Russell Crowe. Pavlova. Phar Lap. Crowded House vocalist Neil Finn. Australians are good at taking things from New Zealand and claiming them as our own. According to new data, we’re doing it again – this time, we’re invading Kiwi property markets.
Not too long ago, there was a report that seemed to demonstrate several social and economic benefits that had come about by ‘merging’ Australia and New Zealand. Or, to be more accurate, combining New Zealand with Australia.
By somehow acquiring our neighbour across the ditch, essentially making the land of the long white cloud our newest state or territory, we’d be able to share combined prosperity and clout. Our new national rugby team alone would be the envy of the world.
Needless to say, the proposal fell flat and our two nations remain separated. But now there’s a land grab of a different kind under way. A new report shows Australians are increasingly smitten with property in New Zealand. In fact, Aussie investors are now buying more bricks and mortar than any other group of foreign buyers.
Now one high-profile expert over there has floated the idea of a ban on Australians purchasing real estate.
Let’s look at the numbers. According to a joint analysis by the Bank of New Zealand (BNZ) and the country’s Real Estate Institute (REINZ), Australian buyers represent 22 per cent of all foreign purchasers. We even come in ahead of China, on 20 per cent, whose cashed-up investors are in the midst of a property shopping spree in most parts of the world.
The survey probed 10,000 licensed real estate agents to determine where their buyers came from. It found foreigners accounted for between eight and nine per cent of all transactions. Auckland, Dunedin and Queenstown are said to be among some of the most popular house-hunting destinations.
Based on trend figures and projections, an estimated 90,000 properties will be sold across New Zealand this year. If foreign buyer activity continues at levels indicated in the BNZ/REINZ report that might equate to more than 8,000 homes being bought by offshore investors. One-fifth of those will be Australians.
Some locals aren’t thrilled. Given a few markets are in the midst of an upswing, there’s a fear an abundance of foreigners will start to push up prices and freeze out Kiwi homebuyers. BNZ’s chief economist Tony Alexander has even called for a range of interventionary measures, similar to what you’ll find on our shores.
Australia places a number of restrictions on foreign investment in property. Regulations, which are carefully monitored, mean non-residents can’t invest in established dwellings – only newly-built or off-the-plan properties. That helps with housing supply and, in theory, affordability. Plus, foreign investors are taxed at a higher rate than locals.
The situation is different in New Zealand. For one, there’s no stamp duty or capital gains tax. On top of that, tax concessions are better – the rate of depreciation is almost double what it is here. There are few restrictions on foreign ownership. Add to that some other perks, such as low buy-in prices and attractive yields, and it begins to look positively utopian.
Two properties I found on the market in Auckland, pitched strongly at investors, offer price tags of less than $200,000 (Australian) each and gross yields of about seven or eight per cent.
Some housing markets are rising sharply and pundits are beginning to express concern about a rising inequality. While few are pointing the finger of blame squarely at foreigners, instead linking ballooning prices with supply constraints, the cost of construction and excessive planning regulation, experts think it’s a good time to re-examine the rules.
Alexander raised several possible reforms aimed at foreign investment, including banning foreigners from the market, which he admits is extreme and unlikely to be adopted. At the very least, the government should consider placing restrictions on non-residents so they can only purchase newly-built properties. Also, in response to anecdotal evidence that some foreign-owned dwellings sit unoccupied – who knows why – he also suggested that offshore owners be forced to sell properties that are needlessly left vacant.
David Whitburn is the head of the Auckland Property Investors Association and told the New Zealand Herald that something should be done. In the same breath, he concedes it’s important any reforms aren’t “too drastic”.
“If you’re not a permanent resident or citizen, there should be a strong investigation into charging a stamp duty on your purchase… perhaps something like four per cent of the purchase price,” Whitburn told the newspaper.
The New Zealand Government doesn’t seem overly keen to stem the flow of foreign dollars. The body responsible for monitoring and controlling overseas investment doesn’t even look at the vast majority of real estate purchases.
For now, it seems overseas buyers face few impediments and may continue taking advantage of lower prices, strong rents and a favourable tax environment. That’s choice, bro.
Shannon Molloy is the deputy editor of Australian Property Investor magazine, www.apimagazine.com.au