Foreigners pile into NZ property

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By Leith van Onselen

The crackdown on foreign investment into residential real estate announced by the Abbott Government has raised the pressure on New Zealand’s National Government to implement similar rules to restrict foreign purchases.

The policy change in Australia coincided with the release of a report yesterday by KPMG, which revealed that bank bosses in New Zealand are becoming increasingly agitated by foreigners inflating New Zealand’s asset values. From Interest.co.nz:

KPMG’s annual Financial Institutions Performance Survey says bank executives spoken to are concerned about foreign investors paying big prices to buy up the likes of New Zealand homes, commercial property, farms and businesses…

KPMG head of financial services John Kensington said; “They [banks] are seeing significant deals done at ridiculous pricing across all asset classes and in many cases without the bank providing funding.

“Executives commented that there is a lot of money flooding into the New Zealand market from overseas investors who are able to buy assets with cash, thereby avoiding the need to borrow, which is distorting asset prices and yields”.

Kensington told interest.co.nz foreign investors are often willing to pay 10% to 15% more than New Zealanders, decreasing the yield on invested assets.

He said you don’t have to look far to see examples of foreign investors fronting up with the cash…

“The risk for New Zealand is that, while all this money comes flooding in and creates over-inflated prices, New Zealanders are forced to buy at these over inflated prices,” Kensington said.

While the banks’ concerns are based on their own self interest – that is, being shut out of deals by cash buyers – it has successfully highlighted the extent of influence foreign buyers are having on the New Zealand market.

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Meanwhile, New Zealand’s Labour opposition has stepped-up pressure on the National Government to act, requesting that it emulate Australia’s approach:

New Zealand’s Labour Party housing spokesperson Phil Twyford said Prime Minister John Key might want to have a “quiet word” with Abbott about his announcement when he visits New Zealand this week.

“Contrast that with John Key’s government, which denies offshore speculators are a problem, despite KPMG warning today that bankers believe foreign buyers are inflating property prices and putting the economy at risk.

“The bankers think they are a problem. The Australian Government clearly thinks they are a problem. The National Government is increasingly isolated on this issue,” said Twyford.

New Zealand is a much smaller nation than Australia, so logically foreign buyers would have an even bigger influence on assets values and housing affordability. This makes it imperative that the Government act to stem demand from foreigners buying up existing homes.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.