Changes proposed to restrictions coming on foreign buyers may go too far and risk exposing New Zealand to a dangerous over-supply of housing, an economist says.
There had been concerns that proposed changes that would restrict the sale of New Zealand property to foreign investors would restrict the supply of new housing in this country.
The Overseas Investment Amendment Bill originally would have required foreign who bought apartments off plans to sell them once the building was complete.
Many developers rely on off-the-plans sales to foreigners to give them enough capital to fund their developments.
The Select Committee considering the bill has recommended that be relaxed, so that developers still have access to that funding. The Government will accept the changes.
Now the ban will allow foreign buyers to hang on to apartments or houses bought off the plan, as long as they are part of a development that is 20 or more units large.
Existing homes and apartments remain totally unreachable for foreigners who do not intend to reside in New Zealand long-term
ANZ chief economist Sharon Zollner highlighted the potential for the bill as it was written to impede development.
But she said the changes potentially went too far the other way.
“The suggested new rule might run the risk of over-achieving in terms of stimulating housing supply (particularly of apartments), probably not this cycle, but next.
“Australia, which has a similar rule, has experienced an apartment-building boom in its major cities over recent years, and it is clear that foreign demand has played a big part in this. This extra housing supply hasn’t obviously taken much heat of the market on the way up, though it’s hard to be sure; but it seems likely it will represent some additional risk on the way down.”
She said the Australian ANZ research team expected prices to fall 10 per cent from their peak to lowest point in Sydney and Melbourne. That was driven in large part by credit availability, she said, but more apartments could be expected to become available over the next year or two, as prices continued to stall.
“If a significant number of foreign investors were to not settle because prices were heading south, it would amplify the downward pressure on the housing market.
“It may well not come to much, but it is a risk that we in New Zealand don’t have on anything like the same scale, and may not have been a risk that was thought about much when the policy was introduced.
“Although it might seem like a far-fetched concept here in New Zealand with our chronic housing shortages, a sharp increase in housing supply is not everywhere and always a good thing, in the big picture.”
But former ANZ and now independent economist Cameron Bagrie said the market would have a long way to go before there was a concern.
“The shortage in Auckland is so profound that the risk of oversupply is minimal.”
He said the housing market would go through a period of profound change, as the new restrictions came into force, along with new obligations for landlords, more credit rationing, ring-fencing of investor losses and a potential capital gains tax.
“The combination of everything will force a fundamentally different market going forward.”
He said investors who had previously looked for capital gains would not get them, but yields – the measure of rent compared to purchase price – were not high enough for investors who wanted properties for income.
“There will be a new wave of buyers who are more yield-based investors but at the moment the numbers don’t stack up, it’s a Mexican stand-off.”
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