Reserve Bank and Govt measures won't stop foreign investors

Auckland has been marketed to buyers overseas as an investor's dream.

Auckland has been marketed to buyers overseas as an investor's dream.

The Government and Reserve Bank have stepped up efforts to cool the Auckland housing market, but critics say it won't stop foreign investors fuelling the fire.

On Sunday, Prime Minister John Key announced a law change to firm up and better enforce the existing capital gains tax on speculators.

The Reserve Bank is also moving to force Auckland investors to front up with a 30 per cent deposit, while relaxing rules outside the country's biggest city.

Auckland property investor Rafiq Moses says cashed-up foreigners are the main competition for local landlords.

Auckland property investor Rafiq Moses says cashed-up foreigners are the main competition for local landlords.

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However, Rule Financial Services mortgage broker Simon Rule said it would have no effect on cashed-up foreign investors borrowing cheap money in their home countries.

New Zealand was one of only a few countries in the Asia-Pacific region with no restrictions on foreign property buyers, he said.

"Every other country, Singapore, Malaysia, Australia, they've all blocked or severely restricted non-residents from owning properties, because they've seen the impact on their markets."

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"Why are we still doing nothing about it? It's mad."

Rule said a ban would not be a silver bullet, but would go some way to offsetting the fundamental issue, which was a shortage of housing supply.

The Government's law change will require foreign buyers to register for an IRD number and have a New Zealand bank account, meaning data on their numbers will finally be collected.

The only statistics currently available are self-reported by realtors, and Rule said he did not trust their accuracy.

"We're putting the fate of Auckland city and the country in the hand of land agents."

Last week, ​Reserve Bank deputy governor Grant Spencer said the bank estimated non-resident buyers made up about 10 per cent of the market.

But Spencer admitted "we don't know the numbers" of foreign buyers, and said having the figures would be helpful.

The heated Auckland property market has recently been pitched to foreign buyers in Singapore and Malaysia as an "investor's dream".

Auckland landlord Rafiq Moses said his main competition was not first-home buyers or fellow investors, but overseas buyers who could borrow at interest rates of close to 1 per cent.

"Foreign owners and foreign investors can come up with capital a lot easier than myself, than first home buyers, and even seasoned investors in New Zealand," he said.

The Labour Party last year supported a total ban on foreigners buying houses here, which the Prime Minister dismissed at the time as a "bit silly".

Andrew King, executive officer of the NZ Property Investors' Federation said it was unclear if the Government's latest move would have any impact on house prices.

"Many New Zealanders believe that speculation in the property market is rife but there is no data to back up this belief," he said.

Ensuring non-residents had an IRD number was at least a step towards clarifying their numbers, he said.

In a research note, ANZ economists also said there was a lot of uncertainty around the various changes.

"We believe sentiment could turn on a dime. We will be paying particularly close attention to the number of property listings over the coming months, which could rise sharply as sellers try to beat the October 1 introduction of the new measures."

Robin Oliver, a former deputy commissioner of the IRD, said the proposals were unlikely to have any impact on the housing market.

"All we are likely to see happen is that two years becomes the benchmark with gains treated as tax free if held for 24 months, as happened in Australia," he said.

The latest statistics from the Reserve Bank show investors borrowed $2 billion in March, half of which was below the 30 per cent deposit threshold.

The classification of investor loans in the data is less strict than the central bank is proposing for its new regulations.

Property restrictions around the world

Vancouver: A new petition is calling on lawmakers to restrict foreign investment in housing, where foreign speculators are thought to make up about 30 per cent of sales.

Australia: Foreign investors mostly are not allowed to buy existing houses, but can build new ones subject to approval. The government is currently cracking down on those who sidestep the rules, with fines of more than A$100,000 ($108,000) and up to three years in jail.

Singapore: The government has introduced an additional buyer's stamp duty of 10 per cent for non-Singaporeans, and recently hiked it up to 15 per cent.

Malaysia: The latest rules that came into force late last year mean foreigners can only buy properties that cost more than two million ringits ($750,000) in most areas- a doubling of the original threshold.

China: Foreigners can only buy a single house, and only if they have worked or studied in China for a minimum of one year.

Britain: Changes last year mean non-residents have to pay tax of up to 45 per cent when they use overseas assets as collateral for purchases. Labour leader Ed Miliband pledged to raise taxes for foreign property investors, had his party been elected earlier this month.

 - Stuff

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