So where is that interest coming from? Where are these foreign buyers looking to buy? And what benefits could these foreign buyers bring to New Zealand?
Mark Harris - Managing Director, New Zealand Sotheby's International Realty
If enacted - and, as I write this, negotiations between National, Act and NZ First leader Winston Peters, who was part of the Government behind the foreign buyer ban in 2018, mean it is still a bit iffy - National’s new policy would allow foreigners to buy any property valued at over $2 million as long as they pay a 15% tax on the purchase price.
Under the current settings, significant investment is required to get a visa that would allow foreigners to buy a home, and very few of these specialist visas have been granted (Australia and Singapore are exempt from the ban as long as they weren’t purchasing anything that required Overseas Investment Office approval).
At New Zealand Sotheby’s International Realty (NZSIR), we generally have a steady enquiry level month-on-month from the US, but in October we saw this increase by 200% from the normal level. Just as we saw a spike in interest in New Zealand properties when Covid struck and Russia invaded Ukraine, New Zealand’s reputation as a safe haven tends to come into sharper focus when major geopolitical issues arise and the Israel-Hamas war appears to have had an impact.
Most enquiries from the US have been directed towards the North Island, with Auckland (and specifically Waiheke Island), Tauranga, Hawke’s Bay and Northland the most popular locations.
There has also been an increased level of interest from buyers in Hong Kong, Singapore and the United Arab Emirates since July.
Australia remains our biggest international market and it seems many Australians have realised they could soon be competing with wealthy buyers from around the world because of this policy change.
That extra competition could influence prices and, as a result, we’ve seen a big increase in enquiries from across the Tasman as there’s now an incentive for them to get into the market before the rules change.
Between September and October there was an 18% increase in enquiries from Australia and an increase of 33% between October 2022 and October 2023. Over half of the enquiries have been directed to the Southern Lakes region.
For example, at Lakeview / Te Taumata – a large development in central Queenstown that will offer everything from $750,000 one-bedroom units to full floor penthouse apartments – Australians represent a substantial segment of the enquiries, with strong interest from Singapore and New Zealand expats. Others from further afield are expressing interest in buying multiple properties for themselves, for their family or as part of a syndicate.
Recent research into the idea of capital gains, windfall and wealth taxes in New Zealand showed a surprising amount of support for them and, in a similar vein, most of the international clients we deal with don’t seem to be put off by the 15% tax.
I recently had a conversation with a US client who had bought a property in London and had to pay an upfront tax. There are similar rules elsewhere (in Singapore, the foreign ‘stamp duty’ increased from 30% to a whopping 60% this year), so these types of buyers are well-accustomed to it. As he said, if that money is being used to fund something worthwhile (in New Zealand’s case, tax relief for low to middle income earners), they’re ok to stump up for the opportunity.
Vendors have also taken note and many are looking to list once the rules change. As a result, we’re being asked to get campaigns ready that target Australia or North America. We believe there will be a lot of listings coming on if and when the policy changes and, based on the interest we’re seeing from foreign clients at the moment, I’m confident there will be significant revenue generated from the 15% tax (according to CoreLogic data, 11% of the homes in Queenstown Lakes are worth over $2 million, while 15% of Auckland’s properties reach that threshold).
As someone who runs a high-end real estate business, it’s probably not too surprising to discover that I like the idea of allowing more foreigners to buy high-end real estate, but I also don’t want more empty houses that are only used for a few nights a year and impact prices at the other end of the property spectrum, especially in a place like Queenstown Lakes where there is already severe housing shortage. I believe the National policy strikes a good balance between allowing more foreign investment without inflating the entire housing market and goes a long way towards ‘optically’ opening NZ up for business again.
More housing options and more housing supply is badly needed and National’s ‘Going for Housing Growth’ policy and proposed changes to the Resource Management Act should help with this.
One developer we deal with has said it costs about half as much to build in Queensland as it does in New Zealand and a lot of that is down to excessive bureaucracy. Cutting red tape will be key to getting more houses built and the idea of incentivising councils to consent more homes with a $1 billion fund and a $25,000 reward for each home consented above the five-year average sounds like a good one.
Since the foreign buyer ban was put in place, I believe New Zealand has lost a number of wealthy business people and philanthropists to other countries.
The ease with which they could buy property in Australia often meant that’s where they went instead, but these are exactly the kind of experienced, enthusiastic and generous people we need to attract if we want to create a more productive and prosperous country.
You just have to look Paul and Debbi Brainerd’s Headwaters Eco Lodge, which was opened in 2014 and is run by the Glenorchy Community Trust; the Aro Hā Wellness Retreat, which was created over three years by Americans Damian Chaparro and Chris Madison; or the many significant donations that Raymond Key and the team at the Wakatipu Community trust have received to see how these kinds of people are likely to invest into their new communities and stimulate the local economy.
The past few years of Covid-related ups and downs have been tough for the property sector and business community and the news of a new government has been welcomed. High interest rates, ongoing but declining inflation, increased geopolitical instability in the Middle East and negotiations over the shape of the next Government mean there is still plenty of uncertainty around. But there is also plenty of opportunity. Let’s hope the new Government sees this increasing interest from overseas buyers and finds a way to make the most of it.