What does all that have to do with the so called ban on foreigners buying local property? 

The Government had to offer something to those people who thought they were voting for a cut in Permanent Resident Visas and they’ve done this by a proposed “ban” on some “foreigners” buying “existing” residential houses. 

They have variously signalled that only citizens, Permanent Resident Visa holders and Resident Visa holders who are or intend living in New Zealand will be allowed to buy ‘existing’ properties. They have indicated that anyone who does not intend or is not living here will be forced to sell when they leave.

Think about enforcing that for a moment...

You hold a permanent resident visa and live here and after ten years you accept a job in Switzerland for three years. Will you be told to sell the family home? Do you no longer ordinarily live in this country?

Or you normally live in NZ on a PRV and your dear old mum gets sick in Johannesburg/London/Beijing – take your pick. You need to rush to South Africa/UK/China to be with her while she undergoes many months of treatment. Will you need to sell your house? Will you be forced to? Have you left the country? 

What say you and your wife both have resident visas and have jointly owned the house for the six years you have been living in New Zealand? You go to look after your Mum and your wife stays….do you still have to sell the house? 

Who decides? The Department of Foreigners with Homes? An army of bureaucrats?

And if you receive a letter telling you, you must sell the house and you jump on a plane in Switzerland and come rushing back to New Zealand, how long must you be here for these state functionaries to decide you are once again living here (if indeed you ever actually officially left...).

It appears this ‘ban’ does not extend to those wishing to buy off plans and/or buying an empty section/plot and building a house on it (the argument being it adds to the housing stock).

Like all these stupid ideas administered by stupid civil servants there will be smart lawyers and Accountants out in the real world finding perfectly legitimate structures to get around it.

It’s hard to see what they plan on achieving beyond throwing a crumb to those who think temporary or permanent ‘migrants’ have caused our rapid house price inflation and who like to blame migrants for every country’s ills.

Australia did something similar many years ago and house prices there, particularly in Sydney and Melbourne, have gone through the roof.  It would tend to suggest in Australia that foreign buyers had little impact on the value of houses within the market.

I would suggest there is little evidence here that New Zealand will be any different.

Over the past two years the Reserve Bank had already put in place measures to dissuade non-Residents from buying property.  They did this primarily by demanding that foreign buyers have a New Zealand bank account, provide a New Zealand taxation number and a tax number from their home country.  

In addition to that, an effective Capital Gains Tax being applied on investors turning over property has led to property values in Auckland over the past 12 months stagnating and in parts, slightly falling.  The median price is Auckland is NZ$850,000.00 (roughly US$500,000.00).

I’d wager the reason for this is not foreigners buying up all our houses, it is the actions of the Reserve and Retail Banks. People are squealing all over town that banks won’t lend them money. Nothing like slowing down a property market by not lending money without resorting to foreign buyer bans.

“Banning” foreigners from entering the market makes for a nice headline when you are running for office.

In truth, and I am not denying we have a problem with the affordability of houses in Auckland for some people, the real problem seems to be the cost of getting building and resource consents, delays and red tape at City Council level and an ever-increasing cost of actually building houses.  In part this is driven by a shortage of immigrants, not an oversupply, as the Construction industry is thousands of skilled workers short of what is required. This has put significant upward pressure on incomes in the sector and naturally, that feeds through to the cost of buying a house.

Oh the irony!

I predict that this ban, as it might turn out to be in the end, will have little effect on anything.  

What it does do however, to appease the 7% of those that voted for the one political party said it wanted to slash immigration by 80%, is make New Zealand appear to be increasingly anti-immigrant.

The Government needs to be very careful how this is perceived and reported  internationally when it knows it needs every one of the 27,000 skilled migrants targeted each year. If the Government is to have any chance to build half of the 100,000 ‘affordable’ houses and the public train and tram systems across this city and the upper North Island that it has promised, it needs every single skilled immigrant it can get.

Use of the words ‘ban’ and ‘foreigners’ in the same sentence is not the smartest way to achieve that.

Until next week…

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4 comments on this post
Oct. 27, 2017, 5:17 p.m. by Stephan Cilliers

Always enjoy your Friday column. I have always wanted to love in NZ. Coming from a country that politicians are complete idiots with blood all over each part of there bodies.... your politicians are clearly bored... they feel like they have to follow something instead of looking at the reality of saying let's maximize the success of NZ today to the benefit of all New Zealanders. Enjoy your weekend.

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Oct. 28, 2017, 5:15 p.m. by Gary Talboy

After two years of waiting and application process my wife an I recently received our temporary visa privilage. For many years I have been watching the escalating prices of real estate and the appearance hs been that foreign buyers are bidding up real estate to get their wealth out of their own countries for investment purposes. Several realtors in NZ have told me that buyers from the East are doing just that. The majority of properties are sold by pitting buyers against each other in Auctions, and wealthy foreign investors simply pay what is necessary to make sure they get the property. Is my impression incorrect?

Is what i have been told and what i think I have seen incorrect? I would like to think so but it seems the evidence is to the contrary.

Are there any reliable statistics showing the number and/or percentages of foreign owners of real estate as compared to the NZ citizens who own real estate?

$850,000 at average exchange rates over the past year is about $U.S. 600,000, and that is at least 30% higher than U.S. prices for comparable properties. Residential properties are never sold at auction in the U.S. and rarely are investment properties either.

We worry about affordability for our own immigration, but even more so for Kiwis who increasingly have no way to afford homes for thier families unless they have inherited real-estate.

We have no political bias, only practical concern.

Thank you for listening and hopefully you can respond with helpful information.

Sincerely
Gary

Replies to this comment

Oct. 30, 2017, 8:38 a.m. by Iain MacLeod
Hi Gary The Government has not historically kept any register of 'foreign' buyers of residential properties but that's about to change under the new Government. The previous government did release information about a year ago that suggested that foreign buyers accounted for around 3% of Auckland house sales. Most people 'poo-pooed' that as it did not take account for example of people on student visas buying (Daddy gave them the money no doubt...) or people buying property through trusts. So you could probably double that number. The reality seems to be is our sky high prices have been caused it seems not by foreign buyers but by a combination of record low interest rates, fewer people leaving the city, more people coming to the city (Kiwis returning from overseas), lack of supply of new houses being built, the costs of building new houses (construction materials are horrendously expensive here relatively speaking), natural population growth and an historical lack of any capital gains tax. This last point sees Kiwis invest overwhelmingly in real estate so things become a virtuous circle. Moves were put in place two years ago to change that and appear to have worked. You will find unlike many countries, selling homes by auction here is the norm. The reason is pretty simple - get two bidders in a room and let them go at it. I am just surprised it isn't sed as a sales technique overseas more. Auctions tend to be bank driven as I understand it when property owners cannot pay their mortgage. here it is a highly effective way t make sure the vendor gets the best price for their home. There is no doubt property values here compared with say the US are higher on 'average' than here.
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Oct. 29, 2017, 12:53 a.m. by Colin

Dear Iain

Thanks for taking time to share a great write up. It gives us an in-depth understanding on the direction
your government is moving towards after the election.

With regards to the purchasing rights for foreigners, I have to admit that it is a good move to start with.
Firstly, it will curb speculations from oversea investors. It will not totally eliminate over pricing but it is one of the reason.

Look at Singapore and Hong Kong. Especially Hkg. The prices are out of reach for the common working class. China investors have been snapping up properties like a baby given a box full of toys.

In Singapore's case, public housing (government assisted developments) are given access to permanent residents thus making prices too expensive for a newlywed young couple to even buy and start a family and we shall not mention freehold private properties.

Reply to this comment
Nov. 6, 2017, 7:36 p.m. by Gary T.

Understanding that the current statistics regarding non-residents / citizens purchasing real estate are sketchy, realtors seem to be in agreement that for many years the Auction process has served the best interests of those who have excess capital to purchase housing to hold as investments in a "shortage" marketplace. That very same shortage allows them to charge growing rents that not only give a decent net return on their investment(s), but the advancing bubble of real estate values allows very high "capital gains free" profits to the savvy investor. Those blessed with the capital resources to take the advantage when it is available can prosper.

On the flip side, those who do not have a lot of capital struggle to purchase properties at escalating prices. Thieraffordable mortgages today may likely become unaffordable tomorrow as interest rates inevitably escalate. Those working close to the wire are then the first to loose their equity and their homes.

High prices for sellers benefit investors, but natives who gain high prices to sell their family's heritage property(s) have cash in hand that cannot purchase better property, but will tempt many to become renters and enjoy spending spare cash on a better life style. As the cash dissipates, so does their hope of ever owning real estate again..

When the average citizen has more spendable income the economy grows best. As a larger percentage of their income goes to mortgages and interest, economic growth pays the price. Profits from escalating real estate sales activity go into higher equity values instead of into consumption which is the real driver of economic growth.

If there is an existing and growing problem here, recognizing and defining a problem is necessary before beginning to plan for implementing a solution.

Thanks for listening...
G>T>


Replies to this comment

Nov. 11, 2017, 2:12 p.m. by Iain
Gary, What you say makes a lot of sense but I should add that there are a lot of Mom and Pop homeowners doing very nicely out of the market and they are not investors. Across the North Island and outside of Auckland small town and smaller city nz is benefiting from these folks selling up their (overpriced?) Auckland homes, replacing it with the same sort of property for half the fund and setting aside the rest for consuming through their retirement. That too i'd presume boosts, or at least maintains, the economy. Of course investors are also adding to the supply of housing. If there were no investors would the shortage not be even worse than it currently is? There is also little credible evidence from countries like Australia which has capital gains taxes and bans on foreigners buying existing homes (as we have just done) has done anything to make homes more affordable. I think very low interest rates is likely also adding fuel to this fire and those low interest rates, at least in NZ and Australia look set to continue for some years yet. I do agree with you that when my own children are priced out of the local market we have a real issue. Thankfully the effective capital gains tax we now have on those that flick second/investment properties on within two years (Govt has signalled a raising of the bar to five years), the Loan to value rations the Reserve bank has in place, tighter lending criteria by retain banks has seen the Auckland market flatline in terms of selling price the past few months.
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