The incoming Government promised to make the Auckland housing market more affordable, and one of the pledges in their 100 day plan was to “ban overseas speculators from buying existing houses”. They plan to do this by bringing in the Overseas Investment Amendment Bill (the Bill). The intent of the Bill is to ensure that overseas people who are not resident in New Zealand will generally not be able to buy existing houses or other residential land (although it seems that the new Bill will not apply to Australian or Singaporean citizens).
The perceived problem is that individuals based offshore are buying up houses (thereby stopping locals from buying them) and leaving them empty while sitting back and waiting for the capital gain. One of the issues around the Bill is that we still do not seem to have good reliable data on how many offshore-based people actually own NZ houses, and how many are buying them at the moment. So we don’t really know the extent of the issue. Best estimates seem to be that foreign buyers make up about 5 per cent of the residential property market. Of that number, many are Australian and they will not be affected by the ban as long as they have lived in New Zealand for half of the year before their purchase. So in reality, the resulting effect of the Bill could be underwhelming in the short term.
Another factor that may affect the market is the bright-line test for the sale of residential property, which has been extended from two to five years. This means that if you buy and sell a residential property within five years, you may have to pay tax on any capital gain. A home that you live in for over half that time would be exempt. The Government is hoping this will take short term speculators out of the market.
Any market is governed by supply and demand and one of the biggest stresses on the Auckland housing market has been the high number of people looking for accommodation and the lack of houses available to be rented or purchased. High demand & low supply will increase prices. The Government says they will tackle supply as well, with their KiwiBuild plan to build 50,000 new homes in Auckland over ten years, which will only be sold to first home buyers.
The latest figures released last week from the Real Estate Institute of New Zealand show that the Auckland market has increased at a moderate 3.7% from the same time last year, and the median price, while slowly creeping upwards, is clearly showing signs of moderated growth. The number of properties sold in Auckland during February increased by a very small margin of 2% to 1,600, up from 1,568 in February 2017.
So the market seems to be gradually slowing from its headlong gallop of a couple of years back. The Overseas Investment Amendment Bill on its own will probably not make a huge difference, but a combination of all the measures introduced could well help to ease the Auckland real estate market. It is very doubtful that prices will significantly decrease though and the likelihood of the much hyped ‘property crash’ happening is slight.