Is NZ ready for $10b of Chinese cash about to drop on property market?

The Auckland residential property market is already dangerously verging on bubble status. Photo / Brett Phibbs

Is New Zealand prepared for the big wave of Chinese cash heading our way to invest in properties ranging from luxury homes lapped by the Waitemata Harbour to Auckland-wide retail, industrial and commercial buildings?

The short answer is - no.

The long answer is also no.

We know the wave is already here. But because the Government deliberately refuses to order Statistics NZ to collect meaningful statistics on the national status of overseas investors in the New Zealand residential property market we just pretend this offshore cash washing through the market hasn't exacerbated the housing crisis.

But this disruptive investment wave - just like the major financial liberalisations of the 1980s - will impact on the value of major asset classes like property worldwide.

The smart money long ago factored in the impact of major Chinese investment in New Zealand - much of it through cash - on residential property values particularly in Auckland.

That investment has already resulted in more money being pumped into the New Zealand economy to help spur rising house prices which have made some cashed-up Aucklanders "rich" by historic standards. But rising property prices have also locked out thousands of younger people from getting on to the first rung of the property ladder.

The Auckland residential property market is already dangerously verging on bubble status.

Chinese floodgates will open further - fuelling perhaps as much as US$10.9 billion of new investment into New Zealand real estate - according to the Juwai.com estimate, as Beijing eases restrictions on privately held capital.

What's interesting about the latest Juwai report featured in today's Business Herald is the Chinese international property portal operator's faith that New Zealand will get about 3.3 per cent of the expected Chinese outbound property-specific investment.

Under recent Budget moves 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.

Non-residents will also be caught by a new rule requiring residential property sold within a two-year period after purchase to be taxed unless they are the seller's main home, inherited or transferred as part of a relationship property settlement.

New Zealand is not alone.

Almost to the point of absurdity, the NZ Government has been careful not to single out Chinese investment as having a significant impact on prices here. But Australia has toughened up after Chinese investment in Australian real estate snowballed by 60 per cent last year. Hong Kong and Singapore have also imposed punitive taxes to discourage mainland Chinese money flooding into their residential property markets.

Like New Zealand, these three countries also deny their new taxes are directed at nationals of any particular country.

Juwai.com - which boasts it operates on both sides of the Chinese internet firewall - features homes for sale in many desirable locations. NZ is among the top six destinations for Chinese investors, it says.

As expected, Auckland is top of the NZ destinations featured on the Juwai site. Dunedin, Christchurch, Wellington and Taupo also feature.

The Government chooses to deny the impact of Chinese investment in helping to fuel the residential real estate bubble that has developed in Auckland - but there can be no doubting the sentiment of the Juwai co-chief executive quoted today who exhorts New Zealanders to welcome it.

The metrics are compelling.

According to Juwai some 63 million Chinese already have sufficient wealth to purchase international property including 2.8 million high-net-worth individuals. Over 60 per cent of these high-net-worth Chinese are already engaged in overseas investment, immigration or education. The key motivations for buying property overseas are for children's education, wealth security and preparation for retirement.

The trend will continue to grow.

For instance, there are predicted to be 220 million affluent Chinese by 2022. Says Juwai: Property is the investment of choice - a stable investment exemplifying wealth and status.

There's another driver for China loosening the investment floodgates.

It also wants to globalise the yuan and see the RMB displace the US dollar as the world's reserve currency. The investment wave will strengthen China's case to get to first base by making it into the International Monetary Fund's basket of reserve currencies.

The Financial Times recently reported how mainland Chinese buyers have become the biggest single group of foreign investors in residential property in the US, UK and Australia, as well as in key cities in other Western countries.

The Chinese investors have got their timing right.

Globally the prices of residential properties in prime Western democracies took a tumble after the global financial crisis. The Chinese-fuelled demand has helped the bounce-back. But Governments have to deal with the fallout.

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