The New Zealand Government has passed a new law that bans foreigners from buying property. In an effort to tackle unsustainable house price growth in Auckland, the Labour-led Government has completed its election campaign pledge and banned many non-residents from buying existing homes. With median house prices already starting to slip, this move could deepen and lengthen the housing market correction and make it easier for new buyers to enter the market.
The Overseas Investment Amendment Bill passed its third reading in Parliament by a vote of 63 to 57. Existing houses will be classified as "sensitive" under the Act, with a residency test now needed before properties can be sold. The Government did bow to pressure in June by slightly relaxing the proposed ban. While non-residents will no longer be able to buy existing homes, they could still own up to 60 percent of units in large developments and multi-storey apartment blocks. People from Australia and Singapore will also be exempt from the ban due to free-trade rules.
A ban on foreign property ownership was a key issue in the latest federal election, with Prime Minister Jacinda Ardern saying the move would act as a clamp on house price growth and reduce the high rates of homelessness in some communities. According to a recent statement by Associate Finance Minister David Parker, "This is a significant milestone and demonstrates this government's commitment to making the dream of home ownership a reality for more New Zealanders."
House prices across New Zealand have been rising dramatically over recent years, with average prices in Auckland almost doubling in the past decade and price rises of more than 60 percent recorded nationwide. While house price growth has weakened over recent years, there is still a significant disparity between supply and demand in Auckland and other heated markets. Efforts to increase housing supply have made conditions a little better on the ground, with this policy attempting to tackle the problem from the other end by decreasing demand in key areas.
While most Kiwis are ready to welcome any changes that make it easier for first-home buyers, according to Statistics New Zealand's official figures, the overall level of foreign home buying is relatively low. Using data from June last year, around 82 percent of houses in New Zealand were being bought by residents or citizens, with 16 percent going to businesses or corporate entities (mostly owned by New Zealanders), and around 2 percent of housing purchased by owners without NZ citizenship or residency. Chinese and Australians make up the biggest share of non-resident property buyers, with only the former group affected by the new rules.
Despite the widespread popularity of the plan, not everyone thinks it's a good idea to ban foreign property ownership. The Real Estate Institute of New Zealand's chief executive, Bindi Norwell, is one person opposed to the law change, saying "We don't believe that banning foreign buyers from purchasing property in New Zealand is going to have any impact on house prices, nor will it help young people into their first homes." According to Dave Platter from Chinese real estate portal Juwai.com, creating additional challenges for foreign buyers could actually lead to fewer new homes being built: "Foreign buying... tends to be focused on new development, making clear again that foreign investment leads to the creation of new dwellings. That's vital in a market with a housing shortage, like Auckland."
Image source: Sean Locke Photography