Should we implement restrictions on overseas buying of NZ property?
As ever I am keen to engage in the debate as it is important to the real estate industry, the property market and the economy at large.
There are as ever facts that need to be made clear and stated before debating the various sides of the argument.
New Zealand has a very relaxed, and I would like to say open attitude to property purchase. We would certainly be one of the few countries in the world not to impose a stamp duty in the form of a tax on property purchase, make no capital gains taxation on property sales, have no restriction on foreign ownership outside of the rules of the Overseas Investment Office. At the same time as this open regime to property asset purchase and disposal we offer interest deduction for property purchased for commercial purposes.
As ever we pride ourselves as a nation for having such an open and simple approach to doing business which includes trading, owning and funding property – low in bureaucracy and a positive, encouraging attitude to investment and savings in the form of property as an asset class. This very level playing field is in contrast to our neighbours across the region which impose restrictions and levy taxes on purchase and sale.
With this as a backdrop you have to ask yourself; is it any wonder that people want to invest in property in NZ?
On the one hand we should embrace this demand to buy NZ property. Property cannot be removed, disassembled and shipped overseas. People buying property in NZ are part of a positive decision to embrace NZ with the ensuing economic benefit as new residents or investors. Likely bringing fresh capital into the country rather than relying on domestic banks to fund their purchase based on overseas borrowing.
Our open attitude to property is a mirror of our wider economic presentation to the world – a trusted people with a world view, eager to contribute and trade with overseas partners, welcoming and inclusive, a diverse and highly developed nation.
This is the bright positive side to this growing demand from overseas and I for one embrace it; as to oppose it, would only put in place barriers that could discourage the very people we need to grow and develop our economy. However there are risks and I am not naïve to these.
The biggest risk and one we cannot ignore is scale. We are a minnow in the world fish pond. A population of 4.4 million with around 1.8 million houses privately owned. We add or have been adding an insufficient c. 18,000 new homes per year. Compare that to China – China builds that number of homes every day. Yes, every day around 19,000 homes are built in China – 365 days a year adding around 7 million homes a year. China has recently imposed restrictions on purchasing second homes as they feared speculative investment would create a property bubble – something their economy could clearly do without, for the old adage of the US sneezing and the rest of the world catching a cold has been fair and squarely been transferred to China.
Now we are not likely to see hundreds of thousands of Chinese buying property this year (I choose to reference China, but there are many other large countries that could be interested in NZ property). The reality is that for NZ property to be of interest, buyers have to see value and benefit. There are many other investment options for property purchase around the world, let alone other financial assets. There are many much cheaper places to buy – look at the prices in US for example and other parts of Europe. Buy a property in Spain at the moment and you get legal residency thrown in!
As with any investment decision there are many factors to consider not least of which is supply and demand. At the moment the supply side in this country is very much constrained and this can, and does become a disincentive, as buyers get frustrated with lack of choice and fear of overpaying. Markets have a very effective habit of self corrected – more so for markets that are open and unencumbered with legal conditions and fiscals penalties.
I final note to bear in mind, is that this question of foreign buyers is not new. Here in NZ we have had foreign buyers for many decades, we saw the same questions raised a decade or more ago when overseas student number growth was exponential, we saw it in the 60’s and 70’s and we saw the post 9/11 exodus from the US and UK. We are a country built on immigration and we will continue to be if we are to remain an open and growing economy.
I believe we should not impose restrictions on foreign ownership. I believe there are long term benefits of foreign investment to our country in the form of property and the people that come along with property. I dispute the view that overseas buyer will leave property vacant - why would they, they are smart enough to see multiple benefits of ownership of a NZ asset including living here and enjoying our countries multitude of opportunities.