Govt must act over foreign house buyers

Cabinet power broker Steven Joyce needs to do more than sniff the political breeze when it comes to foreign house buyers, writes Fran O'Sullivan. Photo / Ben Fraser

Cabinet power broker Steven Joyce needs to do more - much more - than sniff the political breeze and concede the Government will likely publish some details of the extent of foreign ownership of the New Zealand housing market after October 1.

For starters Joyce could ask government officials to run a filter over the data in the Auckland Council's roll of residential properties sales over the last two years and determine how many of the buyers had offshore names and addresses and how much they paid for properties over the registered valuations at the time of purchase.

The data is collected for rating purposes under section 31 of the Local Government Act 2002.

It won't be perfect - but like Labour MP Phil Twyford's decision to release via the Herald analysis which suggests a growing and disproportionate level of investment by Chinese offshore investors in the Auckland housing market - it will shed a valuable light on an issue of major public importance.

What it will do is give an indication of which buyers from which countries are acquiring properties here.

The reason why it won't be perfect is that many acquisitions are transacted through 'buyers of convenience', like the 20-year-old foreign students in Auckland apartment blocks who front sales for non-resident family members.

Or sales that have been run through trusts and companies. It won't capture the obvious money-laundering which has been occurring in Auckland - something the main trading banks have been concerned about.

So, too has the Chinese Government which has launched Operation Fox Hunt to track economic fugitives who have come here.

President Xi Jinping has lent directly on John Key to provide NZ government assistance for Beijing to track them.

As the Herald has reported, the Chinese Government has estimated that 16,000 to 18,000 corrupt officials and employees of state-owned enterprises have fled with pilfered assets of more than 800 billion yuan ($166 billion) since the mid-1990s.

It's a moot point that the ramped up level of Chinese investment in this country - and a raft of other choice locales around the world - is as much as issue for China as it is New Zealand.

It is a factor which is overlooked by many who argue that it is racist to even debate the level of Chinese-sourced investment in our booming housing market.

It's a difficult issue which has added fuel to a much overdue public debate on the extent to which that foreign investment - particularly that from China - is fuelling the Auckland housing bubble.

Particularly, when - as news stories from right around the globe and including China Daily itself - suggest that the Chinese-sourced investment in choice locales outside of China will continue to grow exponentially.

Joyce's comments made on Radio New Zealand's Morning Report yesterday were clearly made 'on the fly' to try and undercut Twyford's claims.

Taken at face value they looked like sensible political concession to the obvious angst among New Zealanders over the tsunami of foreign investment - which combined with local speculative fever - has sent Auckland housing prices to stratospheric levels and put them beyond the realm of modestly paid first home investors.

But they don't go far enough.

The recent Taxation (Land Information and Offshore Persons Information) Bill is designed to gather "perfect information" on non-resident property buyers.

Under the legislation all non-residents trading residential property other than their main home have to provide a New Zealand bank account and IRD number and a tax identification number from their home country as well as their passport.

The IRD plans to use this information to apply a bright line test to tax any sales of investment properties - both those owned by NZ residents or non-residents - which take place within two years of acquisition.

Joyce's office says it is designed so overseas purchasers won't be able to buy and sell for a profit without paying tax (from 1 October), which will curb the attractiveness of the 'quick flick'.

A withholding tax on foreign investors in the housing market will be introduced at a later date.

The Government's intention is that this will ensure people pay their fair share of tax on speculative housing sale profits.

It's debatable just how much the new Government moves will act as a deterrent to offshore investors.

But at least NZ is catching up with other nations in this space.

It's in Joyce's hands to make a firm commitment on behalf of the Key Government that not only will it ensure a register of foreign ownership is maintained from October 1 - but it will also ensure the register is extended retrospectively - to get a more telling picture of the level of foreign ownership in the residential housing market.

Joyce makes the point that the new legislation is not designed to create of a register of ethnicity.

He says the information - which undoubtedly will be released - will not be itemised by surname, but would show which countries the investment is coming from.

Joyce won't be drawn on whether the Government will take further measures to prevent non resident investors from buying existing housing in Auckland or follow Australia's lead and make new rules to direct them to investment in new housing or apartments.

Fundamentally he should think again.

Today's revelation that New Zealand's home ownership rate is the lowest since 1951 - according to a new look at census figures over the past 100 years - demands a much more nuanced response than mere political point-scoring.