Tony Alexander

Economic Commentaries

Chinese Interest in NZ Housing

Thursday June 27th 2013

A Chinese newspaper journalist sent through a long list of questions regarding Kiwi attitudes toward Chinese house buying. I answer them!

So you think you’re interested in the issue of Chinese house buying in Auckland? That’s nothing. On Wednesday night I received a detailed email from a journalist at a Chinese newspaper and after introducing himself the journalist listed these questions.

“1.       What’s the current status of New Zealand real estate market? According to the recent news, real estate price in NZ has been risen consistently, so what drove this? Do you think that a part of reason is by Chinese people?

2.       What are the major occupations of the Chinese people who come to NZ to purchase houses? Or, in another way, what class do they belong to?

3.       It is reported the local people are not so happy about the fact that a lot of Chinese people come to purchase a lot of houses. So, is it true? Could you please tell me an exact example of the local people’s view?

4.       It is reported that the government will issue a new law of housing restriction policy. So, as you see, what will the housing restriction policy be like? Please answer this question in detail.

5.       The housing restriction policy will be applied on Chinese only?

6.       According to the report of BNZ-REINZ, Chinese accounts for 20% in foreigners who purchase real estate in NZ, but Aussie accounts for 22%. So, why not apply a restriction policy on Aussies?

7.       According to the survey, the housing restriction is to restrict buying the second house. So does this policy draw experience from the policy in China? In China now, people who buy the second house will be charged the added tax.

8.   What’s the government’s attitude towards it?

9.    The news mentioned that the local rich are not happy with Chinese people because they always win in auctions. Can you talk about it in detail?”

Given that I have a history of placing emails regarding the housing market in this section I see little wrong with including this particular email. For your guide my reply ran like this.

“Hello xxxx  Many thanks for your enquiry. My position on the housing market in New Zealand is that the Government should adopt the Australian foreign purchase rules whereby foreigners may only purchase a newly built house and not an existing one and foreigners may only purchase up to 50% of the units in a multi-unit development. I have no other policy position. My comments regarding banning foreign purchases were in the context of listing changes which could be implemented if New Zealand society decided that highest priority should be given to housing affordability and all legal measures should be taken to improve affordability. I consider none of the eight suggestions I listed to have much chance of ever being implemented and gave no indication as to which I support or oppose. As noted, I support only adoption of the Australian system.

My survey of real estate agents indicates about 20% of dwelling sales go to people located in China. There is no information on foreign purchasing of houses in NZ beyond that survey and much more work needs to be done before one can say definitively what the actual proportion is. More than a simple survey is needed for that. There is no information on the proportion of the housing stock currently owned by foreigners and certainly zero information on any of the characteristics of any of the foreign groups buying houses in new Zealand.

The government has made no policy pronouncement regarding foreign house purchasing and I am not aware of any work being undertaken on development of any particular policy. There is zero chance that if a policy were developed regarding foreign house buying in New Zealand that it would be targeted toward Chinese. It would apply equally to all groups though may exclude Australians just as New Zealanders may freely purchase property in Australia (to the best of my knowledge).

With regard to Chinese buying of houses – I have yet to find a single person in New Zealand who agrees with the survey results. Everyone believes that the true level of Chinese house buying in Auckland in particular is much higher than my survey suggests. The issue is rarely mentioned with regard to any other part of New Zealand.

The website www.interest.co.nz ran a poll asking readers to show which of my eight policy proposals for addressing the affordability problem they most favoured. Banning sales to foreigners ranked top – though try as I may I have been unable to again find the page on which they reported their results. Sorry.

My concern is that although I believe the level of Chinese house buying in New Zealand is not as high as the anecdotes suggest, the issue is causing societal discord and has potential to worsen in coming years and threaten the very good trade relationship between New Zealand and China. I advocate that the NZ government move quickly to introduce legislation influencing foreign house buying in New Zealand with that legislation applying equally to all foreigners.

I hope these comments help clarify my position and make it clear that although there is high concern in Auckland about buying of property by Chinese, there is little if any support for a foreign purchase policy which targets only Chinese buyers.

For your guide, average house prices in New Zealand’s biggest city Auckland have risen by 14.8% over the past year and are 39.1% above levels at the end of 2008.”

Then he sent more questions!

“1. Why so many Chinese people choose New Zealand over other countries, such as Australia? Could you please illustrate reasons as below?

2. Since the survey suggested Chinese accounts for 20% which ranks 1st (Australia is excluded). Do you think the saying that the policy will be targeted not only to Chinese is not so fair because Chinese purchasers are an important reason to drive the real estate price of New Zealand up? (I asked this question without any bad intentions and I just wanna know about the truth.)

3. What do majorly the Chinese buyers buy houses for? Just for living in or buying then selling in higher price?

4. As you are one of the most influential economist in New Zealand. When will  the New Zealand government have a conference to discuss your proposals? Could you please tell me about the legal procedures that the government will take in detail?

5.Since real estate price is high in New Zealand and doesn’t go with a trend of declining, besides foreign purchasers, what other reasons do you think about this?”

Me =

Migration Soaring

The most important development for the housing market this week was the set of migration numbers released on Monday which showed a strong seasonally adjusted net migration gain in May of 1,740 from 1,600 in April and 1, 310 in March. Annualised net gains are now running at 21,000 compared with an actual year-ended total of 6,242 compared with a loss of 3,653 a year ago.

This is a sharp turnaround in net flows which has obvious implications for the housing market already well explained here so no need to go deeper. Note that of the turnaround in flows over the past year of 9,895 the change in flows with Australia (from -39,622 to -32,862) accounts for 6,760 or 68% of the change. The net flow into NZ from China including Hong Kong has risen just 483, from the UK 801, from Korea 512, and from Germany 334.

Comments On The Data

The social media has been ablaze over the issue of perceived massive house buying by Asians in Auckland. No-one has professed an ability to distinguish Kiwi-Asians from true foreigners let alone one Asian-type from another so that clearly clouds the issue. But nonetheless there is growing societal discord at the perception that mainland Chinese in particular are outbidding hard-working Kiwis in the Auckland housing market.

The BNZ-REINZ Residential Market Surveys which I conducted in March and May asked agents to indicate the proportion of their sales going to people they believed to be located offshore. The answers from 355 respondents in March (161 in Auckland) and 549 in May (212 in Auckland) added up to 9.2% and 7.8%. Let’s say 9%.

Agents were then asked to estimate where their offshore buyers were located. It looks like about 20% are thought to be located in China. So one could say that about 1.8% of NZ house sales are to buyers from China, or somewhere close to 1% if we count only the proportion which agents indicated plan shifting to NZ and half those who said they did not know.

The data do not support the anecdotes which of course raises the issue – which does one believe? The data or what one sees in the auction rooms? One must always take anecdotes with a grain of salt, especially as there will be an upward bias to the proportion of sales attributed to Chinese caused by inability to distinguish foreign from Kiwi Chinese, and inability to classify all the non-Asians in the room into any other group than non-Asian.

Nevertheless, the weight of disbelief about the data for Auckland raises the issue of whether the survey is not truly capturing sales to Chinese – especially as in our February survey we asked agents (572 responded) “Where are foreign buyers mainly coming from?” 24% said China. But then 27% said the UK and 21% Australia. Therefore the view of real estate agents regarding sales to Chinese, 24%, is not much different from their response when asked to identify the proportion of their sales to Chinese.

People have noted that for one real estate agency Asians make up about 75% of their top ranked agents.

Where do we go from here? Clearly the issue needs to be more deeply investigated given the societal concern in play and the clear risk that as this concern deepens in coming years yet our trade dependence upon China grows, we risk either kowtowing to keep exports up, or installing foreign property purchase controls and suffering a backlash from China.

One avenue for investigation would be someone funding a study into all Auckland dwelling sales over a six month period (about 16,000) to see exactly who the end buyers are.

Seminar/Schmeminar

And now for a laugh. We are into the part of the housing cycle where low brow white smile people will be looking to flog off property or their property investment “secrets” at seminars around the country. Here is an example of some of the unintelligent speaking they do sent in by an emailer this week.

“… was told by the speaker the other evening that interest rates will not increase in the next two years.  His reason being that there is still $35 billion of Chch insurance money to use up and there is no way the banks will hike up interest rates whilst that amount of money is still around.”

What rot. Bank lending rates are driven by marginal funding costs and they are rising. Already fixed rates are going up. Plus there is no big pool of insurance money just sitting on our books waiting to be doled out.

If I Were A Borrower What Would I Do?

Banks are starting to raise fixed housing interest rates in response to borrowing costs rising on the back of hikes in US medium to long term interest rates caused by expectations of the Federal Reserve soon tapering its money printing operations. While there will be fluctuations along the way it seems reasonably safe to conclude that we have seen the lows for fixed rates in this post-GFC environment

 

 

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