And if they do rush in, there are only about 50,000 properties in the $2 million and above price range.
National says it will loosen the ban on foreigner buyers and allow them to purchase houses worth $2 million or more as long as they pay a 15% tax on the sale price. It expects to raise $740 million a year in tax.
Jackson says while the mortgage adviser company is always looking at funding investment property, he believes there won’t be the frenzied market of the pre-2018 ban on foreign buyers slapped on by Labour.
“Before the ban there was a lot of competition in some sectors of the housing market,” he says.
There were stories of many wealthy Chinese buyers outbidding New Zealanders on Auckland’s suburban homes, prompting Labour to make the ban on foreign buyers one of its election pledges.
“Prices were rising and this created more of a fear factor than was reality,” Jackson says.
Many of the foreign buyers were cashed-up, which was a necessity to compete in the market. However, only 3% of buyers across the entire market were foreigners. “A lot were high socio-economic Chinese, rushing to get their money out of the country into other assets in Auckland, Sydney, Melbourne and Vancouver.
“It’s hard to say whether the same economic conditions exist and whether the market will play out the same way,” Jackson says.
He says the new rules could push up property prices in areas, such as Queenstown, for example, where about 10% of properties are valued at $2 million plus, Coromandel, parts of Auckland and other holiday areas.
Queenstown is already popular with foreign buyers, who could potentially exacerbate the shortages of stock at affordable prices that already exist.
Not a lot of choice
While the number of billionaires and rich people around the world is increasing, $2 million, whether it's got a 15% tax on it or not, is nothing. And if New Zealand partially opens up to foreign buyers they will have a choice of only 50,000 houses or 3% of property valued at $2 million plus, according to CoreLogic.
“There would be people living in those $2 million plus properties who certainly wouldn't consider themselves wealthy or super rich, Kelvin Davidson, CoreLogic’s chief property economist, says. Houses costing $2 million plus aren’t super prime. It’s expensive property. It's definitely the top end, but it's not mega mentions.”
Chinese buyers might be thin on the ground this time around as consumers stop spending because of a slump in the nation’s property sector. Real estate makes up about 20% of the Chinese economy and has a significant impact on consumer spending and confidence.
The RBNZ has warned of an economic slowdown in China. Its August Monetary Policy Statement says China’s outlook had moderated since the May statement as the pandemic reopening had been weaker than expected. “Low consumer confidence appears to be restraining household spending in China. Retail sales increased sharply at the start of the year, but growth has slowed substantially in recent months.”
Tax figures fishy
For National to reach its tax target foreign buyers will need to purchase almost $5 billion in Kiwi property – between 30% and 50% of all high-end home sales.
Total residential property sales in the past 12 months reached about $60 billion and Davidson says based on the numbers CoreLogic has seen in the $2 million bracket, it would have be assumed every single property selling above $2 million goes to a foreign buyer to make National’s tax sums work. “That seems pretty questionable because there'll definitely be locals buying in that bracket as well. So there's something a little bit fishy about the numbers.”
National says it has had the figures independently costed.
Davidson says more foreign money will come across the border and it could push up the value of properties valued at $1.8 million, or close to that, to $2 million, opening them up to foreign buyers, who could have an upwards price influence at that bracket.
“Long story short, there will definitely be more foreign buyers because the rules will be looser. But will they flood the country? I don't think so. Whether it really transforms the New Zealand property market, I doubt it.”
For Davidson the new rules are about what it mean for the property market, regardless of how much tax a National-led Government would get. “That is a secondary issue, the primary issue is what's it going to do to house prices and sales, and all else equal, it'll result in higher house prices. But will the boost be that big? Well, I'd be cautious.
You can loosen the rules. But will foreign buyers come? “We've seen evidence in the past that when the rules have been fairly loose, yes, there's been foreign bias, but I don't think they've really been a dominant force.”