Banning Foreign Property Speculators in New Zealand

I woke up today to find a media release by HouGarden entitled “Why bother banning them? Chinese interest in New Zealand real estate has already slumped.” It is no surprised that the Chinese community are discussing the Government’s move to restrict foreign speculators. We always know that the Labour Party would restrict foreign speculators as an attempt to calm down the booming housing market.

Of course we have already heard from Ashley Church from the Property Institute of New Zealand that the policy will have little effect on the house prices because foreign buyers only constitute a small percentage.

This argument corresponded to the discussion overseas. We know that the Minister of Housing is obsessed with Chinese sounding names, and I believe he is wrong by saying that majority of people did not find that xenophobic and we know that the current Prime Minister does not see that comment racist. Let’s be honest – we know that Kiwis are worried about the amount of “foreign looking” people buying houses in New Zealand. The many time we heard people talking about the number of Asian people in auctions and how they outbid “Kiwis”. How can we not be worried about the “Asian Invasion”?

I am sorry to say, if the Asians are going to buy up New Zealand property, it is not going to stop. According to a UBS research, there is one billionnaire created every two days in Asia, and within four years they will overtake their US counterpart. CNBC published a very interesting article about Chinese investors in Australia, just days before New Zealand decided to ban foreign speculators. The story talked about how China’s wealthy are worth twice as much as the housing stock in Australia. Raising the tax and prices simply did not stop Chinese investors – they are simply not worried about the house prices.

Let’s look at Hong Kong, a place I know very well and has the highest housing prices in the world. Yes, talk about affordability. A tiny room that could only fit a single bed and nothing else, with shared amenities, can cost approximately $1000 per month in rent. Why is housing so expensive in Hong Kong? Low supply and high demand is an obvious reason – the population has not grown significantly in Hong Kong, and maintained in the 7 million people for decades, but it is the world’s fourth most densely populated amongst sovereign states or territories. The tax revenue from land sales and revenue helps keep the Government budget surplus – so much so that the government is able to just give every Hong Kongers cash back. There are little incentives for the Hong Kong government to seriously curb the prices.

However what is relevant in this discussion is property developers. Yes, the idea of banning foreign speculators is to stop them from inflating house prices, encourage them to buy new houses only or to build more houses. It is no secret that Mainland property developers in Hong Kong is one of the many reasons that drive up property prices. They spent a fortune on buying land, some of them exceeding the market value by 50%. Oh you think it is not happening in New Zealand?

Many Chinese property developers that bought special housing units for the aim to build at least 10% low-cost affordable housing. We now know that a Chinese property developer bought one in Mt Albert, we also know that one of the largest property developer in Shandong China, Changda, launched a $420 million Sunny Heights Development and the $700m Pacific Gardens Project in Manukau just late last year. This does not mean any of these property developers are looking at inflating house prices, but neither does it mean we are not going to see more property developers buying up New Zealand’s land. And with a company like Changda, which now has an established base in New Zealand it certainly make it easier to buy other land in New Zealand in the future.

Going back to the media release from HouGarden, who argues that unique visitors from China to their website has decreased over the same period last year but the views of New Zealanders have rocketed. That the demand of New Zealand housing has slowed down. This may also corresponds to the investment trend from China. EY has expected that China’s outbound investment in 2017 is expected to steadily slow down, and will concentrate on the quality of their investment that will achieve stable development.

Oceania is only 2% of the China’s outbound investment, and the Chinese government has deploy a series of new measures with tightened capital control, making it harder for Chinese to purchases real estate overseas. It doesn’t mean overseas Chinese are not buying houses in New Zealand or in other countries, it just means that it will take longer to settle and they are more likely to diversify their investment portfolio.

For any xenophobic non-Asian property buyers who are worried about Asian property buyers, you may soon be living in a house built by Chinese property developers.