Foreign buyer ban hangover pending
Friday 22 June 2018
Expect the housing market to slow further once the new foreign buyer ban comes into force, Westpac’s chief economist says.
By Miriam Bell
Westpac’s latest Home Truths report is out and it predicts the market slowdown is set to continue, now that its short-lived resurgence is over.
Stephens says they are not surprised to see the market slow as they picked it would once the “bright line test” on capital gains was extended from two years to five.
But the next hurdle for the market will be the foreign buyer ban, which is set to become law in July, he says.
“We like to use Toronto as an example – after they introduced a 15% stamp duty on foreign buyers, house prices promptly fell 6%.”
Recent Stats NZ foreign buyers data supports the idea that a rush to beat the foreign buyer ban contributed to the housing market resurgence from October last year, he says.
“The obvious corollary is that there will be a hangover once the foreign buyer ban comes into force.
“As the data shows foreign buyers are much more prevalent in Auckland and Queenstown, presumably the foreign buyer ban will be felt most acutely in those locations.”
Stephens’ predictions come in the wake of the Finance and Expenditure Select Committee’s report back to Parliament on the Overseas Investment Amendment Bill earlier this week.
While the Bill will still ban foreign buyers from buying existing residential properties, it has been watered down considerably to allow foreign investors to invest in new housing development.
Duncan Cotterill special counsel Christina Lefever says this means that foreign investors won’t be able to buy or build one-off houses to live in.
But they will be able to invest in new larger scale housing developments, particularly apartments.
“Foreign developers will be able to retain interests in new projects if they are over 20 dwellings but as a landlord or as part of a rent-to-buy arrangement.
“Also, developers of apartment blocks will be able to apply for an exemption certificate.
“This will allow them to sell 60% of the apartments to foreign buyers without those buyers requiring OIO consent, but those buyers will not be permitted to occupy the apartments.”
The Select Committee’s recommendations address concerns raised about the need for investment in the development of new housing stock, Lefever says.
“But in doing so, they have created a very complex piece of legislation which has some rules in it that mean that similar transactions could be given very different treatment.”
For Property Institute chief executive Ashley Church, the recommendations about the Bill are an improvement on what was initially proposed, but it remains a bad piece of law.
He says he is opposed to a foreign buyers ban as he believes it is unnecessary and won’t have any impact.
“If there ever was a problem with too many non-New Zealand buyers in the market, that problem has peaked and is in the past now.”
Australia only allows foreign buyers to buy new builds and that has not helped keep house price growth under control in the Sydney and Melbourne housing markets, he adds.
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