BNZ chief economist picks curbs on house buying from offshore within two to three years

BNZ chief economist Tony Alexander’s predicting that within two to three years restrictions will be put in place on offshore investors buying houses in New Zealand.

In his latest “Sporadic” newsletter, Alexander says this country should “as soon as possible” adopt Australia’s rules restricting foreign buying of anything other than new housing unless resident for 12 months.

“When might we see the adoption of some form of restriction on foreign home buying in New Zealand? Maybe within two or three years,” he says.

Alexander has been recommending that New Zealand adopt the Australian regime for about three years. He has also been one of the few people to attempt – through a survey of real estate agents he used to conduct – to quantify the extent of offshore buying of NZ houses.

The Government has so far not collected meaningful data on overseas buyers, though new measures requiring provision of IRD numbers will provide more information.

Alexander said he had recommended adoption of the Australian regime, “not because I feel Chinese buying is currently the big buying force people believe it is, but because the buying will grow and the eventual popular backlash against such buying and introduction of legislation in that heated environment would risk a backlash”.

“The Chinese leadership may feel we were targeting them and getting above our station. Trade retaliation would be likely.”

Alexander reiterated that the “fundamental cause” of rising prices in Auckland was a shortage of supply “and until that gets addressed prices will stay highly elevated and perhaps keep rising out to late-2017 this cycle”.

He also reiterated his view that whatever the true magnitude of Chinese buying has been these past few years “it will get much greater”.

“Chinese families are growing wealthier, so naturally they will seek offshore assets. Chinese people wish to get assets off the mainland and this week’s massive intervention in sharemarkets by the Beijing authorities illustrates why people have high distrust of the environment on the mainland in which they would hold assets. And Chinese authorities have yet to relax hefty restrictions on people getting their funds offshore. When they do, well then you will see something entirely new hit the world’s residential property markets.”

However, Alexander cautioned that adopting Australia’s rules as they stand “won’t be the panacea many are hoping for”.

“In Australia’s case people have been able to get around the restrictions quite easily. The regime is now being enforced more rigorously, but that does not necessarily alter what is being seen as a huge problem – something which people in Hong Kong have been seeing more and more of in recent years.

“Many Chinese who buy properties never, or rarely, occupy them. They sit empty. This applies even to newly built apartments sold to Chinese buyers. Chinese simply want an asset away from any control by the CCP. There was an article on this in The Australian newspaper this weekend, page 6.

“What this means is the following. As Auckland very slowly goes vertical in areas like New Lynn, developers will find they can very easily get offshore financing for their projects and hefty sales off the plan to Chinese investors (we Kiwis prefer to touch and feel before buying). These investors may never occupy or even rent out their investment. Thus while on the face of it the Aussie rule that a foreigner may only buy a newly built house or apartment sounds like a grand idea, it could leave the housing supply situation unchanged from a no-rule regime.

“Thus, were we to adopt the Aussie regime we would need to add in an extra clause along the lines of apartments having to be made available for rent, actually rented, or something like that.”

Alexander said the earlier we adopt Australia’s rules “with the extra twist noted above”, the better for everyone, including exporters to China wanting good access for many years who may feel nothing needs to be done on foreign home buying.

“You are the ones most at risk should this situation turn bad in 5, 10, 15, or 20 years time.”