The Labour Government is moving towards fulfilling an election commitment to ban foreign buyers of existing New Zealand houses by amending the Overseas Investment Act.
This commitment is based on a belief that overseas speculators have been artificially inflating New Zealand house prices, especially in Auckland, to the detriment of Kiwis seeking to buy their own home.
The changes mirror those already in play in Australia, where foreign buyers cannot buy existing homes. Only New Zealand and Australian citizens, and permanent residents of both countries, would be able to buy an existing home in New Zealand without Overseas Investment Office approval.
But a further amendment means that foreign buyers who buy new residential properties or developments off-the-plan are then required to sell these properties within a year of purchase.
This has caused concern throughout the industry, with submissions on the Overseas Investment Amendment Bill being made by various organisations.
In its submission, The Property Institute of New Zealand (PINZ) says the Bill could lead to a contraction in housing availability as investors shy away from increased risk, which would in turn exacerbate the shortage of quality rental housing. There does not appear to be any dispensation for an overseas buyer to hold the property in the event of a downturn.
Auckland is desirous of intensification under the Unitary Plan, especially along existing infrastructure networks, which means more apartments, especially in Auckland central. One of the largest city apartment developers, Conrad, states in their submission that they can’t do that under the current proposals.
Both Bayleys and Conrad Developments (Auckland’s largest apartment developer) query the distinction of ‘new’. During a development, the original purchaser may decide to on-sell an apartment or home before construction is complete. Is it still new? Should there be provision for ‘near-new’? Australia developers can obtain an exemption certificate to cover such eventualities.
Conrad says that the requirement to on-sell would not only deter foreign investors but also developers who rely on such investors. Why commit to a large-scale development if your potential buyer pool is restricted?
A submission by Bayleys suggests that if affordability is a problem at the lower end of the market, the requirement to obtain consent shouldn’t apply to residential properties over a certain value. So foreign buyers wouldn’t potentially be competing with local buyers at the lower end of the market.
A submission by The NZ Institute of Economic Research and others highlights the risk of contagion to other types of investment. “It’s widely felt that the amendment sends an unfriendly signal to foreign investors who have previously seen New Zealand as welcoming of overseas investors, and when we are a country that is far away and small.
Foreign buyers wishing to buy residential land may be granted consent by the OIO (provided the land is not otherwise sensitive land) if the outcome for the residential land will be increased residential use and all the land will ultimately be on-sold within a “specified period”.
It’s unclear how many will do this but a submission by developer Todd Property says: “Todd Property understands that the Overseas Investment Office (OIO) currently processes approximately 150 applications a year (taking on average five months). The Regulatory Impact Statement for the Bill estimates that this will increase to approximately 4700 applications annually if the sensitive land definition is amended to include residential land.” If that is the case, the OIO will be weighed down by an increased workload.
Todd Property’s developments include Stonefields and Ormiston Town Centre, as well as those in Long Bay, Auckland, and Napier Hill.
The Overseas Investment Amendment Bill still has a long way to go, and will undoubtedly change as submissions are worked through and theory is applied against reality. It passed its first reading in Parliament in December, and has been referred to the Finance and Expenditure select committee.