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Foreign buyers: what is the problem?

Tags: Residential Residential Views

Despite opposition from the other side of politics and industry bodies, the Government has pressed on with plans to bring in new laws which will ban some foreign buyers from owning New Zealand real estate.

The Overseas Investment Amendment legislation has good intentions: it is designed to ensure that real estate investments from overseas benefit the country, and to prevent any negative impact from foreign buyers on house prices. But for those who hope restrictions on non-Kiwis owning property in Aotearoa will remedy house-price unaffordability, the new legislation is unlikely to provide a silver bullet.

The Auckland housing market is shaped by multiple factors and many across the industry think the influence of foreign investors is overstated. In a recent statement, the Real Estate Institute of New Zealand concluded: “We don’t believe that the ban will resolve any housing affordability issues given the proportion of sales to overseas buyers is so low.”

So, how much of a problem are non-Kiwi buyers and how many are really buying into our biggest city?

Earlier this year, Stats NZ took over the analysis and publication of property transfer statistics, which is based entirely on tax residency information. In its first report, it found that nationally only 3 percent of house sales involved non-citizens – pretty much the norm for recent years. In Auckland, that number was just over 7 percent, something that is to be expected due to the increased number of non-nationals living in our largest city.

However, these figures are subject to wide interpretation. Stats NZ’s figures also showed that, nationally, 10 percent of purchases involved corporate entities (which could be owned overseas) and 8 percent involved “at least one NZ resident visa holder (but no citizens)”.

That is a grey area of up to 18 percent of sales that could involve overseas buyers, which pushes possible overseas sales to over 20 percent. But this is an extreme. Taking these extra figures into consideration, the ASB, in its recent Economic Note on Property Transfer Statistics, concluded that the proportion of home transfers to non-citizens would be closer to 11 percent over the past year. But, even assuming one in ten sales in Auckland is going to an overseas buyer, it still represents big numbers.

That’s why it is worth talking to somebody with first-hand experience of the people buying Auckland’s real estate.

Bayleys National Auction Manager and National Residential Manager, Daniel Coulson, says: “When we look around the auction room, and what we see in the market place, the insight, to be honest, is families buying; the majority of the demand in the marketplace is from mums and dads, and families, looking for a good house in a good location. I’ve never seen foreign investors as a significant group.

“In my experience, engagement, whether at auction, or for a non-auction property, is primarily from a local market, so I’d say the figures of overseas buyers would be more in line with the Government’s figures of 3 percent, than anywhere near 10 percent.”

Access to global markets and foreign investment in New Zealand will always be a contentious issue, and few people suggest there should be no constraints on foreign ownership. But in reality, it would appear that Auckland’s housing market is driven primarily by internal factors, and the age-old formula of supply and demand.

In a recent report, the Ministry of Business, Innovation and Employment estimated the shortfall in housing in Auckland to be around 45,000 homes. Meanwhile, Auckland’s population has risen by a half, to 1.5 million over the last 20 years, and is expected to grow to 2 million by 2033. It is these factors, rather than a small percentage of overseas buyers, that will continue to be the major drivers of demand for property in Auckland over the next decade.

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