Article By Bruce Patten – Loan Market.
It’s been over a year now since the government introduced stringent new restrictions on foreigners’ ability to purchase residential property in New Zealand. There was a heated debate on the likely impact of the regulations and whether they were based in economic reality or ideologically centred – we take a look at how it has played out.
The impact of foreign buyers on the New Zealand property market has long been debated but the topic bubbled up into a headline election issue in 2017.
Despite a lack of data, the incoming Labour led coalition government asserted it was a major distorting factor in the property market and an issue of fairness for Kiwis.
As part of their first 100 day plan, they immediately began to formulate changes to legislation that would enable restrictions to be placed on foreigners ability to buy residential property in New Zealand.
Their aim was to reduce house price inflation and improve availability, making housing more affordable and accessible to New Zealanders, in particular first home buyers.
Data was eventually collated by Statistics New Zealand on property transfers showing that between 2% and 3% of residential property transfers were between non-citizens/residents prior to the changes, while almost 80% were to Kiwi buyers, the remainder were corporate transfers or transfers involving at least one NZ resident visa but no citizens.
This was surprising given the huge outcry prior to the election and left some commentators questioning whether restrictions would make much difference with the caveat however that some areas had a far higher level of foreign buyer activity and they could see more significant impacts.
The Overseas Investment Amendment Act 2018 came into force on 22 October 2018 with a flurry of media coverage.
It prevented certain overseas people from buying residential property in New Zealand.
As with any bill there were exemptions and a myriad of fine print but basically with the exception of Australian and Singaporean citizens, anyone who is not a New Zealand citizen or is not ordinarily a resident’ in New Zealand, is an overseas person and cannot buy residential property.
For a more in depth summary of the legislation click here.
At the time the legislation was being put together there was concern it would actually have a negative impact on housing availability by knocking out overseas based developers. As a result, the government allowed foreign ownership of land where it was adding to the housing supply through new offering new homes or apartments for sale. Land for commercial use such as hotels and or industrial or commercial use is exempt from these restrictions also.
The impact this legislation has had on the number of property transfers to foreign buyers is quite marked with a decrease of 82% from 2.3% to 0.5% from between the June 2018 quarter and the September 2019 quarter. Numbers wise there were 1100 sales to foreign buyers in the June 2018 quarter and only 190 in the September 2019 quarter according to Statistics New Zealand.
Decline in sales aside the question as to whether legislation has contributed to its stated goals of improving housing availability and affordability for Kiwi buyers is of huge contention.
House price inflation particularly in Auckland had eased back prior to the bill coming into law and house prices continue to be quite flat in Auckland, however, have shown a lot more strength in other regions off the back of low interest rates and a continued shortage of supply.
Kelvin Davidson, senior researcher at Corelogic, said the restrictions had been effective in curtailing purchases of New Zealand property by foreign buyers, and may have opened up opportunities for locals that wouldn’t have otherwise existed. However, indications of reduced price pressures and improved housing affordability, have been much harder to find.
Given the above commentary it’s difficult to attribute broader house price trends to the foreign buyer restrictions, however the impacts in certain regions and in certain parts of the market has been more significant.
Looking at two regions – Auckland and Queenstown Lakes – which had high levels of activity in terms of foreign buyers prior to the legislation, the change has been stark.
Overall in Auckland, in the measurement period September 2017 to September 2019, sales to foreign buyers peaked at 7.3% before falling after the regulations were introduced to 1.2%, while In Waitemata (Auckland inner city) numbers peaked at 22.2% and have fallen back to 6.2%.
In Queenstown Lakes where the foreign buyer activity was concentrated into the higher end of the market the impact has also been significant on sales with a drop from a peak of 9.7% down to 2.8%. Queenstown’s house price inflation has also slowed markedly from a peak of over 30% in 2017 down to zero in the middle of this year. While it’s hard to pin down how much of this is due to broader factors versus the foreign buyer restrictions there is definitely a feeling the legislation has had some impact, particularly at the higher end of the market and is making luxury lifestyle property harder to sell.
So while the policy has worked in so far as its seen a significant reduction in sales to foreign buyers housing affordability and availability are still major talking points and will be significant political issues in the 2020 election.
If you’d like further details on foreign buyer restrictions, and what implications they may have for your client’s, please don’t hesitate to get in touch.