Foreign Ownership of Residential Properties: Australia vs. New Zealand
The topic relating to immigration is often a hotly debated topic and it is almost always a topic raised and debated in the lead up to the election season.
Similarly, the change in governments within both Australia and New Zealand gave rise to discussions and changes to the foreign national ownership of property in both jurisdictions. The Conversation recently published an article with excellent information on this subject.
In summary, starting 2018, New Zealand will be imposing a banon foreign ownership of residential property in an attempt to curb housing inflation and high vacancy rates. In other main cities such as Sydney, foreigers are being blamed for high housing prices, according to a survey.
Foreigners Owning Properties in New Zealand – what is the story?
According to statistics, residential property prices rose by 34% over the past three years. New Zealand residential property inflation reached 10.46% last year. This fact gave rise to concerns of New Zealanders that people on low and medium incomes are being locked out of the property market. Home ownership in New Zealand has reached its lowest level in 65 years. It was further estimated that only a quarter of adults under 40 years own their own home compared to half in 1991.
By contrast, net migration to New Zealand increased by 19% in the last financial year. Strong immigration, low interest rates and limited housing supplies fuelled the rise of residential property prices. Th is is true with partiular to areas affected by recent earthquakes.
Jancinda Ardern’s Labour government campaigned during elections this year that saw a comprehensive housing agenda which included a crackdown on speculative investors. Labour stated that 2015 tax changes applying to investor earnings were not having the desired effect of limiting price growth.
What about the situation across the ditch in Australia?
New Zealand is said to be leading the way, but still trailing behind Australia in other areas of housing policy. The incoming New Zealand legislative changes emphasise the banning of foreign ownership of residential property. Furthermore, the Foreign Investment Review Board (FIRB) of Australia has already banned all foreign ownership of existing (as opposed to new) housing. Likewise in New Zealand, the new law will only allow permanent residents to buy existing homes.
By contrast, New Zealand will inlude any foreign trusts and foreign corporations in this ban on ownership starting 2018. Australian on the other hand, currently still allows for some foreign trusts and corporations permission to own pre-existing homes where staff needs to be accommodated. In Australia, overseas residential investment is largely channelled into building new homes.
The consensus in Australia is that temporary residents, such as students and those here for work, should not be allowed to buy existing residential properties. The FIRB allows this. New Zealand;s new ban however, will not allow for this.
New Zealand anticipates that removing investor demand by excluding foreign nationals from the market will help stabilise house prices. However, there is little evidence that such measures have successfully slowed price inflation in Australia.
Ironically, any increases in levies for stamping duty for certain foreigners is in fact at odds with Increases in stamp duty rates for some foreign residential purchases are at odds with the FIRB’scall for investment in order to offset foreign trade deficits. For example, in the 2015/16 financial year, approvals for foreign investment in real estate amounted to A$72.4 billion!
However, the New South Wales and Victorian governments both increased stamp duty surcharges for foreign investors in residential real estate to make it less attractive to them. This currently applies to both NSW and Victoria only, as not all states apply a surcharge to foreign investments in real estate.
Thus, it is fair to say that by comparison, the impact is less likely to antagonise Australia’s major trading partners and investors such as China. New Zealand on the other hand will impose surcharges nationally. Therefore, the surcharge may be viewed as a protectionist measure.
Further reading: Why China is cracking down on overseas investment
Having sai that however, even though foreign ownership restrictions could very likely harm New Zealand’s reputation as an open economy, they are unlikely to do so. The main reason for this is because approximately 58.5% of funds entering into New Zealand originated from Australia, the United Kingdom and the United States.
These are also the countries that New Zealand most heavily invests in. Where the surcharge remains reasonable, it is unlikely to impact upon investment or be seen as a protectionist measure.
New Zealand has been much slower than Australia to introduce rules on residential property ownership. Its proposed legislation closely mirrors Australia’s legislation in regard to who may buy existing homes. These measures have not significantly slowed housing price rises in Australia.
New Zealand further plans to limit residential ownership of property by temporary residents and apply a surcharge nationally. These additional measures may have greater effect on limiting housing price rises than Australia’s restrictions have had so far.
Only time will reveal whether the new strategies imposed by New Zealand on foreign ownership of properties will successfully curb rising house prices, or harm New Zealand’s reputation as being free and open, or both.
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27 November 2017
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