The foreign buyers ban law

Nikki Mandow has an excellent article on why the Government’s law to ban foreign buyers is a montrosity, even if you agree with the intent of it.

She quotes some submissions:

– Overseas capital is vital, particularly if you want to build at scale. We need foreign funds and large investors to put money into big developments. We simply don’t have enough equity at home.

– Forcing overseas investors to on-sell properties within a year (as the bill does) would be a critical impediment to attracting foreign capital. Put yourself into the position of someone asked to put funds into a big apartment development. What if the property market slumps within the year? Instead of being able to hold onto their investment in the hope of a recovery, the foreigner will have to sell at a loss. That’s too much of a risk, and foreign investment will go elsewhere.

– Many residential property developers get the capital they need for bank funding by pre-selling homes to overseas buyers. This can’t happen under the OIAB as it stands. As Jamie Hutchens, a partner with New Zealand’s biggest apartment developer Conrad Properties told the select committee: “Once this bill was proposed, our sales stopped.” Without the option to pre-sell, many housing developments just won’t happen, submitters say.

– In any case, big housing developments often take years to complete – the one at Auckland’s Long Bay is well over 10 years old and still not finished.

– Relying on the Overseas Investment Office to issue exemptions won’t work. OIO processes add 6-18 months of delays to a project, developers say, plus significant expense and uncertainty. Just another reason for overseas investors to put their money elsewhere, submitters said.

– New Zealand is seriously short of rental housing. Not just for families, but everyone from students in Wellington to construction workers in Queenstown. And, as Porter says, New Zealand needs scale – rental housing, not rental houses. But the rental market, by its very nature, isn’t a build-and-flick-within-12-months activity. The bill as it stands locks foreigners out from the large-scale rental housing developments we need.

– The bill will stymie a nascent interest in New Zealand affordable housing from overseas social investment funds, says property expert Leonie Freeman. She says these social funds can be huge – several hundred million dollars is normal. Moreover, they are often prepared to accept smaller returns. This makes them perfect for social housing development, including rent-to-buy schemes, where someone doesn’t have money for a deposit, but gradually builds up equity in their home, Freeman says. “But [under the OIAB’s sell-in-12-months rule], they couldn’t invest in our shared equity schemes, because the fund would have to own the houses for at least 10 years.”

Most flawed bills can be fixed by the select committee, but this will need serious surgery.

Eaqub says the bill was drawn up in a hurry – and it shows. “If the world was perfect, we wouldn’t have such imperfect bills coming to select committee. But that’s the purpose of select committees, and I think they will use that process.”

And if they don’t? New Zealanders looking to buy or rent a house will be the losers in the end, he says.

So Eaqub says the bill will hurt both home buyers and renters.